EARNINGS : Writeoffs Slash McDonnell’s Profit
Stung by writeoffs in all of its aerospace divisions, McDonnell Douglas on Friday posted a fourth-quarter profit of $60 million but a loss of $17 million on continuing operations.
McDonnell took a $22-million writeoff at its Douglas Aircraft unit on the Navy T-45 trainer aircraft. Earlier in 1989, the firm took a $31-million writeoff on the T-45, resulting from an overrun on its fixed-price Navy development contract.
McDonnell also was forced to take writeoffs at its helicopter company, where a $91-million charge was taken on the AH-64 Army helicopter program in the fourth quarter, after a smaller hit in the third quarter.
The firm’s $60-million fourth-quarter profit came on sales of $4.3 billion, compared to earnings of $145 million on sales of $4.1 billion the year earlier. For all of 1989, McDonnell earned $219 million, but, after adjusting for an accounting change and for discontinued operations, it lost $37 million.
The company acknowledged in its earnings report that 1989 was a troubled year for Long Beach-based Douglas, citing training costs for its rapidly growing work force, shortages of parts and the effects of a massive management reorganization. For the year, Douglas posted a $222-million operating loss.
Douglas posted a pretax profit of $5 million in the fourth quarter, but after adjusting for both positive and negative non-operating items the unit lost an estimated $5 million, analysts said. Douglas took no fourth-quarter charges on the Air Force C-17 cargo jet, which caused a $72-million charge earlier in the year.
On a bright note, McDonnell reported that the firm’s MD-80 jetliner program, which fell into the red during part of 1989, ended the year making a profit. Douglas is relying on that program to carry the operation until deliveries of the new MD-11 jetliner begin late this year or early next year.
Securities analysts were mixed in their reactions to the earnings. Lawrence Harris at Bateman Eichler, Hill Richards said: “Douglas results weren’t so bad. The MD-80 appears to have turned around.”
But Patricia C. Trent at Seidler Amdec Securities termed the results disappointing, saying: “Who knew there were going to be so many things written off?”
In a letter to company employees from Chairman John F. McDonnell, the financial results were termed as “bad news” and a “sign that we all have to work smarter in 1990.” But he also called the company’s position in the industry “exceedingly strong.”
