BA Boeing Co

By Jon Ostrower 

Boeing Co. delivered a lower profit for the first quarter and revealed more costly stumbles with its newest military aircraft.

Executives said its production and profit targets for the year remained on track, which reassured investors. But the latest charges, including a $243 million pretax charge on its new Air Force refueling tanker, suggest the world's largest aerospace company hasn't solved its problems as it transitions to aircraft that will be the foundation for its future profits.

The charge on the tanker adds to the $1.26 billion in overruns associated with the tanker's development. The tanker charge and a $70 million charge on its biggest jetliner, the 747-8 jumbo, weighed down its profit margin at its commercial jet unit.

"While we don't like taking a charge, we're confident that we're doing the right things here," said Dennis Muilenburg, Boeing's chief executive. "That is an intentional investment we're making to keep the program on schedule."

The company has struggled with development delays and the resulting high cost of production of new military and commercial jets over the past decade, which have diluted the benefits of an unprecedented surge in orders and deliveries of passenger planes.

The company for the first time since 2011 missed analysts' profit expectations, according to FactSet, absorbing the 24 cent per share charge to its earnings which fell to $1.74 from $1.97.

Despite the earnings decline and miss, the company reiterated its full-year guidance, bought back $3.5 billion in shares, and stuck to its long-term expectations for positive cash generation on its flagship 787 Dreamliner. The quarterly buyback was the biggest since 2000, the farthest back it has available records, according to the company.

That helped Boeing shares close up 2.9% at $137.08, their highest level since early January.

Boeing has delivered strong earnings in recent years, driven largely by an insatiable demand for commercial jets. But the company also faces long-term challenges, including pressure on its jet prices and declining market share against European and Canadian rivals for its highly-lucrative single-aisle 737 jetliners.

Mr. Muilenburg reiterated that the company is scaling back its workforce this year in a bid to reduce its internal costs. The company so far has said it plans to cut 4,500 positions through attrition and voluntary layoffs by midyear to boost productivity.

Boeing is capitalizing on the sustained expansion in global commercial aviation, as airlines continue to replace and grow their fleets.

Mr. Muilenburg Wednesday said customers are changing existing jet orders -- canceling or deferring deals -- at a far slower pace than in the past, with just 1% of its backlog affected. He said that even if cancellations were to rise, its planned production increases would remain unchanged.

Earlier this year, Boeing said it would deliver 740 to 745 commercial aircraft in 2016, down from the record-high 762 last year, as it produced aerial tankers and updated single-aisle jets that won't be delivered until 2017. In the latest quarter, the company delivered 176 commercial planes, eight fewer than a year earlier, prompting a 6.4% revenue drop to $14.4 billion.

Boeing faces a cash generation challenge in the years to come as transitions to updated models of its most lucrative jets, the long-range 777 and single-aisle 737. Boeing will build roughly 16 fewer 777s annually starting in 2017 and it is in the early phases of production of its revised 737.

The company has also sought to calm long-term investor and analyst concerns about its nearly $29 billion in deferred costs on its 787 Dreamliner that it plans to recover over a total of 1,300 deliveries. Boeing's Dreamliner is considered profitable through its approved accounting method which spreads its costs out over roughly a decade of production.

Boeing has delivered roughly 390 Dreamliners since late 2011, each at an average of a more than $70 million loss.

Boeing is striving to expand the revenue it generates from its aftermarket parts and services business. Mr. Muilenburg said the company anticipates 5% to 10% growth rates in its commercial and defense services and spare parts business in the coming years.

The company said higher deliveries of military aircraft helped offset the dip in commercial jet deliveries. Revenue from military aircraft rose by about a third, thanks to higher F-15 fighter jets and C-17 cargo hauler deliveries.

Write to Jon Ostrower at jon.ostrower@wsj.com

(END) Dow Jones Newswires

April 27, 2016 18:31 ET (22:31 GMT)

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