The Wall Street Journal-20080131-Earnings Digest -- Aerospace- Boeing Profit-s Higher Altitude- Productivity Gains Lift Commercial-Jet Unit- An Offset to 787 Delays

Return to: The_Wall_Street_Journal-20080131

Earnings Digest -- Aerospace: Boeing Profit's Higher Altitude; Productivity Gains Lift Commercial-Jet Unit; An Offset to 787 Delays

Full Text (479  words)

Despite facing at least nine months of delays on its high-profile 787 Dreamliner jet program, Boeing Co. is producing airplanes more profitably than ever while continuing to reap the benefits of a steady defense business.

The Chicago aerospace company yesterday reported better-than- expected fourth-quarter financial results and said that continued improvement in productivity would more than offset the loss of revenue from the handful of 787s that were originally supposed to be delivered at the end of this year.

"We delivered a record year in many important measures," said Chairman and Chief Executive Jim McNerney during a conference call with analysts and reporters.

Mr. McNerney said the credit-market crunch hasn't affected the ability of Boeing's commercial customers to finance their planes. He also said that Boeing was largely insulated from the sluggish U.S. economy because U.S. airlines account for only about 11% of Boeing's current order books.

In his first comments since Boeing announced on Jan. 16 that continuing supply-chain problems had made the Dreamliner program an additional three months late, Mr. McNerney said Boeing is working to get the program back on track as soon as possible.

He said it won't be able to say for a couple of months how the problems will affect the ability of Boeing and its vast network of suppliers to increase to full production rates.

Nevertheless, Mr. McNerney played down the significance, saying that the delays announced so far would "marginally" affect the Dreamliner's profitability because of the huge volume of orders. Boeing has so far booked orders for 857 Dreamliners from 56 customers, none of which have said they want to cancel.

Boeing's stock had tumbled by almost 30% in recent months as the company delivered progressively bad news on the 787.

Yesterday, the company's shares ended up 2.4% at $82.87 in 4 p.m. composite trading on the New York Stock Exchange.

To a large degree, Boeing's financial improvement in recent quarters is the result of a faster-than-expected payback for cost-cutting and productivity measures that Mr. McNerney advocated when he took the helm at Boeing in July 2005.

For example, operating margins at the commercial-airplanes unit grew to a record 10.7% last year while the company was increasing jetliner production and consuming cash to develop the 787 and other new jet models.

During the fourth quarter alone, earnings at the commercial- airplanes unit jumped 46% compared with a year earlier, on a 17% sales increase, as aircraft deliveries rose 8.7% to 112.

Operating earnings at the company's defense business fell 5% in the quarter, despite a 14% drop in sales. Boeing said the declines were related to the cost of spinning off its space business into a joint venture with Lockheed Martin Corp and the timing of some deliveries.

For the year, defense operating earnings grew 13%, and operating margins rose to 10.7% from 9.3%, even though revenue rose by 1%.