By William Patalon III
The Boeing Co. (BA), the world's No. 1 producer of commercial airliners, said it will buy back as much as $7 billion of its common stock, the latest leg of a share-repurchase program under which the aerospace company has bought back $8 billion worth of its shares since the program was resumed in 2004.
Boeing also declared a regular quarterly dividend of 35 cents a share, payable Dec. 7 to shareholders of record as of Nov. 9.
"Our strong financial performance allows us to return value to our shareholders while continuing to invest in our growth and becoming more productive," Jim McNerney, the company's chairman and chief executive officer, said this week. "We are executing a balanced cash deployment strategy that's serving Boeing and its shareholders well."
Boeing's stock has climbed steadily since recovering from a slide following the 2001 terrorist attacks, which dealt a blow to its airline customers. Shares have quadrupled since early 2003, and more than doubled from pre-attack levels, the company said.
Boeing said its board of directors this week approved a new plan to buy back up to $7 billion of the company's common stock. The company has repurchased approximately $8 billion of common stock since resuming its stock-buyback program in 2004. The Boeing board last authorized buybacks in August 2006, when it announced plans to repurchase $3 billion worth of shares. That buyback initiative is nearly complete, Boeing said.
The share repurchases will be made on the open market, or in privately negotiated transactions. And the company said the number of shares purchased, and the timing of any buybacks, will depend on corporate cash balances, business and economic conditions, and other factors, including investment opportunities.
Boeing is the No. 1 U.S. exporter, and is a stock that several of Money Morning's contributors and advisory panelists have identified as one of the globally focused U.S.-based companies investors might want to research further [In fact, to see a copy of our special investing research report, "Investments for a Weak Dollar World," one of several of our research reports that list Boeing among the U.S.-based companies that will really benefit from the falling greenback, please click here. The report is free of charge].
Earnings Rise, Dreamliner Delays Sink Stock
The company recently said its profits soared 61% in the third quarter, its best showing in four years. The results smashed forecasts, but the company throttled back some of Wall Street's exuberance by cutting its 2008 revenue estimates because of delays in launching its new Boeing 787 Dreamliner.
Early last month, Boeing said the hot-selling Dreamliner would be at least six months late as the company deals with incomplete work from suppliers, problems integrating the complex software that controls the airplane, and a crisis-level shortage of bolts. The airliner is considered crucial to Boeing's future, and the company says it is still addressing "challenges" as it builds the first batch of 787s. Boeing is aiming for the first test flight in late March 2008, with the first delivery to be made in late November or December.
"The focus will be on the 787 and whatever may be said on the viability of their current schedule,", a well-known aerospace analyst with , told Reuters. "That will be the key."
Boeing said that its earnings from continuing operations for the third quarter were $1.43 per share, which easily beat the consensus Wall Street estimate of $1.24 per share, according to Reuters Estimates.
Revenue rose 12% to $16.5 billion, above the average analyst forecast of $16.05 billion.
Boeing raised its full-year profit forecast to a range of $5.05 per share to $5.15 per share, up from a previous forecast of $4.80 per share to $4.95 per share. This new forecast is right in line with Wall Street's average estimate of $5.06 per share.
However, Boeing held steady on its 2008 profit forecast of $5.55 to $5.75 per share, below the consensus Wall Street estimate of $6.04 per share. The company also lowered its revenue forecast for account for the projected six-month delay in 787 Dreamliner production and slower growth in its defense unit.
Boeing said it now expects 2008 revenue of $67.5 billion to $68.5 billion, down from its previous estimate of $71 billion to $72 billion. Analysts had been forecasting revenue of $71.2 billion on average.
The company now expects to deliver 480 to 490 commercial planes next year, down from its previous estimate of 515 to 520, as delayed 787 deliveries are pushed into 2009.
Scott Carson, the chief of Boeing's Commercial Airplane unit, said last week that aircraft orders might "level off" in 2008, but noted that the company is hopeful U.S. airlines are ready to start buying new airliners,.
"I would think you would see some [slight slowing in the order-growth rate]… some reduction in orders," Carson told reporters immediately after he addressed an industry group.
Though he said he was hesitant to forecast any specifics, Carson did say that "one would think" U.S. airlines may be at the point where they would start ordering more planes.
Boeing said this week that firm orders this year – now totaling 919 airplanes – could pass the record of 1,044 set last year, when Boeing overtook Airbus SAS as the leading worldwide airplane seller for the first time since 2000. Airbus is a unit of Europe's European Aeronautic Defense & Space Co., or EADS.
Tanker Contract in a Holding Pattern
In other news involving Boeing, the U.S. Air Force announced last week that it would not award a $40 billion contract for 179 aerial tanker-refueling airplanes until it can consult more closely with Boeing and Northrop Grumman Corp. (NOC), the two aerospace rivals vying for the lucrative deal. Northrop Grumman is known as the maker of the B-2 "Spirit" Stealth bomber. The contract award will be delayed until Jan. 31, the Air Force said.
This is the second time the Air Force has extended the deadline for a deal that was initially scheduled to be awarded no later than the end of last month.
Senior officials in the Air Force say the new aerial tankers are one of its highest-priority programs as the U.S. military attempts to cover the globe with its fleet of jet fighters and bomber aircraft – enabling the United States and coalition forces to travel anywhere, at anytime, without having to rely on refueling bases. The new tankers will replace the Air Force fleet of aging Boeing KC-135 Stratotankers – many of which have been in service for more than 50 years.
