By Angela Chen And Jon Ostrower
Boeing Co. reported a jump in earnings for the latest quarter as
it continued to deliver commercial jets at a record pace despite
supply-chain glitches, but a sharp drop in cash flow for the period
disappointed investors.
The aerospace giant also said on Wednesday that accumulated
costs for its flagship 787 Dreamliner program, already higher than
expected, continued to rise--though it reiterated projections that
the costs would top out later this year and analysts said it
appears to be making progress.
Chicago-based Boeing's factories for both twin and single-aisle
aircraft are running at higher production rates than ever before,
and the company said it is sticking to plans to hand over between
750 and 755 jetliners in 2015, compared with 723 last year.
A shortage of business-class seats made by French supplier
Zodiac Aerospace has slowed completion of some Dreamliners for
customers like American Airlines Group Inc. and Etihad Airways. And
Boeing in the first quarter also had to contend with supply-chain
disruptions caused by a labor dispute at West Coast ports.
But Boeing Chief Executive Jim McNerney said the company expects
the seat issue to be resolved in the next couple months, and
doesn't expect it to interrupt its production plans. "All the
problems are not resolved, but we do have high confidence in the
plan to resolve them," he said on a conference call.
Boeing reported a profit of $1.34 billion, or $1.87 a share, for
the latest period, compared with $965 million, or $1.28 a share, a
year earlier. Core operating earnings, which exclude items
including pension components related to market fluctuations,
improved to $1.97 from $1.76.
Boeing has emphasized the importance of cash flow as a measure
of its performance. In the latest period, its free cash flow
plunged to negative $486 million, far off analysts' expectations
and a $1.1 billion swing from the positive $615 million a year
earlier.
Boeing shares were down 1.8% in midafternoon trading, which
analysts attributed to the cash-flow number. "Boeing is perhaps
learning the hard way that if you tell investors to focus on the
cash flow, then you had better deliver it," wrote Robert Stallard
of RBC Capital Markets.
Boeing attributed the lower cash flow to the timing of receipts
and expenditures like customer advances and maintained its forecast
for strong positive cash flow for the full year.
It also stuck to plans for returning cash to shareholders,
saying it bought back 17 million shares in the quarter for $2.5
billion. Chief Financial Officer Greg Smith said that it plans to
spend the remaining $9.5 billion in its stock buyback plan over the
next two to three years.
Boeing's defense and space unit posted increased margins,
despite an overall drop 12% drop in revenue to $6.7 billion during
the first quarter and 4% lower earnings that it attributed to
delivery timing.
Mr. McNerney continued to be optimistic about demand for new
jetliners despite geopolitical instability and lower oil prices
that some analysts fear diminishes the need for new, fuel-efficient
planes. Deferrals and cancellations of plane orders are running
below historical averages, he said, and the company is still
expecting its order book for 2015 to at least equal its output and
its supply chain is ready to accelerate single-aisle jet production
if it decides to push even higher than its announced rates.
Boeing delivered 184 jetliners in the first quarter, an increase
of 14% over the same period in 2014, increasing its commercial
airplane unit revenue by 21% to $15.4 billion. Profit margin in the
unit fell 1.3 percentage points to 10.5%, though, as deliveries of
the advanced 787 accelerated.
Boeing has sought to aggressively cut production costs for the
787, reworking factory processes and supplier contracts to turn
each delivery cash positive. Boeing's deferred production costs--or
accumulated unit losses--for the program rose another $793 million
in the quarter to $26.94 billion. The company had expected those
costs to peak at roughly $25 billion, but they have continued to
climb, partly because each plane has been more labor intensive than
anticipated.
Boeing says the 787 program is profitable based on accounting
that spreads the high early costs of the program over a block of
1,300 deliveries.
Mr. Smith said Boeing expects the deferred production costs to
continue growing at roughly the same pace in the next two quarters,
but maintained expectations it would break even on each delivery
late this year. Mr. Smith said positive program cash flow will
accelerate when production increases to 12 jets a month near the
end of 2016. Half of its Dreamliner deliveries in 2015 are expected
to be the larger, and comparatively higher-priced, 270- to 290-seat
787-9, which entered service last year, Mr. Smith said.
Robert Spingarn, an analyst for Credit Suisse, wrote in an
investor note that the program's cost reduction "finally showed a
meaningful decline," estimating that the losses on each delivery
had fallen to $26.4 million per unit above its average sales price,
from $32 million in the fourth quarter and $50.1 million early last
year.
Angela Chen contributed to this article.
Write to Jon Ostrower at jon.ostrower@wsj.com
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