The unexpectedly strong cash flow soothed fears that plane
production snags could hamper the outlook for buy-backs and
dividends at the world's biggest plane maker, and suggested instead
that there is scope for those rewards to rise.
Boeing's report "gives much more confidence about the ability to
return cash," said Ken Herbert, an analyst at Canaccord Genuity Inc.
Boeing spent nearly $3 billion in the first quarter to buy back some
19 million shares and pay dividends, most of the expected amount for
the year, according to analysts.
And yet the company sees scope for more this year, Chief Financial
Officer Greg Smith suggested in a conference call. The company has
allocated $8.3 billion to return over the next two or three years
and has flexibility on the timing.
"We're committed to deploying our cash efficiently," Smith said.
Investors had been worried that Boeing's cash might be reduced
because of a build-up of inventory of 787 planes, following
production snags at its South Carolina assembly plant.
Boeing reported $615 million in free cash flow for the quarter,
above the $545 million forecast by RBC Capital Markets. Free cash
flow is the amount of money left from operations after paying tax
and maintenance on plant and equipment.
"We think investors will be breathing a sigh of relief," on free
cash flow, said Rob Stallard, analyst at RBC Capital Markets, in a
note. "The actual result has turned out far better than some
feared."
Boeing also said growth in the deferred cost of producing the 787
had slowed slightly in the quarter.
That suggested the company was on track to make its newest plane a
cash spinner by the time the company steps up production to 12 a
month in 2016. On a cash basis, the plane currently costs more to
produce than it earns in revenue.
Boeing shares were up 2.1 percent to $130.24 in afternoon trading.
Investors also saw strength in widening operating profit margins to
11.8 percent in Boeing's commercial aircraft business, even though
the backlog of orders slipped from the beginning of the year.
Though Boeing's order backlog of commercial and defense orders
decreased slightly in the quarter, Chief Executive Jim McNerney said
that Boeing expects to keep selling more planes than it makes for
the foreseeable future.
In the longer term, however, Boeing faces a continued threat by
rival Airbus for market share. Airbus is winning key orders from
airlines, including a wide-body order by Brazil's third-biggest
airline, Azul Linhas Aereas, announced on Wednesday.
Boeing's 787 was a contender in that contest.
[to top of second column] |
"It's a concern for Boeing if the sales split is 60-40 or 55-45
(favoring Airbus) because eventually that gets reflected in
deliveries," Herbert said.
Boeing in recent months said it plans to move thousands of
engineering jobs to regional centers, stirring great concern among
political leaders, Boeing workers and the public in Washington
state, where its main jetliner factories are located, though
investors have not reacted with concern.
McNerney said there is always a tension between locating engineering
work at the factories and putting it near the best talent for the
job. But the company's aim is to strike the right balance.
"In the minds of most of us, these moves strengthen our company,
strengthen our engineering capability," McNerney said.
Boeing's core earnings, which exclude some pension and other costs,
rose to $1.76 per share from $1.73 a year ago. That easily topped
the $1.56 mean estimate of analysts surveyed by Thomson Reuters
I/B/E/S.
On a non-adjusted basis, however, Boeing's profit slid 13 percent to
$965 million, or $1.28 per share, down from $1.11 billion, or $1.44
per share, a year earlier.
For 2014, the company lifted its core earnings forecast to between
$7.15 per share and $7.35 per share, up from the prior forecast of
between $7.00 and $7.20. The increase reflects a tax settlement gain
to be taken in the second quarter, and Boeing left 2014 forecasts
for revenue, operating cash flow and deliveries unchanged.
Revenue rose 8 percent to $20.47 billion in the quarter ended March
31 from $18.89 billion a year earlier.
Boeing's adjusted earnings included a $334 million charge from
retirement plan changes in the first quarter for moving non-union
employees to defined contribution plan savings plan from a defined
benefit plan. The move takes place in 2016.
(Reporting by Alwyn Scott; editing by Andrew Hay)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |