By William Patalon III
Executive Editor
Money Morning/The Money Map Report
Boeing Co. (BA), the world's second-largest maker of commercial jetliners, announced a fourth-quarter profit gain of 4% that eclipsed Wall Street estimates - despite ongoing problems with its next-generation airliner, the 787 Dreamliner.
Boeing shares jumped $1.88 each, or 2.32%, to close at $82.84 yesterday (Wednesday). The stock remains 23% below its 52-week trading high of $107.83, reached last fall. Boeing's stock is now trading at about 12% above its 52-week low of $74.12 per share.
The Chicago-based Boeing said net income for the final three months of last year was $1.03 billion, or $1.36 a share, up from net income of $989 million, or $1.29 per share, for the fourth quarter of 2006. The per-share earnings for the just-completed quarter represented an increase of 5%, and were 4 cents a share better than the Wall Street consensus, according to a survey of analysts conducted by Thomson Financial.
Boeing net income of $1.03 billion was 4% better than last year.
Revenue was $17.5 billion, flat with a year earlier but still slightly ahead of Wall Street's forecast of $17.3 billion.
"It was a strong quarter," JSA Research analyst Paul Nisbet told The Associated Press. "They've been just knocking the cover off the ball as far as orders, with 520 for the quarter, and with a [companywide] backlog of $327 billion. Those are just unheard-of numbers."
The company increased its earnings guidance for this year to a range of $5.70 to $5.85 a share. That's up from an earlier range of $5.55 to $5.75, but still was short of the Wall Street consensus estimate of $5.95.
Boeing is looking for other ways to enhance shareholder value, too: The company spent $890 million for some 9.4 million shares in the fourth quarter as part of its expanded share buyback plan.
Because of Dreamliner delays, Boeing also lowered its estimate of 2008 revenue by $500 million, dropping it to a range of $67 billion to $68 billion.
Fixing the Dreamliner
Boeing said it continues to address assembly problems with the initial 787s and slightly reduced its estimate for both 2008 revenue and deliveries because of the previously announced production glitches. However, the aerospace firm said it remains on the revised schedule for the new airliner that it announced earlier this month.
The Dreamliner's delivery date has now been pushed back three times; the innovative jet won't enter service until next year. Boeing declined to assess the potential impact of this new schedule on its financial results for 2009 until April.
The company characterized the outlook for its military contracting business and commercial airplane programs next year as "very strong," with robust profit growth expected.
Boeing Chief Executive Officer W. James "Jim" McNerney Jr. said that - despite the delays in the Dreamliner - the innovative technology and basic design remains sound. He declined to discuss specific timeframes for the development program.
"We believe in both the business case and the technology of the 787," he told reporters during a conference call. "And we look forward to getting the airplane in the hands of our customers as soon as possible."
Despite soaring energy costs and worries of a U.S. recession that could trim orders from airlines based in America, McNerney was upbeat about Boeing's near-term outlook, underscoring that U.S. carriers account for only 11% of the company's order backlog.
"Notwithstanding some recent events and market volatility, we continue to forecast an extended commercial aerospace cycle driven by strong economic growth and solid traffic demand in much of the world," McNerney said. "Even if we encounter a more significant economic downturn in the future, I believe the industry is better positioned than in past cycles and Boeing is even better positioned within the industry to weather any storms."
To understand Boeing's long-term strength, a look at its order backlog is a must. Boeing's stated backlog is $327 billion, an amount roughly equal to five times its revenue for 2007.
When Europe's Airbus SAS picked off nearly $50 billion worth of airliner orders from Middle East air carriers at the opening of the Dubai Aerospace Air Show this past November, analysts portrayed it as a huge victory over U.S. rival Boeing Co.
Once again, the gloom-and-doomers got it wrong.
Don't misunderstand: A series of orders worth nearly $50 billion at "list prices" [before the inevitable discounts] is a weekend's work well done, especially when those orders come from some of that region's leading airlines. But anyone who portrayed this as some sort of decisive victory for Airbus - and a devastating loss for Boeing - has missed the big picture.
The reason: They forgot to factor in China.
The China Flight Connection
According to a Money Morning research report, China alone will require 3,400 new airplanes worth about $340 billion over the next 20 years, Boeing projected in its recently updated annual forecast for the commercial airplane market. And that doesn't even factor in other white-hot Asian markets - such as Vietnam - which will also need to outfit their air fleets as their economies make the leap from "emerging" to mainstream.
Indeed, over the next 20 years, Boeing is forecasting that air carriers worldwide will need to acquire 28,600 commercial aircraft with a value of $2.8 trillion. The Boeing forecast is generally viewed as the world's best analysis of the global market for commercial airliners and cargo aircraft.
Underscoring this potential: Boeing recently inked a billion-dollar-deal with Vietnam.
The huge revenue potential of the global airliner market - combined with the low number of viable competitors and the high barriers faced by new potential entrants - is a big reason that Money Morning's investment gurus all view Boeing as a promising global investment for years to come.
News and Related Story Links:
- San Jose Mercury News:
Boeing Boosts 4Q Profit on Plane Sales.
- 24/7 Wall Street:
Boeing Backlog More Impressive Than Guidance.
- The Associated Press:
Plane Sales Lift Boeing 4Q Profit 4 Percent.
- Money Morning Investment Research Report:
China's Growth Will Clear $340 Billion Worth of Airliner Sales for Takeoff Over the Next 20 Years.
- Money Morning News:
Boeing and Vietnam have the Billion Dollar Deal.
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 at Money Map Press.