Boeing sees more airliner deliveries, lower defense revenue

AP News
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Posted: Jan 25, 2017 1:14 PM
Boeing sees more airliner deliveries, lower defense revenue

DALLAS (AP) — Boeing Co. beat Wall Street expectations for fourth-quarter profit despite a slump in revenue from its defense business, and it forecasts that deliveries of commercial jets will rise in 2017 after slipping last year.

Boeing said Wednesday that it expects full-year earnings in 2017 to be roughly in line with analysts' forecasts, although its revenue prediction fell short of Wall Street targets.

The shares rose more than 4 percent in afternoon trading.

On a call with analysts and reporters, Boeing executives spoke positively about the potential for higher defense spending, lower taxes and less regulation under the new administration. They even downplayed the sting of President Donald Trump's tweets and comments last month about the high price of new Air Force One planes.

Boeing and European rival Airbus have boomed in recent years from global economic growth, better profitably among major world airlines, and a rise in travel in developing markets, especially Asia, all of which have raised demand for jets. Jet fuel prices spiked twice in the past decade, creating a rush for more fuel-efficient planes. And low interest rates made planes more affordable.

Both big plane makers have order backlogs that will last for years. However, they are likely to face more competition in the next few years for sales of their workhorse models, the Boeing 737 and Airbus A320. Canada's Bombardier and Russia and China are in various stages of delivering similar-sized, single-aisle jetliners. Boeing will counter by delivering the first of a new, upgraded 737 in a few months.

And Boeing's government business could come under increasing cost pressure. Boeing predicted that 2017 revenue from its defense and space business could fall by up to 5 percent, including a drop in sales of military jets, which the company blamed on the timing of some aircraft deliveries. Boeing took another write-down on a key tanker program that has been plagued by design issues including problems with the refueling boom.

CEO Dennis Muilenburg said Pentagon and congressional support for Boeing's key defense programs remains solid. And he said he welcomed Trump's comments last month about one of the company's most familiar products.

Boeing is in the design stage of work on customizing 747 jumbo jets to replace the current Air Force One fleet. Trump tweeted "costs are out of control, more than $4 billion. Cancel order!" That led to a meeting between Muilenburg and Trump at Trump Tower.

"We had some targeted discussions, well-publicized discussions on things like Air Force One and fighter aircraft," Muilenburg said. "I think those were very productive discussions as well. This is all about making sure we're providing best capability ... at best affordability, best value for our taxpayers. We're exactly on the same page there."

Jeff Windau, an analyst for Edward Jones, said there could be a push and pull under Trump — more defense spending but also pressure to cut prices.

"While we're positive on defense spending improving, if there is more focus on those costs and trying to drive down the prices, it could pressure some of the profitability of the defense contractors," Windau said in an interview. He rates Boeing shares at "hold."

Boeing said Wednesday that net income in the fourth quarter was $1.63 billion, up 59 percent from a year earlier. Excluding certain pension expenses, the company said it earned $2.47 per share from its core businesses.

That surpassed Wall Street expectations. The average estimate of 18 analysts surveyed by FactSet and 10 by Zacks Investment Research was $2.34 per share.

Revenue fell 1 percent to $23.29 billion, which was better than the FactSet forecast of $23.13 billion but below the Zacks average of $23.45 billion.

For 2017, Boeing predicted earnings between $9.10 and $9.30 per share, compared with the FactSet survey average of $9.25 per share. The company pegged revenue at between $90.5 billion and $92.5 billion with declines expected in both the commercial and defense sides of the business. The FactSet analysts expect $92.96 billion.

Boeing expects to deliver 760 to 765 commercial aircraft, which would be an increase over the 748 delivered in 2016.

Boeing said it has a backlog of more than 5,700 aircraft with a sticker value of $416 billion, although airlines routinely get discounts.

Shares of Boeing were up $7.67, or 4.8 percent, to $168.22 in afternoon trading.