CHICAGO — The Boeing Co. delivered more jetliners than ever before in the third quarter but investors focused on a plane that still wasn’t ready: a delay-prone tanker for the U.S. Air Force.
Costs for the KC-46 tanker program climbed $329 million in the quarter as Boeing grappled with aerial refueling issues, the company said in a statement. That marred a quarter in which cash flow swelled as the planemaker shipped a record number of commercial airplanes.
The results disappointed investors who have flocked to Boeing this year as the company sped up production, threw off gobs of cash and largely avoided the aircraft-development headaches that have plagued rival Airbus SE. On Wednesday, shareholders pulled back and dragged Boeing to its biggest decline in five months. The stock closed down 2.8 percent at $258.42.
“It’s not a blockbuster quarter,” said George Ferguson, an analyst at Bloomberg Intelligence. “For the number of airplanes they delivered, I really would’ve expected a better pop.”
Revenue for Boeing’s core jetliner business fell 1 percent to $14.9 billion, despite the quarter’s record deliveries. Operating profit rose 15 percent to $1.48 billion. Defense sales fell 5 percent to $5.47 billion, while operating profit dipped 1 percent to $559 million.
The growing tab to build the first 18 tankers for the U.S. Air Force, months past their scheduled August due date, weighed on results for both commercial and defense. Costs for the KC-46 program climbed $329 million in the quarter as Boeing grappled with refueling issues, such as scrapes on aircraft and radio interference.
The Chicago-based manufacturer complicated the picture by breaking out the financial performance of a new services business for the first time, leaving investors and analysts to puzzle over the underlying performance.
“The introduction of the new division has made the situation a bit murkier than usual,” Robert Stallard, analyst with Vertical Research Partners, said in a note to clients.
The company’s shares fell more than 3 percent for the biggest intraday decline since May 10. Through the close Tuesday, the stock had skyrocketed 71 percent this year — more than triple the average gain posted by members of the Dow.
Earnings adjusted for certain pension expenses slid to $2.72 a share from a year earlier, when the company recorded a one-time tax benefit, Boeing said in a statement. The result exceeded the $2.65 average estimate of analysts surveyed by Bloomberg. Sales of $24.3 billion and free cash flow of $3 billion were also better than analysts predicted.
Surging 737 deliveries helped Boeing set a record of 202 jetliner shipments during the quarter. The higher shipments added about $1 billion to revenue and $150 million to earnings, Ferguson said.
Even so, sales fell for the company’s main commercial aircraft division, raising concern about the planemaker’s ability to soften the blow from slower 777 production as Boeing moves to an upgraded model by decade’s end.
Boeing continues to reap more cash from its 787 Dreamliners as it reduces the balance of inventory and factory costs amassed after the carbon-fiber jet debuted more than three years late in 2011. So-called deferred production costs fell $513 million during the quarter to $25.9 billion.
The pace of savings on the Dreamliner had been expected to slow after Boeing in July increased the accounting quantity used to calculate profit and loss. The company has been working on thousands of tips from employees and suppliers to refine the plane’s manufacturing process and expects profit to climb as it mainly builds the higher-margin 787-9 and 787-10 variants.
The results provided the first look at Boeing Global Services, a new division that combines data analytics, maintenance, spare parts and other services previously offered separately by Boeing commercial and defense divisions. Sales in the quarter were $3.67 billion, up 2 percent, while the unit reported an operating margin of 14.2 percent.
Chief Executive Officer Dennis Muilenburg sees the new business as a counterweight to the commercial aircraft business, which accounts for more than half of total revenue and is prone to global macroeconomic shocks. He has set a target of growing sales of the services operation to $50 billion within the next five to 10 years.
Boeing raised its outlook for 2017 as its financial performance came into sharper view. The manufacturer now expects core profit of $9.90 to $10.10 — 10 cents more than it forecast in July. Operating cash flow is expected to be $12.5 billion, compared with a previous target of $12.25 billion.
The aerospace company also trimmed research and development spending by $200 million and lowered its tax rate 50 basis points to 28.5 percent, “so this would suggest no change to the operating forecast,” Vertical Research’s Stallard said.
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