REUTERS – Strong demand for commercial and military aircraft lifted quarterly earnings at Boeing Co, making the builder of the new 787 Dreamliner the latest big-ticket manufacturer to ease fears about global economic conditions.
The results and a higher 2011 profit forecast sent Boeing shares 5 percent higher. The stock also gained on news of the first commercial flight of Boeing ‘s high-profile, carbon-composite Dreamliner.
The profit beat from the world’s largest aerospace and defence Company was the latest in a string of recent upbeat reports from other top manufacturers like Caterpillar Inc, United Technologies Corp and Honeywell International Inc.
“I think we’re completely headed in the right direction and this is another piece of the puzzle to indicate we are,” said Andrew Bodner, president of Double Diamond Investment Group.
“If you look at corporate earnings, that’s been one of the strong points of pulling us out of any recession,” he said.
Boeing shares, a Dow Component, closed 4.5 percent higher at $66.56 on the New York Stock Exchange .
(For a graphic on Boeing ‘s earnings, see http://link.reuters.com/net64s)
DREAMLINER
Boeing ‘s earnings were reported on the day of the first commercial flight for Boeing ‘s long-delayed 787 Dreamliner, a lightweight, carbon composite widebody. The plane-maker recently made its first delivery of the 787 and the 747-8 Freighter — both years behind schedule.
Boeing said on Wednesday it would calculate the profitability of the 787 program based on 1,100 planes. This was the first indication from Boeing as to when the plane-maker expected that program to turn a profit.
Chief Executive Jim McNerney previously said he expected the program to be profitable from “day one” based on the company’s usual accounting practices.
In other Boeing commercial programs, the initial accounting block is much smaller. For the 767, 777 and 757 programs, the block was closer to 400 planes.
But early demand for those planes was much weaker than for the record-setting 787, which had more than 800 orders years before its first delivery. So Boeing spread its 787 investment over the larger accounting block.
“They’re going to be profitable from day one with very small margins,” said Alex Hamilton, managing director of EarlyBirdCapital. “It’s a little bit of a break from historical precedent, and that’s a luxury they were given with such a large backlog.”
Now analysts want to know if Boeing can ramp up its production rate for the plane to 10 per month by the end of 2013, as promised. The current rate is two per month.
Boeing also said on Wednesday it expected a delay in the first delivery of a slightly bigger version of the Dreamliner, the 787-9, which was previously scheduled for delivery to Air New Zealand in late 2013.
In a regulatory filing, Boeing said, “With successful completion of the 787-9 critical design review we have assessed the schedule and first delivery is now expected in early 2014, although we continue to look for opportunities to regain schedule.”
EARNINGS BEAT
Boeing , which competes with EADS unit Airbus , said third-quarter profit rose to $1.1 billion, or $1.46 per share, from $837 million, or $1.12 per share, a year earlier.
The average Wall Street earnings forecast was $1.10 per share, according to Thomson Reuters I/B/E/S.
For the full year, Boeing raised its earnings per share guidance to a range of $4.30 to $4.40, “reflecting strong core performance.” Its previous forecast was $3.90 to $4.10.
The company, however, narrowed its 2011 revenue forecast to between $68 billion and $70 billion, from $68 billion to $71 billion previously.
“This was a good operating performance at both ( Boeing Commercial Airplanes) and defence,” aerospace analyst Robert Stallard of RBC Capital Markets said in a research note.
“We think airline demand and the backlog remains robust, and Boeing ‘s cash position should start to improve as 787 and 747-8 inventory starts to ship,” he said. “We think these two drivers will overwhelm other issues going forward — if Boeing can execute.”
Boeing , which splits its business between defense and commercial airplanes, said third-quarter revenue increased 4 percent from a year earlier to $17.7 billion, while its order backlog grew to $332 billion from $323 billion at the beginning of the quarter.
Revenue for Boeing ‘s commercial airplanes division increased by 9 percent to $9.5 billion on increased deliveries of its airplanes.
Boeing delivered 127 commercial airplanes in the third quarter, including 100 of its best-selling 737 narrowbodies and 21 widebody 777s. The number of deliveries was up slightly from the 124 reported for the year-ago quarter.
Boeing gets paid for its airplanes at delivery. Its commercial airplane delivery guidance for 2011 is now about 480, down from previous guidance of 485 to 495.
Revenue for Boeing ‘s defense, space and security business was $8.2 billion in the quarter, steady from a year ago. The company also reported 10 percent operating margins for the division, an improvement over 8.4 percent a year earlier.
Despite military budget constraints, Boeing noted strength in programs such as tanker and Growler.
Matt Collins, an industrials analyst at Edward Jones, noted “impressive profitability” for Boeing ‘s defense business. But he warned of challenges ahead.
“Budget constraints mean Boeing can’t count on revenue growth here so they’ll have to handle costs well for the business to contribute to earnings growth,” Collins said.
(Reporting by Kyle Peterson; Editing by Matthew Lewis, John Wallace, Phil Berlowitz)