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Boeing 2012 Profit Forecast Is Smaller Than Estimates on Pensions, Defense

Boeing Co. (BA) forecast a smaller 2012 profit than analysts estimated, dragged down by rising pension expenses and declining U.S. defense spending, as the planemaker works to boost commercial production to a record.

Full-year net income will drop to $4.05 to $4.25 a share, Boeing said in a statement today. That trailed 2011’s $5.34 and the $4.89 average of 27 estimates compiled by Bloomberg. Sales in 2012 may rise to a range of $78 billion to $80 billion, up from $68.7 billion and matching analysts’ projections.

Pension costs “are a material event, but not unexpected,” said Joel Levington, head of corporate credit at Brookfield Asset Management Inc. in New York. “What is different with Boeing versus its peers is that the market has overlooked these issues in favor of the growth in commercial aerospace.”

Jet deliveries should climb to a range of 585 to 600 from 477 in 2011, Boeing said, helping the Chicago-based company in its bid to reclaim the top spot in commercial production lost to Airbus (EAD) SAS in 2003. Boeing is increasing output by more than 60 percent in four years through 2014 to meet demand for more fuel- efficient planes, including two new models.

Profit margins at the commercial-jet unit will fall this year to a range of 8.5 percent to 9 percent, from 9.7 percent in 2011, Boeing said, noting that the new 787 Dreamliner and 747-8 jumbo jet will start out with low margins.

‘Prudent’ Margin View

Chief Executive Officer Jim McNerney said the margin forecast was “prudent.” The Dreamliner’s commercial debut was more than three years late, the first 747-8 freighter was more than two years behind schedule, and the passenger version of that plane is still not ready for delivery.

Boeing rose 0.6 percent to $75.82 at the close in New York, reversing an earlier drop of 3.3 percent. That was the highest closing price since July 7.

The revenue forecast was “surprisingly high,” while the profit projection probably left investors feeling “sticker shock” and weighed on the shares, Carter Copeland, a Barclays Capital analyst, said in a note to investors.

Boeing said pension costs will probably rise to $2.6 billion this year from $1.6 billion, an increase of 83 cents a share.

Adjusting for that expense, an increased tax cost of 12 cents, a 6-cent impact from share dilution, and a 53-cent tax settlement in 2011, earnings would be $5.06 to $5.26 this year, said Chaz Bickers, a spokesman. That would be about 7 percent more than adjusted profit in 2011, he said.

‘Key Takeaway’

“The key takeaway is that the commercial airplane market is still in great shape and the backlog is there,” Matt Collins, an Edward Jones & Co. analyst in St. Louis, said in an e-mail. He said Boeing “tends to set the bar low” in its initial annual forecast, and “that will probably come up as the year unfolds.”

Collins and Copeland both recommend buying Boeing stock.

Sales in the commercial unit will rise as much as 37 percent to $49.5 billion, Boeing said, while revenue from the defense business will be as much as $30.5 billion. That compares with last year’s $32 billion.

Net income in 2011 was $4.02 billion pushed earnings past the top of the increased range Boeing gave in October of $4.30 to $4.40 a share.

Fourth-quarter net income was $1.84 a share. Adjusted earnings were $1.32, exceeding analysts’ $1.01 projection. Sales were $19.6 billion.

Delivery Breakdown

Boeing said today it will hand over 70 to 85 of Dreamliners and 747-8 jets, half of which will be 787s.

About two-thirds of the Dreamliner deliveries will be jets that have already been built and need to be fixed to incorporate engineering changes that came up during flight testing, McNerney said on a conference call. The first plane that won’t need changes will leave the assembly line in midyear, he said.

The 787 forecast trailed estimates from two analysts, Rob Stallard of RBC Capital and Doug Harned of Sanford C. Bernstein, both based in New York. Harned wrote in a note that he expects “zero or near-zero gross margins” on both new models this year, curbing profit growth. Boeing receives much of the price of a plane upon delivery.

Boeing is building 2.5 Dreamliners a month now and plans to increase that rate to 3.5 in the second quarter and five a month by the end of this year, McNerney said. He reiterated the goal of building 10 of the jets a month by the end of 2013.

Inventory, Production

Dreamliner-related inventory rose to $20 billion. Deferred production was $10.8 billion, including almost 50 planes that are being worked on, and that figure will peak at more than $20 billion before declining once manufacturing reaches the full rate, said Chief Financial Officer-elect Greg Smith.

The commercial backlog rose to more than 3,700 jets valued at a record $296 billion, from $273 billion in September.

While Airbus SAS is also increasing output, Boeing Commercial Airplanes President Jim Albaugh has said he expects by next year to once again be the leader. Toulouse, France-based Airbus delivered a record 534 aircraft in 2011 and predicted shipments would rise to 570 this year.

Boeing is counting on the popularity of the 787, the first composite-plastic airliner, and the 737 MAX, an upgraded version of the world’s most widely flown jet that’s set to enter service in 2017. McNerney said there will be “robust order activity” this year, with purchases exceeding deliveries.

The commercial unit’s earnings from operations in the fourth quarter surged 56 percent from a year earlier to $981 million, on sales of $10.7 billion.

Boeing’s defense division is looking for spending cuts and more international sales, with 25 percent to 30 percent of revenue coming from foreign militaries as the U.S. pares future arms budgets.

The defense unit’s profit gained 6 percent last quarter to $865 million, as sales rose 4 percent to $8.47 billion.

There will be more job cuts to come on the defense side, with more workers hired to build commercial jets, McNerney said. New jobs in 2012 won’t match the 11,000 added in 2011, he said. Overall employment will be little changed this year, said Bickers, the spokesman.

To contact the reporter on this story: Susanna Ray in Seattle at sray7@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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