Boeing's good quarter still leaves skeptics on 787 and 777

Boeing's fourth-quarter and full-year results for 2006, buoyed by tax benefits, handily beat Wall Street expectations Wednesday. Revenues, order backlog and cash flow all hit record levels.

That, plus continued firm assurances by top leadership that the 787Dreamliner program is on track, gave the stock a lift.

While generally satisfied with the results, analysts remained skeptical of the company's assurances on the 787. And one read some worry about the 777 in the financial tea leaves.

Revelations of some glitches with the 787 program have emerged recently: a flight vibration problem on the Dreamlifter large freighter that must carry parts around the globe; and large fuselage sections arriving in Charleston, S.C., from Japan with installation work for key systems unfinished.

However, Boeing Chief Executive Jim McNerney said in Wednesday's teleconference that the vibration problem is resolved and that Boeing has activated contingency plans for when major suppliers fail to complete their work.

The plans entail "hiring some people and having them ready to go" should such delays crop up, McNerney said. "It doesn't involve much money, it doesn't involve that many people, but it does anticipate worst-case kinds of scenarios."

JPMorgan analyst Joe Nadol and other analysts said it's still too early to tell if the 787 will arrive on schedule. The Dreamliner is to fly for the first time this summer and be delivered to customers in 2008.

"If there's a delay, they're not going to announce it until they're sure they can't get it done," said Nadol.

Some figures among the financial results also made Nadol worry about glitches on an existing program: the 777, one of Boeing's most successful cash cows.

Boeing pushed out to a later accounting period an extra $146 million in 777 costs incurred last quarter, suggesting to Nadol that ongoing changes on that production line are proving expensive.

(Boeing will book the costs over a period when the planes are delivered, in line with its standard accounting procedures.)

For the past year, the 777 bay inside the Everett factory has been shifting gradually and methodically toward a more efficient, moving production line. That work is expected to be finished next year.

Boeing spokesman Chuck Cadena said the transformation to a moving line and a simultaneous ramp-up of the production rate is on schedule. He said there has been significant investment in new equipment, including giant crawlers to move fuselage sections, and that this is in line with plans.

"It is a challenge. We are changing the very same production line we are building the airplanes on," Cadena said. "But we've been hitting all our milestones."

The massive 777 revamp is vital to Boeing. The airplane has done particularly well in the past year against Airbus' A340, which has almost fallen out of the market.

Yet Boeing doesn't anticipate that free run continuing much longer. Airbus is working on a new airplane, the A350, to compete against the 777.

"We don't expect our competitor to continue to stumble forever," McNerney said. "They are very, very formidable. So we don't expect to have airplanes in the market without competition over the next several years."

For now, the money is rolling in.

In the final quarter of 2006, total Boeing revenue from both defense and commercial units was up more than a quarter, to $17.5 billion from $13.9 billion.

Net profit more than doubled to $989 million, or $1.29 a share, compared with $460 million or 58 cents a share, a year earlier.

JPMorgan's Nadol said profit was padded in the quarter by interest income and tax benefits. Ignoring those two factors, profits from operations were still good, beating his forecast by more than 2 percent.

For the full year, total revenue reached a record high, up 15 percent to $61.5 billion from $53.6 billion in 2005.

Net profit for the year was $2.2 billion or $2.85 a share, compared with $2.6 billion or $3.19 a share a year earlier.

That decline mainly resulted from $571 million paid to settle with the federal government all legal cases related to two defense-procurement scandals, and $320 million to terminate the Connexion inflight Internet venture.

Adjusting for these and other one-time charges in 2005 and 2006, earnings per share for the year rose 51 percent year-on-year, from $2.39 to $3.62.

Though Boeing raised its profit forecast for 2007 and 2008 less than analysts had expected, most accepted it as a carefully conservative forecast.

Boeing shares rose 4 percent Wednesday, from $86 to $89.56.

Dominic Gates: 206-464-2963 or dgates@seattletimes.com