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Boeing posts 78 percent higher profit, raises 2004 estimate

By Dave Carpenter
The Associated Press

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The results announced today handily beat Wall Street's expectations.

Net earnings were $456 million, or 56 cents per share, up from $256 million, or 32 cents per share, a year earlier.

Excluding certain items, Boeing said operating earnings were 44 cents a share. Analysts polled by Thomson First Call had anticipated earnings of 40 cents per share.

Revenues rose 8 percent to $13.2 billion from $12.2 billion, easily topping the Wall Street consensus estimate of $12.5 billion. The defense and space unit accounted for 63 percent.

Citing lower tax expense than expected in the third quarter, the company raised its estimate of 2004 earnings by 15 cents a share to a range of $2.40 per share to $2.60 per share. It said it had tax refunds and adjustments totaling 50 cents per share in the first three quarters.

Shares in the Chicago-based company rose 42 cents to $50.40 in afternoon trading on the New York Stock Exchange. They are up 20 percent this year.

Boeing left unchanged its estimates of fourth-quarter revenue and 2005 earnings and revenue.

The defense business remained highly prosperous despite the ethical scandals that have scrapped a $23 billion deal to provide new refueling tankers for the Air Force and put other contracts in jeopardy. Nearly two-thirds of its revenue and most of its profits in the quarter came from the defense and space unit.

"Our Integrated Defense Systems business again delivered strong revenue growth and outstanding profitability, and made significant progress on key programs," said CEO Harry Stonecipher.

Standard and Poor's analyst Roman Szuper said that while the profits remain strong, "The main concern is ethical lapses in the defense and space operations that have endangered some key programs."
 
Stonecipher insisted he sees no threat from investigations that began this month after ex-Air Force contracting officer Darleen Druyun admitted inflating the price of the tankers as what her attorney called a "parting gift" to Boeing before joining the company as an executive. Druyun was sentenced on Oct. 1 to nine months in prison.

"We don't expect any impact from them," Stonecipher said on a conference call. "If anybody finds anything that needs to be cured, we'll cure it. But we don't expect them to find anything."

The defense division generated nearly $8.3 billion in revenues, up 13 percent, and accounted for $816 million in earnings from operations.

The once-dominant commercial airplane unit, meanwhile, saw revenues decline another 8 percent to $4.6 billion despite increasing its deliveries to 67 airplanes in the quarter, which Boeing attributed to a higher proportion of smaller 737s in that total. The Seattle-based division had operating earnings of $168 million.

The company left unchanged its 2004 forecast of approximately 285 deliveries but said it now expects to deliver about 320 airplanes in 2005 — at the high end of its previous range. Despite the current struggles of its airline customers amid soaring fuel costs and other challenges, it said global commercial airplane markets are improving and further recovery is expected in 2006.

Boeing also confirmed that recent inspections by its commercial airline customers have turned up tiny but potentially hazardous scratches on the skins of about 60 of its older airplanes, mostly 737s. Spokesman Jim Proulx said Boeing is working with air safety officials and will issue a bulletin to airlines later this year on the situation but does not expect to see emergency action taken by the Federal Aviation Administration.

The Wall Street Journal reported today that the scratches, which occur during repainting of the aircrafts' aluminum shells, can lead to deeper cracks that could spread around the fuselage. In extreme cases, according to an FAA safety bulletin quoted by the newspaper, they could potentially "lead to an uncontrolled decompression" with enough explosive force to peel off portions of the skin.

For the first nine months, net earnings were $1.7 billion, or $2.07 per share, compared with a loss of $414 million, or 52 cents per share, a year earlier when results were weighed down by charges reflecting the severe aviation slump. Revenues increased 6 percent to $39.1 billion from $37.1 billion.