Boeing ups forecasts, takes further air tanker charge

(Reuters) - Boeing Co BA.N racked up a further $329 million charge for its troubled KC-46 aerial refueling tanker program in quarterly results on Wednesday, paring gains in profit margins compared with a year ago and prodding its shares lower.

The world’s biggest maker of jetliners raised its full-year earnings and cash flow forecasts as it beat third-quarter earnings estimates and reported higher margins in its main commercial airlines segment and overall business.

But the new charge on the air tanker, which some analysts had speculated could return to haunt Boeing despite assurances to the contrary in April, meant the program has now lopped a total of about $1.9 billion off the company’s net income after tax.

The company’s shares, which have soared almost 70 percent this year, fell as much as 4.5 percent to $254.50 in afternoon trade in New York.

Boeing Chief Executive Dennis Muilenburg played down concerns related to the tanker program, saying the charges were not “unusual”.

“The challenges we’re having right now are related to just implementing final detail changes on the aircraft to get them to a final certification standard,” Muilenburg said.

Boeing is moving into the production phase on the KC-46 and expects to deliver the first 18 tankers in 2018.

The company's commercial aircraft business could face a new challenge as Montreal-based Bombardier Inc's BBDb.TO potential deal with France's Airbus SE AIR.PA may give the two companies an edge over Boeing in the market for narrow-body aircraft.

“We’ll put our product lines up against any competitor. We want to compete on a fair and level playing field,” Muilenburg said, adding that the company would stick with its strategy of investing in its own product lines.

Boeing, which is ahead of Airbus on new orders amid strong demand for air travel, said it would consider increasing production for its most popular narrowbody 737 jets from 47 per month currently and beyond the 57 jets planned for 2019.

Core operating margin rose to 9.8 percent in the third quarter, from 9.2 percent a year earlier, and the company raised its forecast for operating cash flow for the full year to $12.5 billion from a previous $12.25 billion.

Boeing said it now expects 2017 core earnings per share of $9.90-$10.10, compared with its previous forecast of $9.80-$10.00, due to a lower-than-expected tax rate.

A year ago Boeing included a tax gain of 98 cents per share in the third quarter, driving a dip in core earnings for the same period this year to $2.72 per share from $3.51 per share.

“We think Boeing is operating well, but see its valuation restricting upside to the shares beyond the overall market over the next year,” CFRA Research analyst Jim Corridore wrote in a note.

Reporting by Ankit Ajmera and Rachit vats in Bengaluru; Editing by Saumyadeb Chakrabarty and Patrick Graham