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Boeing Profit Gets Boost as 787 Goes From Drag to Rainmaker

Jan. 25, 2017
The world’s largest planemaker is counting on its marquee carbon-fiber jet and higher output of its single-aisle 737 to bolster results during a year when it will make fewer 777 wide-body aircraft.

Boeing Co. profit rose as the 787 Dreamliner emerged from a decade of losses and helped the company weather a turbulent market for wide-body jetliners.

The world’s largest planemaker is counting on its marquee carbon-fiber jet and higher output of its single-aisle 737, a workhorse with discount airlines, to bolster results this year. Boeing forecast higher cash and earnings per share, while predicting a sales decline as it makes fewer 777 wide-body aircraft.

Investors, focused on Boeing’s potential cash bounty, responded favorably. The shares rose 1.5% to $163.02 Wednesday morning, before the start of regular trading. Boeing climbed 29% during the 12 months ending Tuesday outpacing the 21% gain for the S&P 500 Index.

The Chicago-based company has pledged to return 100% of cash flow to investors, repurchasing shares and bolstering its dividend as a near-record order backlog shelters the manufacturer from market shocks. Boeing is counting on improving Dreamliner profitability, resurgent defense spending and a new family of 737 narrow-body jets to counteract rising trade tensions with China and a glut of older twin-aisle planes.

“We think this release is pretty boring — and boring is good,” Robert Stallard, an analyst with Vertical Research Partners, said in a report to clients. That’s a relief compared with a Boeing report a year ago, when the company caught investors off-guard with a forecast of fewer 737 deliveries.

Still, revenue will fall to a range of $90.5 billion to $92.5 billion this year, Boeing said, as the company slows production of the 777 this month and in the third quarter because of an order shortfall. Analysts had expected annual sales of $93 billion.

While the cuts will mean fewer deliveries of one of Boeing’s main profit drivers, total shipments will rise as Boeing cranks up production of the 737, its main source of profit. Boeing expects to deliver between 760 and 765 commercial airplanes, an increase from last year’s 748.

Operating cash flow will be about $10.8 billion, up from the $10.5 billion generated in 2016. Earnings adjusted for pension expenses will probably be $9.10 to $9.30 a share this year, compared with the $9.24 predicted by analysts.

To keep its cash machine humming, Boeing is counting on a smooth debut for the upgraded 737 Max while it speeds output by 12% at its narrow-body factory in Renton, Washington, to a record 47 jets a month.

Boeing also benefited as deferred production costs for the 787 Dreamliner fell $215 million to $27.3 billion, according to the company’s website. The planemaker reached the crossover point last year where unit costs for the cutting-edge jetliner finally fell below its sales price.

Since then, the balance of deferred costs has started to shrink with each 787 that rolls out of Boeing’s factories. The jetliner is the first built of spun carbon-fiber composites rather than aluminum and entered commercial service in 2011, more than three years late following a series of production and supply-chain breakdowns.

Fourth-quarter earnings adjusted for pension expenses were $2.47 a share, despite a $312 million accounting loss for an aerial tanker program, the company said Wednesday in a statement. That was 15 cents more than analyst had expected. Revenue fell 1.2% to $23.3 billion, compared with analysts’ projection of $23.1 billion. Free cash flow was $2.23 billion, while analysts had expected $2.02 billion.

Boeing’s commercial airplane business posted an operating profit of $1.47 billion, more than double its result from a year earlier. Results were weighed down by a $243 million pretax accounting charge for the KC-46 aerial tanker, which is based on a commercial 767 jetliner frame. The tanker was knocked off schedule by technical and design issues.

The airplane division’s operating margin rose to 9.1% from 3.5%. Boeing CEO Dennis Muilenburg has stressed cost cutting and set a goal of profit margins in the mid-double-digits for the company’s businesses by the end of the decade.

Boeing’s defense business earned $809 million from operations, compared with $963 million a year earlier, as it absorbed $69 million of the tanker-related charge. The division’s operating margin declined to 11.8% from 12.4%. 

An expected rise in defense spending under President Donald Trump could bring new growth to the defense business, helping dull the blow from slowing commercial jet sales.

“We’re waiting to hear if there is an opportunity with this new administration for more F/A-18 fighters, P-8 surveillance aircraft and KC-46 tankers,” said George Ferguson, senior air transport analyst with Bloomberg Intelligence.

By Julie Johnsson

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