|
 Boeing's stock soared nearly 80 percent last year, outperforming the
Dow Jones Industrial Average and the S&P 500 index. Many suppliers
to the world's biggest plane maker also beat the market.
But as indexes pushed higher this year, investors sent Boeing down
5.7 percent amid concern that the aviation business cycle may have
peaked and that Boeing's ability to produce positive surprises is
limited. Suppliers also suffered.
For the stock to rise, Boeing needs to notch up profit margins on
jetliners, run its factories smoothly, and win price cuts from
suppliers. It also must keep booking orders.
Last month, Dubai-based airline Emirates canceled a $16 billion deal
for Airbus Group NV's <AIR.PA> new A350. More cancellations could
spook investors and ripple down to suppliers such as Spirit
Aerosystems Holdings Inc <SPR.N>, Precision Castparts Corp <PCP.N>
and Honeywell International Inc <HON.N>.
Boeing is considered on track to deliver a record 715 to 725
jetliners this year, having delivered 342 in the first half. But
hiccups in 787 Dreamliner production this year suggest Boeing may
struggle to keep its promise to make jets even faster.
"They need to continue to crank 787s out and get cash flow on them,"
said Jim Reed, co-manager of the Global Equity Fund at Scout
Investments, in Kansas City, Missouri, which holds about $185,000
worth of Boeing stock.
"And they need to move from producing 10 787s a month to 12 a month,
like they say they're going to do" by mid-2016.
GREEDY FOR ORDERS
At the Farnborough International Airshow, Boeing had booked 70
orders as of Tuesday, adding $11 billion to its record backlog. That
is down from 260 deals worth $34 billion at the Paris Airshow last
year. Boeing's orders are 12 percent lower this year through May
than a year ago.
"Orders are one of those things you want to be greedy on," said
Oliver Pursche, president of Gary Goldberg Financial Services, a
money management firm in Suffern, New York, with about $1 million
invested in Boeing.
[to top of second column] |
As well, many Farnborough orders came from lessors, not airlines,
underscoring concerns about a possible bubble in plane production
and a recent spate of airline profit warnings.
Still, profits at plane makers and suppliers have soared 65 percent
since 2007, said Eric Kronenberg, managing director at consulting
firm AlixPartners.
He expects profits to keep climbing. Boeing is squeezing suppliers
to cut costs and widen its margins. But suppliers will streamline
their factories to avoid cutting their own profits, Kronenberg said.
Boeing's jetliner operating profit margin hit 11.8 percent in the
first quarter, its highest level in a year. Investors want it to
beat that number when it reports next Wednesday.
But even a good performance may not galvanize investors.
"A lot of the good news for Boeing is already out there," said
Catherine Avery, chief executive officer of CAIM LLC, a money
manager in New Canaan, Connecticut.
She sold Boeing in late 2013, capturing the 80 percent rise.
To buy again, she wants "some sort of indication that there's going
to be a much stronger trend for order growth," she said. "And I'd
like to see how things go with their production."
(Reporting by Alwyn Scott; Editing by Lisa Shumaker)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed.
 |
