Boeing ups forecasts, takes further air tanker charge

Reuters - 25 October 2017: Boeing Co racked up a further $329 million charge for its troubled KC-46 aerial refueling tanker program in quarterly results on Wednesday, paring gains in profit margins compared with a year ago and prodding its shares lower.

The world’s biggest maker of jetliners raised its full-year earnings and cash flow forecasts as it beat third-quarter earnings estimates and reported higher margins in its main commercial airlines segment and overall business.

But the new charge on the air tanker, which some analysts had speculated could return to haunt Boeing despite assurances to the contrary in April, meant the program has now lopped a total of about $1.9 billion off the company’s net income after tax.

Boeing shares, up almost 70 percent this year, fell 1.2 percent to $262.87 in morning trade in New York.

“Boeing’s Q3 report looks solid and largely meets our expectations on several fronts,” J.P. Morgan aerospace analysts said in a note after the results.

“The stock has performed well into the print, however, and so it is not clear that modestly higher guidance will drive much outperformance today.”

Boeing has streamlined production, shed 8,200 jobs and wound down development costs this year to dramatically improve profit and cash flow, as it competes with European rival Airbus SE (AIR.PA) amid burgeoning demand from airlines for more capable planes at lower prices.

Core operating margin rose to 9.8 percent in the third quarter, from 9.2 percent a year earlier, and the company raised its forecast for operating cash flow for the full year to $12.5 billion from a previous $12.25 billion.

Boeing said it now expects 2017 core earnings per share of $9.90-$10.10, compared with its previous forecast of $9.80-$10.00, due to a lower-than-expected tax rate.

A year ago Boeing included a tax gain of 98 cents per share in the third quarter, driving a dip in core earnings for the same period this year to $2.72 per share from $3.51 per share.

Core earnings for the quarter still beat the average analyst estimate of $2.66 per share, according to Thomson Reuters I/B/E/S, while revenue rose 1.7 percent to $24.31 billion, beating the estimate of $23.92 billion.

The company is moving into the production phase on the KC-46 and says it has identified most of the issues that need to be addressed ahead of the delivery of the first 18 tankers in 2018.

Muddying the waters on the results was Boeing’s new services business, which the company broke out for the first time in the third quarter.

The unit, launched in July, is aimed at offering maintenance, technical and analytical support to customers, as the company looks to capture more of the higher-margin services spare-parts revenue after a plane is sold.

The company hopes it will generate $50 billion a year in revenue within the next five to 10 years. It yielded $3.57 billion in the third quarter and an operating margin of 14.2 percent, down 0.7 percentage points compared with a year earlier.