Pentagon settlement clips Boeing's wings

Plane maker posts 2Q loss as sales rise

July 27, 2006|By MARKETWATCH

NEW YORK -- Boeing Co. swung to a loss in the second quarter and warned of lower-than-expected profits for the year, fueling a sharp pullback in the aerospace company's shares yesterday.

Boeing said it lost $160 million, or 21 cents a share, in the quarter, reflecting more than $1 billion in one-time charges related to legal problems and delayed work on overseas contracts. The Chicago company earned $566 million, or 70 cents a share, in the second quarter last year.

Shares of Boeing, a component of the Dow Jones industrial average, fell $3.85, or 4.6 percent, to $79.90 on volume of 6.6 million shares.

Boeing said revenue rose 2 percent in the second quarter, to $14.99 billion from $14.68 billion a year earlier. Analysts had forecast a loss of 22 cents a share and sales of $14.97 billion.

Most of the charges stem from Chief Executive Officer W. James McNerney Jr.'s efforts to clear away government litigation that was looming over Boeing when he took the reins of the company. In June, Boeing agreed to pay $615 million to settle Justice Department allegations over a Pentagon contract scandal and obtaining information on a rival's rocket business.

A separate charge for delays in outfitting surveillance aircraft for customers in Turkey and Australia amounted to $496 million, or 40 cents a share.

McNerney said that while Boeing believed the bulk of its cash legal settlement was tax deductible, its decision not to seek a deduction was a sign that it was willing to take responsibility for its actions.

"This should be a signal to our employees, customers, suppliers and our shareholders of our willingness to acknowledge responsibility, accept accountability and to move forward," he said in a conference call.

Updating its 2006 outlook to reflect the charges, Boeing cut its profit range to between $2.40 and $2.55 a share, but management also lifted its revenue target for the year to between $60 billion and $60.5 billion. Lower pension expense would lift 2006 earnings by about 15 cents a share in 2006, the company said.

In another sign of the gains Boeing has made in racking up new commercial-aircraft orders at the expense of European rival Airbus, the company raised its 2007 earnings forecast to $4.25 to $4.45 a share and lifted its revenue estimate by $1 billion, to between $64.5 billion and $65.5 billion.

"The problem is, relative to current expectations, [that] even the revised guidance was disappointing," said Matt Collins, an equity analyst for Edward Jones who does not own any Boeing shares. "Investors have set the bar extremely high for Boeing at this point, and I think it is difficult to deliver on expectations that high."

On average, analysts were expecting Boeing to earn $4.49 a share in 2007, from $65.41 billion in sales.

"Boeing's outlook is strengthening due to sustained demand for our commercial airplanes, our steady but modestly growing defense business and our companywide focus on growth and productivity," McNerney said.

Commercial airplane revenue rose 10 percent to $7.1 billion in the latest quarter, and Boeing said it increased production to deliver 395 planes in 2006.

Additional investments in its new 787 Dreamliner aircraft are being made to meet the plane's weight limit and delivery schedule - about $300 million in 2006 and $200 million in 2007, Boeing said.

As of yesterday, Boeing had 2006 net orders for 510 aircraft in total, James A. Bell, the company's chief financial officer, said in a conference call.

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