(New throughout with detail from conference call, analysts)
By Alwyn Scott
April 23 Rising jet production helped Boeing Co
generate substantial cash in the latest quarter, and the
company said on Wednesday that it lavished the rewards on
shareholders, sending its stock higher.
The unexpectedly strong cash flow soothed fears that plane
production snags could hamper the outlook for buy-backs and
dividends at the world's biggest plane maker, and suggested
instead that there is scope for those rewards to rise.
Boeing's report "gives much more confidence about the
ability to return cash," said Ken Herbert, an analyst at
Canaccord Genuity Inc.
Boeing spent nearly $3 billion in the first quarter to buy
back some 19 million shares and pay dividends, most of the
expected amount for the year, according to analysts.
And yet the company sees scope for more this year, Chief
Financial Officer Greg Smith suggested in a conference call. The
company has allocated $8.3 billion to return over the next two
or three years and has flexibility on the timing.
"We're committed to deploying our cash efficiently," Smith
Investors had been worried that Boeing's cash might be
reduced because of a build-up of inventory of 787 planes,
following production snags at its South Carolina assembly plant.
Boeing reported $615 million in free cash flow for the
quarter, above the $545 million forecast by RBC Capital Markets.
Free cash flow is the amount of money left from operations after
paying tax and maintenance on plant and equipment.
"We think investors will be breathing a sigh of relief," on
free cash flow, said Rob Stallard, analyst at RBC Capital
Markets, in a note. "The actual result has turned out far better
than some feared."
Boeing also said growth in the deferred cost of producing
the 787 had slowed slightly in the quarter.
That suggested the company was on track to make its newest
plane a cash spinner by the time the company steps up production
to 12 a month in 2016. On a cash basis, the plane currently
costs more to produce than it earns in revenue.
Boeing shares were up 2.1 percent to $130.24 in afternoon
Investors also saw strength in widening operating profit
margins to 11.8 percent in Boeing's commercial aircraft
business, even though the backlog of orders slipped from the
beginning of the year.
Though Boeing's order backlog of commercial and defense
orders decreased slightly in the quarter, Chief Executive Jim
McNerney said that Boeing expects to keep selling more planes
than it makes for the foreseeable future.
In the longer term, however, Boeing faces a continued threat
by rival Airbus for market share. Airbus is winning key
orders from airlines, including a wide-body order by Brazil's
third-biggest airline, Azul Linhas Aereas, announced on
Wednesday. Boeing's 787 was a contender in that
"It's a concern for Boeing if the sales split is 60-40 or
55-45 (favoring Airbus) because eventually that gets reflected
in deliveries," Herbert said.
Boeing in recent months said it plans to move thousands of
engineering jobs to regional centers, stirring great concern
among political leaders, Boeing workers and the public in
Washington state, where its main jetliner factories are located,
though investors have not reacted with concern.
McNerney said there is always a tension between locating
engineering work at the factories and putting it near the best
talent for the job. But the company's aim is to strike the right
"In the minds of most of us, these moves strengthen our
company, strengthen our engineering capability," McNerney said.
Boeing's core earnings, which exclude some pension and other
costs, rose to $1.76 per share from $1.73 a year ago. That
easily topped the $1.56 mean estimate of analysts surveyed by
Thomson Reuters I/B/E/S.
On a non-adjusted basis, however, Boeing's profit slid 13
percent to $965 million, or $1.28 per share, down from $1.11
billion, or $1.44 per share, a year earlier.
For 2014, the company lifted its core earnings forecast to
between $7.15 per share and $7.35 per share, up from the prior
forecast of between $7.00 and $7.20. The increase reflects a tax
settlement gain to be taken in the second quarter, and Boeing
left 2014 forecasts for revenue, operating cash flow and
Revenue rose 8 percent to $20.47 billion in the quarter
ended March 31 from $18.89 billion a year earlier.
Boeing's adjusted earnings included a $334 million charge
from retirement plan changes in the first quarter for moving
non-union employees to defined contribution plan savings plan
from a defined benefit plan. The move takes place in 2016.
(Reporting by Alwyn Scott; editing by Andrew Hay)