Tanker delays hit profit at Boeing

The apron at Le Bourget airport, north of Paris, is reflected in the nose of a Boeing 787 Dreamliner before a demonstration flight at the Paris Air Show in June. Boeing on Wednesday posted a profit of $1.11 billion.
The apron at Le Bourget airport, north of Paris, is reflected in the nose of a Boeing 787 Dreamliner before a demonstration flight at the Paris Air Show in June. Boeing on Wednesday posted a profit of $1.11 billion.

NEW YORK -- Aerospace giant Boeing Co. saw its earnings plunge by a third in the second quarter because of repeated delays with a military fuel tanker.

The Chicago-based company on Wednesday posted a $1.11 billion net profit, down from $1.65 billion during the same period last year.

The bulk of that drop is attributed to a $536 million after-tax charge Boeing took on the Air Force's KC-46 Pegasus tanker, a midair refueling plane Boeing is building off its commercial 767 jet frame. The company said it has faced higher engineering and manufacturing costs to complete certification and initial production of the military aircraft.

"While last week's tanker charge announcement was disappointing, we realize that unexpected issues can arise during the design and development of large, complicated products," said Edward Jones analyst Jeff Windau. "The key issue is that the delivery schedule be maintained."

To date, Boeing has booked $1.26 billion in charges related to the tanker project, according to Wolfe Research.

The airplane builder posted revenue of $24.54 billion in the period, up 11 percent from the same period last year. The profit worked out to $1.59 a share, down from $2.24 during the same period last year.

That increased revenue mostly came from faster production of its commercial planes. Boeing takes a deposit when a jet order is made but doesn't collect the bulk of the cash until a jet is delivered. The company delivered 197 commercial jets during the quarter, up from 181 during the same period last year.

"Record commercial airplane deliveries to customers worldwide drove solid revenue growth," the company's new chief executive officer, Dennis Muilenburg, said in a statement.

The results were welcomed on Wall Street, where investors have been waiting for Boeing to end the financial drag from the once-troubled 787. The shares rallied the most in two months and led the Dow Jones industrial average.

Boeing shares rose $1.47, or 1 percent, to close Wednesday at $146.47. The shares have climbed 12 percent since the beginning of the year, while the Standard & Poor's 500 index has climbed almost 3 percent. The stock has increased 9.5 percent in the past 12 months.

Boeing's quarter was "pretty good," even with the unexpected tanker costs, said Howard Rubel, a Jefferies LLC analyst who rates the stock as buy. "If you back out the charge, these were terrific numbers. I think they are doing what they need to do in terms of running the business. It's as simple as that."

Tuesday night, right before Wednesday's earnings release, Boeing did announce some good news: FedEx is ordering 50 new 767 cargo freighters with the option to purchase more.

The 767 is nearing the end of its production cycle, replaced by the more fuel-efficient 787, also known as the Dreamliner. Before this order, only 39 of them were ordered but not delivered. That does not include the KC-46 tankers that use the same body but with major design modifications. They both share the same assembly line at Boeing's Everett, Wash., factory.

Boeing is producing the jet at a slow rate of 1.5 planes a month. The 737, its most popular model, has a production rate of 41.5 new jets a month.

Boeing also lowered its full-year earnings outlook to a range of $7.70 to $7.90 per share, down from $8.10 to $8.30 a share.

Information for this article was contributed by Julie Johnsson of Bloomberg News.

Business on 07/23/2015

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