Boeing shares fall as tanker costs overshadow earnings

CHICAGO — Boeing Co. reported higher-than-expected second-quarter profit Wednesday on the strength of its commercial airplane business, but hiccups with production of a new military refueling aircraft made investors skittish.

And during an earnings call with analysts Wednesday, Chief Executive Jim McNerney called last week's downing of Malaysia Airlines Flight 17, a Boeing 777, in Ukraine a "particularly unsettling and painful moment in the history of civil aviation." He said Boeing is providing technical assistance to the National Transportation Safety Board, which is supporting international authorities in the crash investigation.

Net income totaled $1.7 billion, up 52% from a year earlier. Excluding certain pension and retirement costs, Boeing's profit amounted to $2.42 per share, a 45% increase and far exceeding the average Wall Street estimate of $2.01. But revenue fell slightly short of expectations, increasing 1% to $22 billion, compared with an expectation of $22.3 billion.

Boeing increased its full-year profit expectation to between $7.90 and $8.10 per share, up from $7.15 to $7.35. The company bought back $1.5 billion worth of its stock in the quarter.


Earnings were hurt by a $272-million additional charge for development of the KC-46A tanker, a military refueling aircraft based on Boeing's commercial 767. The charge involved engineering and manufacturing costs incurred when Boeing ran into wiring problems.

"The issues at hand are well defined and understood, which in no way mitigates our disappointment in having to take this charge," McNerney said. The long-term potential for the KC-46 tanker is 400 planes worth $80 billion, he said.

The production woes revelation spooked investors. Boeing closed down $3.03, or 2.3%, at $126.71.

"To us, it is worrying that Boeing is booking a charge of this magnitude at a relatively early stage in this long-term program," RBC Capital Markets analyst Robert Stallard wrote in a note to clients.

Boeing endured criticism several years ago for engineering and production problems with its high-profile 787 Dreamliner, which ended up being delivered to customers about three years late.

Analysts also noted that favorable tax items — such as resolution of previous tax disputes — in the quarter put a misleading shine on the profit report, which explains why the numbers far exceeded analyst expectations. The tax items totaled more than half a billion dollars.

"While the headline number looked good, peering behind the results, a good portion of that was due to the one-time tax benefits that aren't likely to repeat," said Edward Jones Equity Research analyst Christian Mayes.