Boeing Boosts Forecast as Jet Deliveries Stoke Cash Flowby
Profit exceeds analysts' estimates in a `critical' quarter
Closely watched 787 production cost grew less than projected
The results showed Boeing’s factories are operating in high gear, and the shares rose. Investors have been seeking reassurance that the global aerospace market isn’t glutted with planes and that expenses for the 787, the world’s first jet built chiefly of composite materials, are finally under control four years after its tardy commercial debut.
“They’re starting to figure out how to build the airplane in a really nifty way,” said Howard Rubel, a managing director with Jefferies LLC, in an interview Wednesday.
Earnings for 2015 excluding some pension expenses will range from $7.95 to $8.15 a share, Boeing said, topping a previous projection of $7.70 to $7.90. Third-quarter profit of $2.52 a share exceeded the $2.20 average of 18 analysts’ estimates compiled by Bloomberg.
Free cash flow of $2.3 billion surpassed analysts’ $1.8 billion estimate. Aircraft deliveries rose 7 percent to 199, including a record 37 Dreamliners. Manufacturers typically receive the bulk of payments when they hand over planes to buyers.
Boeing gained 1.8 percent, the most on the Dow Jones Industrial Average, to $141.43 at 9:40 a.m. in New York. The stock’s 6.8 percent advance this year through Tuesday outpaced the Standard & Poor’s 500 Index, which fell 1.4 percent. Chief Executive Officer Dennis Muilenburg will hold a conference call for investors and analysts at 10:30 a.m. New York time.
The quarter was “critical” for Boeing, Douglas Harned, a Sanford C. Bernstein & Co. analyst, wrote in a note ahead of the release. “The second half of 2015 is an important period for Boeing, with concerns regarding cyclical demand, the 787 positioned to turn cash positive, and expectation for a strong cash-flow trajectory.”
Boeing spent $1.5 billion to buy back 11 million shares during the quarter, leaving $6 billion remaining under its current repurchase authorization. This year’s buyback spending totals $6 billion so far, for 41 million shares.
While Boeing still loses money on each Dreamliner it builds four years after the carbon-fiber jet’s tardy debut, the losses are shrinking. Investors focused on the company’s cash-generation potential have been charting the 787’s deferred production cost, an accounting measure that is supposed to drop as a projected gain in efficiency drives down the assembly expense.
Dreamliner costs rose $577 million to $28.3 billion, according to Boeing’s website. That “was slightly better than expected,” Carter Copeland, a Barclays Plc analyst, said in a note to clients. He said his estimate for the increase was about $700 million.
Boeing has said it expects deferred production costs to peak in the fourth quarter. The total is projected to decline after Boeing accelerates 787 output 20 percent to a 12-jets-a-month pace next year.
Boeing also lowered its projected spending on research and development for the year by $100 million to $3.4 billion. The reduction signals “that the programs they have in development appear to be on schedule,” Jefferies’ Rubel said. He rates Boeing as buy, the equivalent of the recommendations from Copeland and Bernstein’s Harned.
The per-share results were for a measure that Boeing dubs core earnings, a figure the company says gives a clearer picture of its results by adjusting for market fluctuations in pension cost. Net income rose 25 percent to $1.7 billion, or $2.47 a share.
While commercial-aircraft revenue rose 10 percent to $17.7 billion, earnings from operations dropped 2 percent to $1.77 billion. The unit’s operating margin fell to 10 percent from 11.2 percent a year earlier as Boeing delivered more of the unprofitable 787s.
Revenue for Boeing’s defense, space and security unit rose 6 percent to $8.35 billion. Profit increased 19 percent and margins improved to 12.2 percent from 10.8 percent a year earlier.
(A previous version of this story was corrected to show the percentage gain in aircraft deliveries.)