By Susanna Ray
(Updates with executives’ comments from ninth paragraph.) Jan. 26 (Bloomberg) -- Boeing Co. tumbled the most in five months after forecasting 2011 profit that trailed analysts’ estimates amid delays to its two marquee jets, higher pension expenses and scaled-back defense spending in the U.S.
Net income will be $3.80 to $4 a share, including an increase of 58 cents a share in pension expenses, the Chicago- based company said in a statement. That lagged behind the $4.53- a-share average estimate of 26 analysts surveyed by Bloomberg.
Boeing has struggled with its two newest planes, the 787 Dreamliner, which is three years late, and the 747-8, running a year and a half behind schedule, while the defense business has been hurt by military budget cuts. Boeing is responding by boosting output of other commercial jets to record rates as air- travel demand has recovered from the recession.
Boeing’s outlook is “mediocre at best,” said Joel Levington, who oversees corporate credit at Brookfield Investment Management in New York. “From the bondholder’s perspective, we think the combination of still meaningful operational execution risks and tight spreads on the bonds make other industrial issuers much more attractive at this time.”
Boeing fell $2.06, or 2.9 percent, to $70.18 at 2:21 p.m. in New York Stock Exchange composite trading, and the shares earlier made their biggest intraday drop since Aug. 24. The decrease was the biggest today among the 30 companies in the Dow Jones Industrial Average.
Corporate Bonds
The planemaker’s 3.5 percent notes due in February 2015 fell 0.4 percent to 104.9 cents on the dollar today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Boeing’s fourth-quarter profit declined 8.2 percent to $1.16 billion, or $1.56 a share, from $1.27 billion, or $1.75. Earnings were buoyed by a 50-cents-a-share tax settlement that helped Boeing beat analysts’ projection of $1.11. Sales fell 7.7 percent to $16.6 billion.
In 2010, net income more than doubled to $3.31 billion, or $4.45 a share. Sales climbed 5.8 percent to $64.3 billion.
Revenue this year may be $68 billion to $71 billion, in line with estimates of about $69.5 billion. Excluding the pension and tax adjustments, profit will rise about 6 percent, with the first quarter the weakest, making up about 15 percent of the year’s earnings, Chief Financial Officer James Bell said on a conference call.
Operating Performance
The higher pension costs include a lower discount rate and smooth in the poorer performance from the past few years, he said.
“Boeing delivered strong operating performance and exceptional cash generation from core production and services businesses in 2010, which helped mitigate the impact of development program challenges,” Chief Executive Officer Jim McNerney said in today’s statement.
The company said it plans to deliver 485 to 500 airliners this year, up from 462 in 2010. Toulouse, France-based Airbus SAS shipped a record 510 jets last year, holding on to the top commercial spot it has claimed since 2003. Airbus also won more orders, with 574 net purchases compared with Boeing’s 530.
Boeing’s 2011 delivery figures include a combined 25 to 40 jets from the 787 and 747-8 development programs, which had both been scheduled to enter service last year.
The company in September added another six months to the 747-8’s delivery date, saying the plane now won’t be shipped until mid-2011. Earlier this month, the 787 was postponed a seventh time, until the third quarter of this year, because of an electrical fire in November that grounded the test fleet and forced part of the power system to be redesigned.
737, 777 Models
Production of the 787 will still ramp up to 10 a month in 2013, from two now, though the cushion that had been in the internal plan is “now largely eroded,” McNerney said.
Demand for the 737, the world’s most widely flown plane, and the 777 twin-aisle jet, Boeing’s most profitable airliner, has helped cushion the effect of higher costs from the delays.
By 2013, Boeing will be building 66 percent more 777s and 20 percent more narrow-body 737s in factories around its commercial headquarters in Seattle. McNerney said on today’s conference call that there’s “more bias to move up” on production.
Orders more than tripled last year, lifting the commercial backlog to 3,443 airplanes valued at $256 billion. Discussions with customers are at about the same level this year as in 2010, McNerney said, declining to predict orders.
‘Market Will Wait’
Boeing probably won’t offer a new engine for its 737, McNerney said, even as Airbus racks up orders this year for its A320 NEO, which will offer new power plants as of 2016. A new engine along with the new narrow-body plane Boeing is working on would put the backlog at risk twice, so would make sense only if the new jet wouldn’t be ready until 2025 or later, he said.
“If we could come up with the right airplane in roughly 2019, 2020, somewhere in there, I personally feel there’s a strong argument the market will wait for us, notwithstanding re- engining,” he said.
Boeing Commercial Airplanes posted a decline of about 7 percent in sales last year after reducing production of the 777 because of the recession and not delivering any 747s while it works on the newest version of the jumbo jet.
This year, the operating margin will drop to as much as 8.5 percent of sales, from 9.4 percent in 2010, because the initial 787 and 747-8 deliveries are going to be recorded at zero margin, Bell said.
Revenue fell about 5 percent last year for the defense half of Boeing’s business, based in St. Louis, and the operating margin declined to 9 percent from 9.8 percent. That figure could fall further this year to as low as 8.5 percent, Boeing said.
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