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 The aerospace and defense giant said core earnings, which exclude
some pension expenses, rose 29 percent to $1.84 billion, or $1.88 a
share, far exceeding forecasts as it delivered record numbers of its
737, 777 and 787 aircraft and upped production rates.
But Boeing was much more cautious about the current year. It said
core earnings would rise only about 2 percent and operating cash
flow would fall more than 20 percent.
Boeing said it still plans to return as much cash to shareholders
through share buybacks and dividends as promised.
But investors have been betting on cash flow building to a
substantial peak in coming years as Boeing churns out more planes,
which could provide more cash returns.
"Now, everyone is having to recalibrate where's the summit," Ken
Herbert, an analyst at research firm Canaccord Genuity Inc, said of
the forecast. "There's a shift in sentiment here."
Boeing typically sets low targets at the start of the year and
increases them as the months pass, so analysts said the news was not
a game changer that would alter forecasts.
The company's defense business also grew more profitable in the
latest quarter, thanks to earlier cost cutting, providing a
stabilizing force.
Still, with the stock up more than 80 percent in 2013, investors
reacted to the low forecasts by selling.
Shares in the Chicago-based company were down 5.7 percent at $129.31
in afternoon trading on the New York Stock Exchange.
PAST PRACTICE
Robert Stallard, analyst at RBC Capital Markets, said the stock's
decline reflected "initial sticker shock" at the numbers,
particularly cash flow. But if Boeing follows past practice, it will
easily exceed those numbers.
A year ago, Boeing forecast full-year 2013 profit of up to $6.30 a
share. By the end of the third quarter, the forecast had climbed as
high as $6.65 a share. The actual figure topped that handily, at
$7.07.
For 2014, analysts expect Boeing's core earnings to reach $7.57 a
share, according to Thomson Reuters I/B/E/S. That would be an
increase of about 7 percent.
The cash flow outlook was more troubling, since it directly affects
investor returns through dividends and share repurchases.
Boeing forecast a 24 percent drop in operating cash flow after
pension expenses in 2014, to about $6.25 billion.
That was a big jump from the forecast of a 13 percent drop a year
ago, to about $6.5 billion.
Analysts had been increasingly optimistic and wide-ranging in
estimates of the cash mountain, meaning there wasn't a clear
consensus, Stallard said.
The latest forecast appeared to have grounded expectations a bit.
The cash forecast raised other questions, too: Might it reflect
changes in plans for plane production or in Boeing's ability to cut
the cost of making the cash-burning 787 Dreamliner?
Boeing Chief Financial Officer Greg Smith said there were no such
changes. Boeing plans to deliver between 715 and 725 commercial
airplanes this year, an increase of up to 12 percent from a record
648 in 2013.
He also said Boeing would use more than the targeted 85 percent of
free cash flow to buy back shares and pay dividends, ensuring that
those programs remain on track.
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MARGINS SHIFT
As if to counteract the commercial airplane jitters, Boeing's
defense unit performed surprisingly well in the quarter. It posted
wider profit margins, even as margins in the commercial airplane
business narrowed.
The defense business had been under pressure from declining U.S.
defense spending, and last summer Chief Executive Jim McNerney said
the company was not out of the woods in facing earnings effects from
automatic budget cuts known as sequestration. "We are entering the
woods," he said.
On Wednesday, McNerney said the recent U.S. budget agreement had
bought an 18- to 24-month reprieve from drastic defense spending
cuts but still posed a grave risk.
"We remain very concerned about longer-term U.S. budget uncertainty"
and a potentially "devastating impact" of defense budget cuts on the
U.S. industrial base, McNerney said in a conference call.
Defense margins widened to 10.8 percent in the fourth quarter from
8.4 percent in the third quarter.
Defense companies had planned for the worst with budget cuts and
have reduced their costs in anticipation, Stallard said. But the
budget impact was not as bad as expected, "so across the defense
sector you're seeing pretty decent margins."
Margins for commercial airplanes, meanwhile, shrank to 10.3 percent
in the fourth quarter from 11.6 percent in the third quarter. But
for the full year, commercial margins of 10.9 percent easily topped
the forecast of greater than 10 percent, Stallard noted.
Boeing's latest results included a non-cash charge of $406 million
to settle litigation over the canceled A-12 stealth bomber program.
The U.S. Justice Department announced a settlement with Boeing and
General Dynamics Corp <GD.N> last week that includes three
additional EA-18G fighter jets, which will be paid for by Boeing.
<ID: nL2N0L309C>
Boeing said its earnings reflect a charge of 34 cents a share for
the A-12 settlement, which was partly reduced by a 28-cent-per-share
gain from a favorable change in tax regulations.
The tax benefit pushed the company's effective tax rate down to 14
percent. Net income in the quarter rose to $1.23 billion, or $1.61 a
share, from $978 million, or $1.28 a share, a year earlier.
Boeing's quarterly core net income of $1.88 a share compared with
$1.46 a share a year earlier. Revenue rose to $23.8 billion from
$22.3 billion in the quarter. Analysts had expected core earnings
per share of $1.57 for the fourth quarter, and revenue of $22.7
billion, according to Thomson Reuters I/B/E/S.
McNerney said he was not planning to retire, although former defense
chief Dennis Muilenburg was now helping oversee the entire business
following his promotion to chief operating officer in December, one
of several management shifts.
"While you may be seeing more of them," McNerney said, "it doesn't
mean you will be seeing less of me."
(Reporting by Alwyn Scott; editing by
Sophie Hares and Jonathan Oatis)
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