Boeing Profit Plummets 46% in 2nd Quarter
Boeing Co. said Thursday that profit fell 46% in the second quarter because of ongoing production problems and pressure to keep aircraft prices low.
The results were below Wall Street expectations--as was Boeing’s projection of 1999 results. Its stock plunged $6.56, or 13.7%, to $41.19 on the New York Stock Exchange, the lowest close since spring 1996.
The world’s largest maker of commercial aircraft earned $258 million, or 26 cents a diluted share, for the three months ended June 30 compared with $476 million, or 48 cents, a year earlier.
First Call Corp. said the average estimate among analysts was for 33 cents a share.
Sales rose 9%, to $13.4 billion from $12.3 billion a year ago.
Earnings were down because of lower profit margins on commercial aircraft and additional late-delivery costs due to problems with the new generation of 737 jetliners, Boeing Chairman Phil Condit said.
In an unusual development, Condit said he expects Boeing will have about $1 billion in net earnings for 1998, and about double that in 1999. Boeing does not normally predict profit or revenue, but the production rate problems have been so costly that company officials have made extra efforts to reassure stockholders.
But the company’s forecast for 1999 was far below analysts’ expectations.
In the quarter, the company took a charge of $78 million related to the planned termination of the MD-11 aircraft line. It plans to deliver its last MD-11, a wide-body aircraft inherited when it bought McDonnell Douglas last year, in the first quarter of 2000.
Most of the sales increase was due to the 777 and next-generation 737 aircraft, but new commercial jet programs have lower profit margins because of higher production costs in the initial years.
The 737 program has been especially troubled, with production inefficiencies and parts shortages, extensive changes required after flight testing and lower revenue due to the mix of models being delivered, Condit said.
Condit said Boeing has made significant headway toward correcting the problems, but no gross profit will be recorded on the new 737 program until the production rate is boosted this year from 14 aircraft a month to 21.
Boeing officials said they will decide before the middle of August whether to start an assembly line for the 737 jetliner in Long Beach. Earlier, the company had said it would decide by early next month whether to transfer production of some updated 737s to the Douglas facility. The company could build three to four planes in Long Beach if a line is added there.
In a bid to cut costs, Boeing executives said in December that they planned to cut 12,000 jobs from the company’s commercial airplane operations, but this month they said they no longer expected to meet that target. The company’s total work force peaked at 238,000 this year and has remained steady.
Also Thursday, Boeing said it faces a production break in its profitable F-15 fighter aircraft line by 2000 unless it gets new orders by year-end from Greece and Israel.
The F-15 Eagle is used by the U.S. Air Force, Saudi Arabia, Israel and Japan. However, the Air Force bought its last F-15 air-to-air fighter in 1989 and will take delivery in 2001 of the last of 229 F-15E fighter bombers, produced in St. Louis. The service will buy no more F-15s because its top priority is the F-22, which is scheduled to replace the F-15.
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