Profit Drops but Boeing Upbeat
Boeing Co. said Wednesday that fourth-quarter profit tumbled 84%, largely because of charges for an aborted Air Force tanker contract and the planned closure of its 717 line in Long Beach.
But the aerospace titan’s stock climbed after Chief Executive Harry Stonecipher said that commercial jet deliveries would rise this year and next because of an uptick in international air passenger traffic.
Another defense contractor, Century City-based Northrop Grumman Corp., also reported fourth-quarter results Wednesday, posting a 31% hike in profit on strong sales of its unmanned Global Hawk spy planes, military electronics and devices for screening against anthrax.
Boeing and Northrop are the largest private employers in Southern California, with a combined workforce of more than 60,000.
Chicago-based Boeing earned $186 million, or 23 cents a share, in the quarter, compared with $1.13 billion, or $1.40 a share, a year earlier. The results beat analysts’ expectations.
The charges included about $475 million, or 44 cents, related to writing down the 717 jetliner program and the contract for Air Force aerial refueling tankers.
The Pentagon voided the $23-billion tanker deal because of a scandal involving a former Department of the Air Force civilian official who pleaded guilty to favoring Boeing in various defense contracts.
Boeing’s quarterly revenue edged up 1% to $13.3 billion, from $13.16 billion in 2003.
Boeing will make 375 to 385 commercial airliners in 2006, Stonecipher said during a conference call with analysts, and expects to deliver 320 this year. It had 285 deliveries in 2004.
The CEO also said that Boeing may decide by midyear whether to develop a larger version of its mainstay 747 jumbo jet. Boeing has been talking to airlines to gauge their interest in such a plane, he said. It would seat about 500 passengers and counter rival Airbus’ new 555-seat A380, which is slated to begin flying in 2006.
Unlike Boeing, which does a mix of defense and commercial aerospace work, Northrop receives about 90% of its revenue from government contracts. In the quarter, increased sales of radars for fighter jets and electronic security systems for military and federal government facilities bolstered earnings to $294 million, or 80 cents, compared with $224 million, or 61 cents, in the year-ago period.
Revenue was up across all of its business units to $7.85 billion from $7.15 billion.
Northrop’s Space Technology unit in Redondo Beach had revenue of $804 million, up 11% on the sale of radio equipment that will be used in the new F-35 fighter and increased classified work for intelligence agencies. And revenue at Northrop’s Integrated Systems unit in El Segundo climbed 26% to $1.29 billion as it received increased development work on unmanned aerial vehicles and airplanes equipped with early warning radars.
Both Northrop and Boeing have benefited from the post-9/11 defense buildup, but in recent weeks the White House has called for scaling back Pentagon spending amid a rising federal deficit and increasing costs of fighting in Iraq.
Executives for Boeing and Northrop said Wednesday that the companies were well-positioned for any changes in the Pentagon’s spending priorities.
Northrop Chairman and Chief Executive Ronald D. Sugar said the company had a “wonderfully diverse blend” of contracts that would buttress any cutbacks in a particular Pentagon program. Northrop is the third-largest U.S. defense contractor, and its portfolio includes spy satellites, aircraft carriers and Internet software. The company has more than 30,000 military contracts, Sugar said, none of which generates more than 3% of annual revenue.
James Albaugh, president of Boeing’s Integrated Defense Systems business, said the firm had a good mix of work developing, manufacturing and then maintaining military equipment. It also has a backlog of about $84 billion in Pentagon contracts, enough to sustain revenue growth for several years, he said.
In the fourth quarter, Boeing’s defense business posted earnings of $675 million, a 12% increase from the year-earlier result of $603 million. The earnings were fueled by increased revenue from work on a new aircraft for detecting submarines and weapons systems for the Army.
Jon B. Kutler, president of Jefferies Quarterdeck, an aerospace investment bank, said industry consolidation in the 1990s left the large contractors “so diversified and so dominant that whichever way the defense budget goes, they’ll be able to protect their franchise by switching revenues from one program to another.”
Northrop shares rose 34 cents Wednesday to $52.34, while Boeing gained $1.19 to $52.23, both on the New York Stock Exchange.
