Boeing's jet deliveries, profit descend

Boeing said second-quarter earnings declined 21 percent on fewer plane deliveries, and it reduced its projection for profitability at its defense unit on slower U.S. military spending.

Profit fell to $787 million, or $1.06 a share, the world's biggest aerospace company said Wednesday. Boeing maintained its forecast for earnings for this year.

Airlines are placing more orders as they recover from the recession more quickly than expected, while militaries are under budget pressure, said CEO Jim McNerney.

The company trimmed its forecast for the operating margin of its defense unit, which accounts for more than half of revenue, by half a percentage point to 9.5 percent in 2010.

"There is no question that the cost structure of that business has to come down," McNerney said on a conference call.

He added "there will probably be some layoffs" as well as attrition in the defense-side work force.

Boeing spokesman Chaz Bickers said later the cost-cutting has been under way for a couple of years, and the company isn't disclosing its reduction targets.

"You're seeing segments of the defense business show some serious weakness," said Kenneth Herbert, an analyst with Wedbush Securities in San Francisco. "For many years, the defense business was a nice floor on valuations, but if that's going to weaken further relative to expectations, that's a concern for investors."

Boeing will make up airliner shipments in the second half of the year to hand over as many as 465 and still may double full-year profit to as much as $3.80 a share, Chief Financial Officer James Bell said on the conference call.

The company raised its annual forecast for the commercial unit's margin by 1 percentage point to as much as 8.5 percent.

Boeing, second to Airbus in commercial aircraft and to Lockheed Martin in defense contracting, saw its stock fall $1.30, or 1.9 percent, to $67.32 Wednesday. The shares have risen 24 percent this year.

Sales fell 9.2 percent to $15.6 billion in the second quarter, missing analysts' $16.2 billion average estimate compiled by Bloomberg. Earnings beat the $1.01-a-share average estimate of 20 analysts.

The defense segment's operating margin decreased 1.2 percentage points to 8.9 percent as sales fell in every area except military aircraft. That outpaced the decline in the commercial-jet division, where operating margin fell 0.5 percentage point to 9.2 percent.

The total backlog declined 1 percent from the end of March to $312 billion, as the defense unit's deliveries exceeded new orders.

Boeing, which gets the bulk of its payments upon delivery, shipped 8.8 percent fewer planes in the period amid a production gap between a new and old jumbo-jet model and delays due to defective seats from a supplier.

The company also began cutting output of the 777, a plan put in place last year when orders collapsed during the recession.

Commercial production is to accelerate starting next year because airlines are clamoring for new jets amid a pickup in air-travel demand that Boeing said last week had spurred it to lift the internal orders forecast twice this year.

The company also plans to begin delivering the latest 747 model and the new 787 Dreamliner by the beginning of 2011.

"We were expecting lighter revenue given the lower commercial-aircraft deliveries," said Peter Arment, a Gleacher & Co. analyst in Greenwich, Conn., who recommends buying the stock. "The production ramp continues unabated and that ultimately is going to drive the earnings momentum at Boeing."

Boeing had planned to hand over the first 787 to Japan's All Nippon Airways by December, which would have been more than 2-½ years late, and to ship the first 747-8 to Cargolux Airlines International by then as well, more than a year behind schedule.

McNerney repeated comments from earlier this month that both those goals may now slip into January, adding that the 747-8 bears a higher risk for a delay.

"On the 747-8, there are a couple of workmanship issues and a design issue or two that we're working through," McNerney said.

The 787's possible hindrances have to do with documentation for certification from the Federal Aviation Administration and longer down time between tests while engineers change telemetry instrumentation, he said.

In 2011, sales will exceed this year's projection of as much as $66 billion and operating cash flow will be more than $5 billion, recovering from zero this year, Boeing reiterated.

This year's surge in orders — already higher than all of last year — will be "modestly less" than the record three-year run-up in purchases through 2007, McNerney said.

Seattle Times staff contributed to this report.