EVERETT — Boeing posted better-than-expected financial results for 2014 but offered somewhat muted expectations for this year during a call with financial analysts and investors on Wednesday.
The company’s leadership remains unfazed by low oil prices and is still focused on increasing production rates for the popular 737 and 787 models.
Thanks to strong delivery numbers and new orders, fourth-quarter profit rose for the company by 19 percent as commercial jetliner demand remained strong. That easily beat Wall Street expectations and helped shore up Boeing’s weaker defense side.
However, the company’s outlook for 2015 is for higher revenue but lower per-share earnings as it continues to bring several new airplane models into production.
Boeing executives said in the call that the company will take even longer than previously expected to break even on the 787 Dreamliner program. Even so, the company’s chief financial officer, Greg Smith, said Boeing hopes this year to break even on the per-unit production cost — the cost to make a single 787 airplane — which, according to analysts, still costs about $25 million to $30 million more than the sales price.
“It’s all around, again, being more efficient on each unit and capturing additional unit cost,” Smith said.
Plans are in place to improve cost performance, he said. “Again, this is stuff we know how to do. We’ve done it on other programs.”
Boeing plans to keep extra workers on the 787 program to maintain the current production rate and continue working on increasing that rate to 12 airplanes per month in 2016. Boeing has hired hundreds of contract workers in South Carolina to augment its second assembly line there, and it still has a “surge line,” in addition to the main 787 assembly line, in Everett.
“Traveled” work on the 787 line decreased last year, but line workers here say low morale on the shop floor is hampering progress.
Deliveries were plagued by a shortage of expensive, high-end seats supplied by Zodiac Aerospace, a French company that owns several Washington-based aerospace suppliers.
The shortages affected some deliveries and “some fall in our production system,” Boeing CEO Jim McNerney said. “We are working through it now. We see it being resolved this year. We regret any impact it has had on our customers but it’s all been within our plans and within our guidance as we work through it.”
McNerney said he is confident that suppliers are ready to meet Boeing’s rising production rates.
The global aerospace supply chain also has to handle rate increases from Boeing’s rival, Airbus Group.
Boeing also plans to deliver three or four of the early production 787s that have been parked at Paine Field since they rolled out of the Everett factory five years ago. The company has struggled to sell the airplanes — called the Terrible Teens — which have required extensive rework and are reportedly heavier than later Dreamliners.
Boeing had planned to sell some in 2014, but prospective buyers, including Transaero, backed out.
The company is “in active discussions with many customers related to those airplanes,” McNerney said.
Boeing plans this year to spend about $2.8 billion for 777X facilities and equipment mostly in Everett, for expansion of the North Charleston, South Carolina, facility for planned 787 rate increases and for other capital investments.
The company expects to spend $3.5 billion on research and development in 2015. About two-thirds of that will be on programs for Boeing Commercial Airplanes, especially the 777X, the 787-10 and Dreamliner production rate increases, with the rest going to defense programs, Smith said.
Operating cash flow in 2015 is expected to be “greater than $9 billion, reflecting higher deliveries, strong operating performance, continued 787 productivity and capturing the final C-17 orders,” he said.
The company this year is closing the C-17 military transport airplane production line in Long Beach, California.
Oil prices have dropped from more than $100 a barrel last year to under $50 now. But McNerney said he isn’t worried about it affecting airlines’ demand for newer, more-fuel-efficient airplanes.
The lower fuel costs could help increase demand for 777 classic models, principally the 777-300ER, said David Strauss, a financial analyst with UBS.
But “it’s still a pretty long punt,” he said. The present 777 line’s fuel consumption is greater than that planned for the 777X.
Both Airbus and Boeing plan to increase production of twin-aisle, long-haul jetliners in coming years.
“It’s too many widebody seats,” Strauss said. “Something has to give.”
And the most likely candidate for a production-rate cut is the 777 classic, he said.
McNerney saw it differently during the conference call from the company’s Chicago headquarters. With no directly competing airplane, “we’re in a fortunate position here, and it’s one that we will shamelessly take advantage of,” McNerney said.
The lower oil prices could drive down replacement demand, mostly for single-aisle airplanes, as airlines find it more economical to fly older airplanes more rather than buy new ones, Strauss said.
At the same time, that would be tempered by increased profitability and growth due to lower fuel costs, he said.
In the past, drops in fuel prices haven’t hurt backlogs, noted Ken Herbert, an analysts with Canaccord Genuity, in an investment research note issued prior to Boeing’s earnings report.
But “considering 50 percent of deliveries today are for replacements, and the backlog is much more geographically diverse, it is difficult to fully model the potential impact of lower fuel prices,” he said.
The record backlogs at both Boeing and Airbus are bigger impediments to new orders, said Scott Hamilton, an Issaquah-based aerospace analyst and owner of Leeham Co.
“Right now, there’s no rush to order new airplanes because you can’t get them until next decade,” he said.
Fourth-quarter revenue beat expectations by nearly half a billion dollars, rising 3 percent over the previous year to $24.47 billion.
However, Boeing forecast a more muted view of 2015, saying that adjusted earnings will be between $8.20 and $8.40 per share. Analysts had forecast $8.66 per share, according to FactSet.
But the aerospace giant’s 2015 revenue forecast of $94.5 billion to $96.5 billion topped analysts’ consensus forecast of $93.25 billion.
Boeing and Airbus continue to benefit as airlines around the world go on a shopping spree, driven by rising demand for air travel and many airlines’ desire to replace older airplanes with new, more fuel-efficient ones.
Boeing’s defense side, which generates about one-third of the company’s revenue, continues to struggle as military budgets face pressure. Defense revenue fell 14 percent, led by a 29 percent decline in money from military aircraft.
The Associated Press contributed. Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com; Twitter: @dcatchpole.
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