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Boeing earnings soar, topping view

2-Feb-2006

NEW YORK (AFX) -- Boeing Co., capping a year with more than 1,000 orders for commercial aircraft, said Wednesday that fourth-quarter profit jumped and lifted its earnings outlook for 2006 with jetliner deliveries sold out.

Shares of Boeing, a component of the Dow Jones Industrial Average , closed up 4.9% to $71.62 in the wake of the results. The move higher helped prop up the blue-chip barometer.

"The commercial airplane business is set to grow robustly over the next few years, driven by significant demand for airplanes in key growth markets around the world," said Chairman and Chief Executive Officer Jim McNerney during a conference call.

The defense business, which generates a majority of Boeing's sales, faces Defense Department budget pressure. "Our defense business had a record year in '05, and we still see a great opportunity for sustained outstanding margin performance in that business, though we do expect defense growth to moderate due to a tightening budget environment," he said.

Boeing , with headquarters in Chicago, said net income grew to $460 million, or 58 cents a share, compared with $186 million, or 23 cents, earned in the same period a year earlier.

The company said the latest profit included a 16-cent charge for a pension obligation related to its sale of Rocketdyne.

Earnings thus were well above the 44-cent consensus expected by a survey of analysts from Thomson First Call.
 
"The beat of consensus and positive guidance is likely to cause the stock to rise today, in our opinion," wrote Banc of America Securities analyst Nick Fothergill in a research note after the results.

"However, we remain neutral on BA since the orders' slowdown is still likely to pan out this year, also we remain concerned about the ability of BA's suppliers to meet the ongoing plans for production increases and also the delayed effects of raw material price hikes," he wrote.

Boeing said total revenue rose more than 6% to $14.2 billion from $13.31billion in the three months ended Dec. 31.

Analysts had been expecting $14.78 billion, according to Thomson First Call, with at least one analyst suggesting that a labor strike at Boeing's space unit could be responsible for the lower sales.

The aircraft maker said 2006 revenue would be about $60 billion -- below prior estimates as a result of a previously disclosed accounting change in its commercial airplane business.

Earnings in 2006 would be between $3.25 and $3.45 a share, up from the range of $3.10 to $3.30 a share previously projected. Revenue for 2007 is forecast at $63.5 billion to $64.5 billion, with commercial sales expected to be $29.5 billion to $30.5 billion and defense revenue seen 2% to 5% above 2006's $31.5 billion.
 
The company said 2007 earnings would be of $4.10 to $4.30 a share.

Average Wall Street earnings figures stand at $3.32 a share for 2006 and at $4.15 a share for 2007.

The plane maker's 2006 delivery forecast remains at 395, while 2007 deliveries are expected to increase to between 440 and 445. The 2006 delivery forecast is "completely sold out" while the forecast for 2007 is
more than 92% sold out, according to the company's statement.

Prudential analyst Byron Callan, who previously forecast 2007 aircraft deliveries at 413, reiterated an overweight rating in the shares. The analysts said the shares' "recent price weakness could be erased on Q4
results and the company's 2006-07 guidance."

Healthy competition

Boeing's defense business posted record fourth-quarter sales of $8.1billion and a 37% higher profit of $924 million. Margins in the defense business, among the best in the industry, were 11.4%, up from 8.9%. Margins
will be about 10.5% in 2006, the company said.

Last week, Boeing announced a restructuring of its defense operations, which have accounted for more than half of the company's sales since 2003.

The changes are designed to give the company a leg up on getting bigger and bigger contracts that involve increasing work supervising other contractors.

The commercial operations brought in fourth-quarter revenue of $5.86 billion and a profit of $330 million, with margins of 5.6%. The unit had lost money a year ago. In 2006, margins will rise to more than 9%, according
to the company.

The two divisions help balance each other out because of the cyclical nature of the commercial aircraft business and the defense business. When exactly the resurgent commercial group might top defense revenue, as it last did in 2002, is some time off.

 "I want them each to run scared and compete with one another is what I'd really like, but I think it's beyond our guidance, quite frankly, and therefore I'm not in a position to tell you, but the guys in Seattle are trying like hell to do that," said McNerney.

Boeing delivered 290 airplanes in 2005, an increase of 2% over 2004's rate.

The company also received orders for more than 1,000 commercial airplanes, which caused backlog at the end of the year to grow 33% to $202 billion.

That upturn drove Boeing shares to an all-time high of $72.40 late last year.

The commercial side of Boeing's business is once again booming after a record year of orders spurred by demand from overseas airlines.  Keeping Boeing's lines running smoothly will be a challenge, in part
because suppliers also have to keep the pace too.  But McNerney said the commercial operations have been gearing up for the higher production rates and suppliers are also stepping up their work.

"I think the pressure is on the raw materials side right now, and we're fighting through those issues and resolving them," said McNerney.


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