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Condit's reign failed to add sizzle to company's shares

By Drew DeSilver
Seattle Times business reporter

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Whatever else Phil Condit accomplished in his 7½ years as Boeing's chief executive, he's not likely to be remembered fondly by the aerospace giant's investors.

Boeing's shares not only are lower today than they were at the start of Condit's tenure, they have fared worse than both the Standard & Poor's 500 index — a benchmark for large companies — and an index of Boeing's peers in the aerospace and defense industries.

Analysts yesterday were reluctant to assign most of the blame for Boeing's underwhelming performance to Condit himself, saying Boeing is in a tough business that's gotten markedly tougher over the past several years.

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"I think a lot of it is attributable to the business Boeing is in," said Dan Rutter, a senior portfolio manager at Wentworth, Hauser and Violich in Seattle. "I don't think Condit has done nearly as much wrong as you might think given his resignation."

Adjusted for a 1997 two-for-one stock split, Boeing's stock closed at $40.375 on April 26, 1996, the last trading day before Condit succeeded Frank Shrontz as CEO. Yesterday, Boeing shares closed at $38.02, 5.8 percent lower than when Condit took over.

By contrast, even after the heavy stock losses of the past few years, the S&P 500 is 63.8 percent higher today than it was in April 1996. Over the same period, an S&P index of 27 aerospace and defense companies gained 26.6 percent.

Boeing shares dropped 37 cents yesterday on the news of Condit's departure and his replacement as CEO by Harry Stonecipher.

Boeing shares look like a better buy when dividends are included in the return analysis, but not much.

On the same day Condit took over as CEO, Boeing raised its quarterly dividend from 12.5 cents a share to 14 cents; it raised the dividend to 17 cents in December 2000. If you assume all those dividends were reinvested in Boeing stock, shareholders would have earned a 4.4 percent total return over the period.

However, if you had invested in an S&P 500 index fund over that same period and reinvested all the dividends, your total return would have been more than 82 percent.

Historically, Boeing's stock, like its core commercial-airplane business, has been quite volatile. During Condit's time as CEO, the shares have risen as high as $69.06 in November 2000 and sunk as low as $25.06 this past March.

By contrast, Rutter said, defense-industry stocks generally trade together within a fairly narrow range — he compared them to "a box of French fries, all pretty much the same length."

With defense work a bigger part of Boeing's business now than when Condit took over, he said, the stock should be less volatile in the future. However, he added, defense stocks typically trade at a lower level than other big manufacturers — primarily because their biggest, and sometimes only, customer is the Pentagon.

"When you've got a large, monopolistic client, they tend to decide your pricing," he said.

Other analysts said Condit's departure wouldn't change their neutral-to-negative outlook for Boeing's shares, at least not immediately.

Robert Spingarn, an analyst with Wachovia Securities, said in a note to clients that he didn't expect much upward movement in Boeing's shares until commercial-aircraft deliveries pick up — which he doesn't expect until 2006.

And although Spingarn, who rates Boeing shares "underperform," said he holds Stonecipher in "extremely high regard," at 67 the former McDonnell Douglas leader "is not likely a long-term solution."

"While the market may initially view (Stonecipher) as a recognizable and firm-handed leader with a strong history with the company, we think greater clarity on a succession plan will be necessary within a few quarters," he said.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com

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