McDonnell Posts $781-Million Loss : Aerospace: The 1992 results are skewed by a huge accounting charge. The company paints an upbeat picture for this year.
McDonnell Douglas posted a $781-million net loss for 1992 because of a one-time accounting charge, but an upbeat company forecast cheered analysts and led to a sharp rise in the company’s stock.
The firm’s stock initially plunged in trading Thursday, but closed with a sharp gain after company executives announced to securities analysts that profits would surge this year and it would reduce its worrisome debt by $1 billion. McDonnell shares rose $2.50 to close Thursday at $56.50 per share.
The upbeat analysis by the company projected the C-17 cargo jet program would finally show a profit this year, after causing $383 million in charges last year, and that its commercial aircraft business would remain profitable, even though deliveries will be sharply lower.
Management told analysts that it expects to earn more than $8 per share in 1993, more than double the $4.15, or $161 million, earned on operations in 1992 when the accounting charge is excluded. In 1991, the firm earned $423 million or $11.03 a share.
“They put their neck on the chopping block in making those predictions, but they did it with the full expectation that they will not get chopped,” said Peter Aseritis, an analyst with First Boston.
McDonnell took a net $942-million charge in 1992 related to new accounting rules requiring the firm’s statements to reflect the future cost of providing health care to retirees. It terminated retiree health care for salaried personnel last year.
Profits from military aircraft were hammered by C-17 write-offs, and commercial aircraft profits suffered as deliveries dropped. Sales were down slightly to $17.4 billion from $18.1 billion.
McDonnell said it would generate $500 million in cash from operations in 1993, as well as another $500 million in cash from the sale of assets--a marked change from the cash drain that dogged the firm through most of 1992. It projected that debt would drop to $2.8 billion this year.
To provide a further financial cushion, three major banks agreed to provide $175 million of credit above existing credit lines, according to aerospace analyst Wolfgang Demisch of UBS Securities.
Even though McDonnell’s commercial aircraft sales have plunged--cancellations exceeded orders in 1992--the company said it should continue to post profits on lower deliveries. And it predicted that the MD-11 jetliner program will begin generating profits, excluding past development costs, analysts said.
Such upbeat predictions from McDonnell have failed to materialize in the past, but analyst Aseritis said the optimism appears to be justified this time. Demisch, however, recommended sale of McDonnell stock this week, based on his concern for future defense spending.
Demisch cited recent statements by Rep. John P. Murtha (D-Pa.), the powerful chief of the House defense appropriations subcommittee, who singled out the C-17 as one of the programs that may suffer because President Clinton has made too many commitments on defense programs.
The accounting charge distorted the company’s bottom-line results, particularly because the charge was assigned to the first quarter and a portion of it was reversed in the fourth quarter. Excluding the accounting charge, the firm earned $86 million in the fourth quarter, or $2.20 a share. That compares to earnings of $211 million, or $5.50 a share, in the year-earlier quarter. Sales were flat at about $4.6 billion.
Earnings by Segment
McDonnell Douglas reported lower earnings in three of its major business segments. Military aircraft profits were hammered by write-offs on the C-17 cargo jet program, while commercial aircraft profits suffered from a drop in deliveries. But the missiles and space segment posted a record return. The financial services sector profits were weak on lower business volume. Annual segment profit in millions of dollars Military aircraft: 1992: $19 1991: $404
Missiles, space and electronic systems: 1992: $197 1991: $168
Commercial aircraft: 1992: $109 1991: $291
Financial services and other: 1992: $21 1991: $28
* 1992 earnings include a charge related to adoption of new accounting rules for retiree health care.
