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Boeing earnings up despite Dreamliner grounding, sequester

Post by John Gillie / The News Tribune on April 24, 2013 at 5:29 am with No Comments »
April 24, 2013 5:41 am

Boeing Co. earnings per share increased by 24 percent in the first quarter despite battery problems with its new 787 Dreamliner and the federal budget sequester which trimmed military spending.

Those earnings, which excluded certain variable pension expenses, were $1.73 a share, well above the $1.49 per share that was the consensus prediction by Wall Street analysts. Boeing shares, which closed Tuesday at $88.18 a share, surged above $90 a share in pre-opening trading this morning.

Boeing 737 assembly plant Renton
Boeing 737 assembly plant Renton

Boeing compensated for the freeze in Dreamliner deliveries in part with increased production and deliveries of its two biggest cash cows, the 777 and the 737.  Those mature aircraft provide Boeing with relatively large profits per plane, while the 787 is still a low-margin aircraft.  The Dreamliner profits are handicapped by high development and initial production costs resulting from the initial three-plus year delay in scheduled deliveries.

“Strong core operating performance fueled by productivity gains and solid program execution drove higher company earnings and double-digit operating margins in both major businesses in the quarter,” said Boeing chief executive officer Jim McNerney.

The company’s Puget Sound-based Commercial Airplanes Group earnings margines rose to 11.4 percent from 9.9 percent in last year’s first quarter.  The company’s Defense and Space division’s operating margins for the quarter were 10.3 percent compared with 9 percent a year earlier.

The 50 delivered Dreamliners were grounded in mid-January after thermal runaways aboard two Dreamliners owned by Japanese airlines All Nippon Airways and Japan Air Lines threatened passenger safety.  The Federal Aviation Administration last week approved a fix to those batteries that Boeing is installing now.

The battery problems also froze 787 deliveries while Boeing figured out how to modify the plane’s lithium ion batteries for better safety margins.

Meanwhile, government spending cutbacks have targeted few Boeing programs, leaving defense earnings largely entact.

Revenues for the Chicago-based company reflected the decline in Dreamliner deliveries falling from $19.4 billion in last year’s fourth quarter to $18.9 billion in this year’s first quarter.  That’s a 3 percent decline.

Boeing’s backlog of orders meanwhile grew by some $20 billion in the quarter propelled by big orders for its Renton-built 737 aircraft.

“Boeing benefited from a better mix in deliveries,” said Ken Herbert, a San Francisco-based analyst with Imperial Capital LLC, told Bloomberg News. “Delivering those higher-margin, more-mature programs — the 737 and the 777– was incrementally positive to the bottom line.”

The company’s first quarter results don’t yet reflect any compensatory payments Boeing may have to make to the eight airlines whose 787s were grounded.

The first of those updated 787s are expected to return to commercial service early next month. Boeing said it expects to meet its earlier projections for 2013 787 deliveries despite the battery delays.

The company said its core earnings per share will be $6.10 to $6.30 a share for the year, about a 5 percent increase over 2012.

 

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