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Boeing shares surge as it lifts outlook, boosts buybacks
[NEW YORK] Boeing shares surged on Wednesday after it reported better-than-expected quarterly earnings, lifted its full-year profit forecast and announced US$3.5 billion in additional 2017 share repurchases.
Shares of the aerospace giant finished up nearly 10 per cent at US$233.45, boosting the Dow index into record territory.
"Our teams are delivering better performance in every segment of the business," chief executive Dennis Muilenburg said in a news release.
"Our robust cash flow enabled us to return more value to shareholders, invest in future growth and in our people, including a plan to accelerate pension funding that also reduces risk and cyclicality in our business." The results showed how cost-cutting has helped offset the effects of lower commercial plane deliveries in the first half of 2017, compared with the year-ago period.
Boeing has cut about 6,000 jobs since January.
Net income in the second quarter was US$1.8 billion, compared to the US$234 million loss in the same period of 2016 due to one-time costs on its military and commercial aircraft programmes.
Revenues fell 8.1 per cent to US$22.7 billion.
A key factor in the strong results was Boeing's plan to contribute US$3.5 billion in common shares to its pension plan in the third quarter, accelerating its pension payments for the next four years and reducing its taxes by US$700 million.
Executives pointed to a solid increase in profit margins in the commercial air division as it boosts output of popular aircraft, such as the Dreamliner 787.
Aerospace companies typically spend heavily in the early years of a new generation of planes, winning bigger returns as the manufacturing processes mature and become more of a well-oiled machine in later years.
For example, production of the narrow-body Boeing 737 was recently increased to 47 a month from 42, and the company plans to ultimately hit 57 a month.
NEW MODEL PLANNED
Boeing, which announced a new 737 plane at the Paris air show last month, also elaborated on its idea for a "middle of the market" aircraft that is still in the conceptual stages but has generated interest in the airline industry.
Mr Muilenburg pointed to demand for a plane that can travel 4,000 to 5,000 nautical miles, carrying 220 to 270 customers compared to 314-396 passengers for the 777.
He said the aim is for a model that combines some of the advantages of a widebody with "the economic efficiencies with the narrow body airplane" which airlines find easier to fill.
He said interest in the new model reflects the growth in new regional points which "aren't well served by existing airplanes." "Those are the details we are working through with our customers right now," he said.
Meanwhile, earnings from Boeing's defense division rose due to higher profit margins and more favorable timing on contract awards compared to the year-ago period.
The company boosted its full-year forecast targets, lifting the range for projected 2017 earnings-per-share to US$11.10 to US$11.30 per share, up from US$10.35 to US$10.55.
It also said it would increase share repurchases this year by US$3.5 billion for a total of US$10 billion.
Investors smiled on the news of the additional buybacks as well as the dearth of unexpected one-time charges that have marred prior earnings reports, and the financial benefits of cost-cutting.
"Boeing continues to surprise on cost-reduction," said Ken Herbert, analyst at Canaccord Genuity. "Confidence in the commercial and defence markets has increased, and Boeing is clearly outperforming our expectations on cash generation, as well as margin."
Jim Corridore, analyst at CFRA Research, said, "despite strong share price performance year to date, Boeing still looks attractive at current levels."
But Morningstar analyst Chris Higgins warned that shares are "overvalued," in part due to delay risks associated with new wide body planes under development.