Boeing Shares Tumble as 2014 Profit Forecast Lags Estimates

Jan 29, 2014 4:50 pm ET

(Updates with closing share price in fifth paragraph.)

Jan. 29 (Bloomberg) -- Boeing Co., the world’s largest planemaker, dropped the most in two years after it forecast profit for 2014 that fell short of analysts’ estimates amid a slowing pace of jet orders.

Earnings excluding some pension expenses will be $7 to $7.20 a share for 2014, the Chicago-based company said today in a statement. That compares with $7.07 in 2013 and an average estimate of $7.46 in a Bloomberg survey of 23 analysts.

Boeing faces U.S. defense cuts and higher financing costs that analysts say may impede commercial aircraft sales that had risen for four years. While the planemaker has no new jet announcements looming to spur orders like the 777X and 787-10 debuts did in 2013, it is speeding its production tempo to take advantage of a record $374-billion backlog.

“For the stock to gain altitude from here Boeing will need to show it can convert the massive backlog into free cash flow,” Jeff Morris, head of U.S. equities at Boston-based Standard Life Investments, said in an e-mail. “If not, investors would be advised to stay seated and buckle up.”

Boeing shares fell 5.3 percent to $129.78 at the close in New York on trading volume that was more than four times its daily average. It was the biggest decline since Aug. 10, 2011. The shares advanced 81 percent in 2013, the most among the 30 stocks in the Dow Jones Industrials Average.

Shattered Records

Last year was a “milestone” for the aerospace company as it shattered records for revenue, earnings and jetliner deliveries while adding to an order haul that will keep factories humming for almost eight years, Jim McNerney, Boeing’s chairman and chief executive officer, said today.

“We successfully delivered on our strategies to convert our record backlog into profitable growth, executed well on commercial and defense development programs and drove productivity and affordability gains throughout our business and enterprise functions,” McNerney said on a conference call.

Boeing is under pressure to do even better. Investors are judging whether the company remains an attractive bet for the cash it’s generating or “whether all of the good news is priced into Boeing shares at this point,” Carter Copeland, a New York- based aerospace analyst with Barclays Plc, wrote in a Jan. 27 report.

Stoking concerns: Boeing projected its operating cash flow to decrease next year to about $6.25 billion from $8.18 billion in 2013 even while aircraft deliveries rise.

Conservative Guidance

“Boeing has a history of being conservative with initial guidance, but the company’s outlook for cash flow will raise questions” for investors who expected Boeing to be awash in cash, Morris said.

The company’s fourth-quarter profit excluding some pension expenses was $1.84 billion, unchanged from a year earlier due to a one-time non-cash charge, said Charles Bickers, a Boeing spokesman. Earnings per share rose 29 percent to $1.88 a share, the company said. Analysts projected $1.57 on that basis, the average of 19 estimates compiled by Bloomberg.

Boeing was helped by an “abnormally low” tax rate of 14 percent for the quarter, and “surprisingly high” profit margins at its defense business, Christian Mayes, an aerospace analyst with Edward Jones & Co., said today in an e-mail. He rates Boeing a hold.

The company also benefited from a faster pace of commercial aircraft deliveries as it increased production tempos for three best-selling jets: its 737, 777 and 787 Dreamliners.

Beating Airbus

In the final three months of 2013, Boeing delivered 172 planes, an increase of 4 percent from a year earlier. Boeing shipped 648 jets last year, beating rival Airbus Group NV, based in Toulouse, France, for a second consecutive year. Boeing garnered 1,531 gross orders, a 14 percent increase from 2012.

McNerney sees Boeing booking at least as many new orders this year as its deliveries, which are expected to rise to between 715 and 725 aircraft. Boeing expects to ship 110 Dreamliners for the year, although its factories are churning out 10 of the jets per month. Some of the slower deliveries are for a new, stretched version of the 787, which is slated to enter commercial service by midyear.

Even with its higher factory output, Boeing sees its cash flow declining this year as it ships fewer 767s while shifting resources to build more aerial tankers for the U.S. Air Force, Chief Financial Officer Greg Smith said on the call. Cash also will be affected by higher cash taxes for the 787, lower defense deliveries and the timing of receipts that shifted to 2013 from 2014, Smith said.

Sales for Boeing’s defense, space and security unit increased 6.1 percent to $8.86 billion from a year earlier, as the company landed overseas contracts. The unit’s operating margin increased to 10.8 percent from 9 percent the previous year.

The unit’s performance improved even with defense spending cutbacks in the U.S.

“They certainly worked to take costs out of that business.” Ken Herbert, aerospace analyst with Canaccord Genuity Inc., said in a phone interview.

--Editors: Molly Schuetz, Stephen West