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Boeing takes off in 2Q
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July 15, 1999: 1:59 p.m. ET
Aerospace firm tops targets by 8 cents per share amid cost-cutting efforts
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NEW YORK (CNNfn) - Boeing Co. reported a sharp rise in second-quarter profits Thursday and handily beat analysts' forecasts, crediting its gains to solid commercial aircraft sales, improved production and cost cutting.
The Seattle-based company, the world's largest aerospace company, earned $701 million, or 75 cents per diluted share, including a one-time gain stemming from a federal tax audit settlement. That's up from $258 million, or 26 cents per share, in the year-earlier period.
Not including the one-time gain of $181 million, or 19 cents per share, operating profit totaled 56 cents a share. That easily topped the 48-cent consensus target of analysts as reported by the First Call Corp.
Chairman Phil Condit said the results "demonstrate growing momentum and confidence" following nearly two years of production delays and other problems. The company's profits and stock fell last year amid the Asian economic crisis, when it announced thousands of job cuts.
Boeing credited its gain in part to cost improvement on its next-generation 737s and 777s.
Second-quarter revenue rose 13 percent to $15.1 billion. But officials also said those results likely would not be matched the rest of the year.
"There was some significant growth in revenue, as we expected," chief financial officer Debby Hopkins said in a conference call with reporters and analysts. ""In fact, the second quarter of 1999 will be the highest revenue quarter of 1999."
Shares in Boeing (BA) a component of the Dow Jones industrial average, fell 5/8 to 47 in early afternoon trading.
Boeing cited cost improvement on its next-generation 737s and 777s, increased deliveries, and reduced research and development spending for the strong numbers.
Boeing continues to trim its payroll as part of a plan to cut about 48,000 jobs. The commercial airplane group employed 101,700 workers at the end of June, down from 108,300 at the end of March, Condit said.
The company said it delivered 165 commercial airplanes this quarter on time, and with 17 percent fewer employees and a 10 percentage point improvement in overtime from the highest levels in 1998.
"This is the third quarter in a row that they've shown good improvements in their consumer operations," said Peter S. Jacobs, aerospace analyst at Ragen MacKenzie. But he said that while the company is getting the planes out the door on time and getting costs under control, "they're still well below where they should be." He has an "accumulate" rating on Boeing stock.
R&D spending totaled only 2 percent in the quarter, compared with an average of 5.6 percent from 1991 to 1998 when aerospace firms were pouring funds into research, said Robert Friedman, an analyst with S&P Equity, which has a "hold" rating on Boeing stock. But Friedman doubted whether the relatively small amount of R&D spending in the quarter is sustainable.
Jacobs said the unexpectedly low R&D figures added about 7 cents per share to the quarter's earnings, largely explaining how the company beat analysts estimates.
Performance of Boeing shares
over the past year.
In the conference call, Condit also responded to accusations by rival Airbus Industrie that the company is slashing prices in an effort to increase its market share in the highly competitive commercial airplane business.
"We see an aggressive pricing environment. We do not see it changing significantly," he said. "We do not see any value at all in a price war. We are in this to make money and we will make our deals on that basis."
For the first six months of the year, Boeing earned net income of $1.17 billion, or $1.24 per diluted share, up from $308 billion, or 31 cents per share, a year earlier. Revenue grew 12 percent to $29.5 billion.
The company also said it is optimistic about the outlook for Asian markets. Condit said he saw a continuing upturn in Korea, a slight improvement in Thailand and "some positive signs" in Japan.
"I am slightly more optimistic about Asia today than I was, say, three months ago," Condit said.
Boeing officials also indicated they could be on the acquisition trail, but provided little detail.
"We are looking at internal growth opportunities," Condit said. "We're also looking externally at things that fit with our business and that would be complementary to our core business."
Boeing has not made a major acquisition since its $16.3 billion purchase of McDonnell Douglas Corp. two years ago.
-- from staff and wire reports
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