But by extending the talks with both Boeing and Northrop Grumman, the Air Force hopes to be seen as being extra careful in its decision-making process. That's because the Air Force is already in the middle of a separate – and contentious — dispute with Lockheed Martin Corp. (LMT) and Sikorsky Aircraft, a unit of United Technologies Corp. (UTX), over its decision to award a $15 billion helicopter deal to Boeing. In the past year, the two unsuccessful bidders have filed formal protests contesting the Air Force's decision, claiming the service failed to evaluate all the bids fairly, .
Last month, the Air Force agreed to request new bids from all three companies and to restart the competition.
But as the Air Force delayed its decision on the tanker contract, both companies have shifted their lobbying efforts into full-court-press mode, funneling in fresh data on such key topics as the fuel efficiencies and other cost savings associated with their proposed respective aircrafts.
Chicago-based Boeing Co. is offering a newly designed KC-767, which will be built in Everett, Wash., while Los Angeles-based Northrop Grumman – with its partner, EADS of Europe – is proposing an airplane known as the KC-30, a modified version of the Airbus A330 plane that will be assembled in Mobile, Ala.
So why do we like Boeing so much? Well, for one thing, it's an industry leader. It wrested the world leadership position in airliner production back from Airbus SAS.
For investors looking for U.S.-based stocks that represent solid defensive investments, Boeing is a strong candidate. The company, for instance, recently reported. It has only one real competitor: Airbus. And Airbus operates out of the high-cost European Union.
Indeed, Boeing is the single-largest U.S. exporter. And it's a juggernaut in the aerospace sector and a major player in both the commercial and military aircraft markets that has grown both organically and through a series of shrewd acquisitions. [For a full report on Boeing as an investment, read the assessment written by Martin Hutchinson, Money Morning's director of global investing research by clicking here. Again, the report is free of charge.]
After initially making its name as the builder of some gorgeous biplane fighters for the U.S. Army Air Corps in the Depression-laden 1930s, Boeing solidified its place in history by building the B-17 "Flying Fortress" and B-29 "Superfortress" heavy bombers of World War II. Then it constructed the B-52 Stratofortress jet bomber that continues to fly for the U.S. Air Force today.
[In an interesting bit of related trivia, this past September marked the 50th anniversary of the birth of the U.S. Air Force, which was born out of the U.S. Army Air Corps and U.S. Army Air Force of 1920s, 1930s and 1940s – World War II – vintage. The Air Force became an independent military service on Sept. 18, 1947.]
But Boeing made its biggest mark – and solidified its future into modern times – by changing the global airliner market forever with the 1958 introduction of its sleek Boeing 707 jet airliner. It further outdistanced its global rivals – De Havilland of Britain, Caravelle of France and Tupolev of Russia – when it unveiled Boeing 747 Jumbo Jet, the globetrotting civil airliner with its trademark humpback silhouette.
Although Airbus and its forerunners have been around in one form or another since the 1960s, it wasn't until it launched the twin-engine, 150-passsenger A320 in the 1980s that the pan-European firm actually solidified itself as a real rival of Boeing. But it still took Airbus another 15 years to actually overtake Boeing to become the world's No. 1 civil aircraft maker (measured by actual orders) – a milestone it didn't reach until 2001. Airbus held that title until last year, when a series of well-publicized problems with it and its parent company helped knock it from the top spot.
The result: Boeing won the annual orders race for the first time since 2000, grabbing 55% of the global deals. It's on a pace to set a sales record for the year. And even with some slight delays, the company is getting a lot of favorable coverage from its innovative and highly hyped Boeing 787 "Dreamliner" passenger jet.
Newest Market: Vietnam
We also like Boeing because – like such other favorites as Yum! Brands Inc. (YUM), PepsiCo. Inc. (PEP), The Coca-Cola Co. (KO), and even McDonald's Corp. (MCD) – it is a company that's not solely dependent on the U.S. market for sales. Boeing has a huge overseas sales presence, which gives it diversification, but more importantly lets it benefit from the huge growth taking place in such key Asian markets as China and Vietnam
Boeing and Airbus are now competing to sell their latest jet airliners to Vietnam, and Bombardier of Canada is also angling for a piece of this super-fast-growing market. This communist-ruled nationr, which means that there's an emerging middle class of consumers with the time, money and desire to travel by air.
The state-owned and operated Vietnam airlines is going to be privatized, meaning there will be a need to upgrade its flying fleet of nearly 50 airplanes. And, as Bach Quoc Thang, a Vietnam Airlines general manager says, the carrier wants to position itself as "one of the leading regional carriers … Singapore Airlines and Cathay Pacific are the examples we want to follow."
Vietnam Air Service Co. into a low-cost carrier that can take on Pacific Airlines, which is part owned by the highly regarded Qantas of Australia, as well as Malaysia's Air Asia, which is a partnership with shipbuilder Vinashin.
The bottom line: Vietnam Airlines' emergence means billions of dollars in possible additional sales for the manufacturers able to land the contracts.
Boeing stock dropped $1.99 or 2.02% Thursday.
News and Related Story Links:
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About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.