Boeing Co. (BA), which has boosted its
2012
profit forecast three times as commercial and military
aircraft sales rose, said it expects challenges next year that
include a tougher defense market and higher pension expense.
The projected $3.5 billion in pension expense next year
will be about $1 billion more than this year’s, the planemaker
said today. The defense unit, source of more than 40 percent of
total sales last year, is bracing for cuts in Pentagon spending,
according to Boeing, which won’t forecast 2013 performance until
January.
Those obstacles may temper sales growth from commercial-
plane deliveries as Chief Executive Officer Jim McNerney takes
advantage of a $307 billion backlog, bolstered by airlines
seeking to trim fuel expenses with more efficient aircraft.
Boeing is increasing the division’s output by 60 percent in the
four years through 2014.
The non-cash pension expense is about $500 million higher
than Barclays Plc had projected and “will weigh on consensus
estimates more than we originally expected,” Carter Copeland, a
New York-based analyst, said in a note to clients after the
company’s third-quarter earnings report. “We expect this to be
the central push-back point on an otherwise strong quarter.”
The expense may prompt a reset of 2013
earnings
projections, said JPMorgan Chase & Co.’s Joe Nadol, who called
it “a whopper.” Higher pension costs have also weighed on
earnings this year, lowering third-quarter profit by $194
million.
Voluntary Payments
Boeing Chief Financial Officer
Greg Smith said the company
plans to make voluntary cash pension contributions next year
“to proactively manage our liability and expense.” This year’s
voluntary payment was $1.5 billion. Smith said his top priority
is to return cash to shareholders, and he will give an update on
share repurchase plans by the end of the year.
Free
cash flow in the quarter was $1.17 billion, up from
$69 million a year earlier, Chicago-based Boeing said in a
statement. The company increased its outlook for operating cash
flow this year by $500 million, to more than $5.5 billion.
Earnings in 2012 will be $4.80 to $4.95 a share, Boeing
said, a projection that exceeds the $4.70 average estimate of 29
analysts in a Bloomberg
survey. Third-quarter sales rose 13
percent to $20 billion as shipments of aircraft and equipment to
customers climbed 28 percent.
Boeing Commercial Airplanes, which accounted for more than
half of 2011 sales, is responding to what McNerney termed a
“dramatic” replacement cycle, with airlines trying to reduce
fuel costs by investing in new planes.
Commercial Backlog
The commercial-jet backlog rose 2.5 percent last quarter
and now stands at 4,100 airplanes valued at more than eight
times the unit’s revenue last year.
In the defense business, McNerney warned on an earnings
call that 2013 would be a challenge because of this year’s
“unusual strength” in sales to foreign militaries and because
of the threat of sequestration, the $500 billion in automatic
U.S. defense cuts slated to go into effect unless lawmakers
agree on an alternative deficit-reduction plan.
Boeing fell 0.2 percent to $72.71 at the close of trading
in
New York. The shares
previously dropped less than 1 percent
this year, trailing a 12 percent gain in the Standard & Poor’s
500 Index.
The company delivered 149 commercial jets and 50 military
aircraft, helicopters and satellites in the three months through
September.
Third-quarter net income at Chicago-based Boeing fell 6
percent to $1.03 billion, or $1.35 a share, from $1.1 billion,
or $1.46, a year earlier. That beat the average of 25 analysts’
forecasts for $1.12 a share.
Higher Margins
“With no major execution issues this quarter, operating
margins came in comfortably ahead of our expectations,”
Rob Stallard, an analyst with
RBC Capital Markets in
London, wrote
in a note, keeping his neutral rating on the shares. Operating
margin in the commercial-planes business fell 1.9 points to 9.5
percent in that period, while remaining steady at 9.9 percent
for the year through September.
Boeing said it still expects total airliner deliveries to
rise to 585 to 600 this year after 436 in the first nine months.
The company plans to deliver more 777s, 787s and 737s next year.
Carriers pay about 60 percent of the price of a plane in
installments leading up to delivery, and the rest when they pick
up the jet.
Airbus SAS, which had delivered more planes than Boeing
every year since 2003, handed over just 405 through September
and has forecast 570 for the full year.
Jetliner Deliveries
Boeing reiterated that it will deliver 70 to 85 of the new
wide-body 787s and 747-8s this year, split about evenly between
them. The company expects more orders by year-end for both the
passenger and freighter versions of the 747-8, which entered
service a year ago, McNerney said.
The higher deliveries last quarter pushed the commercial
unit’s sales up 28 percent to $12.2 billion. Earnings rose 6
percent to $1.15 billion, reflecting dilution from the lower-
margin 747-8 and 787 Dreamliner, which was delivered to its
initial customer in 2011 after more than three years of delays.
Boeing’s defense business tripled the number of Chinook
transport helicopters it delivered to 18, and handed over 10
Apache attack helicopters in the period compared with none a
year earlier. Deliveries for other programs declined, and
shipments of F-15 fighter jets dropped to zero.
Defense revenue fell 4 percent to $7.84 billion as
deliveries of less-costly aircraft increased, and operating
profit grew less than 1 percent to $827 million. The defense
unit’s margin rose by half a point to 10.5 percent.
The margin growth is consistent with companies across the
industry as contractors including Boeing focus on cost reduction
ahead of the Pentagon’s expected budget cuts, wrote
Douglas Harned, an analyst with Sanford C. Bernstein & Co. in New York
who rates the stock outperform.
Boeing is repositioning its military business and focusing
on getting 30 percent of revenue from abroad in the near future,
McNerney said. That would be up from 24 percent last year.
