Boeing Co. reported sustained sales and profits at its
commercial airplanes operation as it continues to boost production
of jetliners while aggressively cutting costs.
The aerospace giant said a pension charge pushed down its net
profit in the first quarter down by 13%, but core earnings,
excluding pension and other retirement benefits, rose 12% during
the period to roughly $2.1 billion from $1.87 billion a year
earlier.
Revenue increased 8.3% to $20.47 billion on higher output of its
787 Dreamliner and single-aisle 737 planes. Boeing delivered 161
jets to customers from January through March, and reiterated its
expectation to beat its 2013 record of 648 jetliner deliveries with
between 715 and 725 in 2014. Orders in 2014 are also forecast to
exceed deliveries.
Demand for passenger jets has soared in recent years thanks to
improving financial health at global airlines and persistently high
fuel prices that are driving a desire for newer, more efficient
aircraft like the Dreamliner.
Boeing plans roll out another new fuel-efficient widebody jet,
the 777X, in 2020. The transition carries risks for Boeing if
customers decide to wait for that model and not order current
versions of the 777, which the plane maker builds 100 of each year
and which is considered the backbone of the commercial unit's
profitability.
Chief Executive Jim McNerney, speaking to investors after the
quarterly results announcement on Wednesday, said he has "high
confidence" that enough demand remains to continue 777 production
at today's levels into the 2020s
Boeing has around 300 firm orders for the current-generation
777. Mr. McNerney said the pipeline of potential new orders "gives
us comfort." But he said he expects deeper discounts will be
required to keep the 777-300ER, the most popular model of 777 with
a list price of $320.2 million, rolling out of its factories at the
same pace.
"There will be some pricing pressure," said Mr. McNerney, who
added that its 777 factory in Everett, Wash., is the company's
"most aggressive" initiative for continued cost cutting to offset
the deeper discounts.
Boeing's efforts to drive down costs internally and at its
suppliers helped its core operating profit margin widen in the
latest quarter to 10.2%, up from 9.9% a year earlier.
Overall, first-quarter earnings fell to $965 million, or $1.28 a
share, from $1.11 billion, or $1.44 a share, a year earlier. That
included previously disclosed charges of $334 million related to
Boeing's plans to move around 80% of its unionized and nonunion
workers to 401(k) retirement-savings plans from traditional pension
plans starting in 2016.
However, the Chicago-based company's core earnings beat
expectations of analysts polled by Thomson Reuters, who had
forecast core profit of $1.56 a share and $20.2 billion in
revenue.
Revenue at Boeing's commercial division rose 19% in the quarter,
while operating earnings increased 23%. The company delivered 18
787s, building at a rate of 10 a month. Small cracks attributed to
a manufacturing change at a Japanese supplier weighed on deliveries
as Boeing needed to repair wings of 43 affected undelivered
Dreamliners. Boeing's Chief Financial Officer Greg Smith said all
but three had been repaired.
Quarterly revenue at Boeing's defense unit ticked down 5.9% to
$7.6 billion from $8.1 billion a year ago. Orders for its military
aircraft have been uneven, with the U.S. military opting for
updated Apache attack helicopters and P-8 maritime patrol aircraft;
but lack of demand will shut its C-17 cargo freighter assembly line
in 2015, and future orders for its F/A-18 fighter jets are
uncertain.
"There's no question the budget discussion is getting more
difficult, so every program is fighting for inclusion," said Mr.
McNerney, who called an additional U.S. government order for the
F/A-18 "probable...but we'll see."
Boeing also raised its per-share earnings guidance to between
$7.15 and $7.35, from $7 to $7.20, to reflect a tax settlement.
Mr. Smith said the company would continue cash deployment
through share buybacks and dividends, with $8.3 billion remaining
in its $10 billion December 2013 authorization.
Mr. McNerney also said the company has "good contingency plans
in place" should its supply of titanium from Russia be disrupted if
"unlikely, but possible outcomes" unfold due to any further
sanctions that followed Russia's military movements into Crimea,
which voted to secede from Ukraine in March.
Write to Jon Ostrower at jon.ostrower@wsj.com
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