By Calvin Biesecker
Boeing [BA] yesterday reported a $1.6 billion net loss in the third quarter due to previously disclosed charges on two commercial aircraft programs including the 787 Dreamliner, which is still on track for first flight later this year.
Boeing tallied $3.5 billion in charges on the 787 passenger plane and 747-8 freight plane combined for several reasons, including ongoing development difficulties, higher production costs and market challenges. Additionally, the company spent $138 million in August and September on three 787 flight test planes, which further contributed to the losses.
The $1.6 billion net loss, $2.23 earnings per share (EPS), exceeded analysts’ estimates, which were pegged at $2.10. Net income a year ago was $695 million (96 cents EPS). In addition to the hefty charges, Boeing faced some other headwinds in the quarter from higher pension, deferred compensation and interest expenses.
Sales increased 9 percent to $16.7 billion, driven primarily by increased revenues in the commercial airplane segment and to a lesser extent in the defense business. Free cash flow was $968 million.
The aircraft charges led Boeing to reduce its earnings guidance for the year to between $1.35 and $1.55 per share, down from between $4.70 and $5.00. Guidance for 2010 will be announced in January when Boeing reports 2009 results. James Bell, Boeing’s chief financial adviser, said there will be downward pressure on earnings next year from higher 787 research and development costs and a $100 million investment in the remaining flight test planes. First delivery of the aircraft is slated for the fourth quarter of 2010.
Sales at Integrated Defense Systems (IDS) gained 3 percent to $8.7 billion on higher military aircraft deliveries and more service and logistics volume. Sales a year ago were $8.5 billion. Network and Space Systems was the lone business area within IDS with lower sales, which fell on reduced volume in intelligence and security systems, missile defense and combat systems.
Operating profits at IDS rose 4 percent to $885 million on the higher sales as margins remained at 10.1 percent. Backlog slipped $3 billion to $65.8 billion due to the termination of the manned ground vehicle portion of the Army’s Future Combat System program.
The Obama administration’s shifting defense priorities are already affecting sales and profits but Boeing is maintaining its goal of double-digit margins in the defense business, company officials said. Productivity, cost controls and contract negotiations are all ways to further this goal, they said.
At Boeing Commercial Aircraft (BCA), sales increased 13 percent to $7.9 billion due to a 35 percent increase in airplane deliveries. The increased sales were partially offset by lower volume on services and spare parts. Results a year ago were down by about $2.1 billion due to a labor strike.
Profits at BCA swung to a $2.8 billion loss related to the 787 and 747-8 programs. The 787 schedule changes daily as new problems arise and are dealt with but flight-testing is still expected to begin before year-end, Jim McNerney, Boeing’s chairman, president and CEO, said. The company said that performance on other commercial airplane programs partially offset the losses. Boeing’s total backlog stood at $320 billion, down 2 percent in the quarter as backlog at both BCA and IDS declined.