Boeing shares fall 5% despite stellar 2013

EVERETT — The Boeing Co. expects to make a lot of money this year, but not as much as analysts and investors had hoped.

Their disappointment sent the company’s share price down 5.3 percent, to $129.78 per share, in trading Wednesday — despite the fact the company had just announced earnings of $5.96 per share in 2013 on record revenue of $86.62 billion. Revenue rose 7 percent last year to $23.79 billion.

Good times are still ahead for the company so long as it can continue to keep production costs low, Boeing executives said in a call Wednesday with investment analysts and journalists.

Boeing expects “core” earnings, which exclude some pension expenses, will be $7 to $7.20 per share in 2014, with revenue of $87.5 billion to $90.5 billion. That is higher than last year but lower than analysts’ expectations, according to surveys by FactSet and Bloomberg News.

The aerospace giant typically offers conservative projections and could deliver better results if it meets manufacturing targets, said Ken Herbert, managing director with Canaccord Genuity Inc.

But “2014 is going to be a little more challenging,” said Christian Mayes, an industrials analyst with Edwards Jones.

The St. Louis-based investment firm is recommending a hold on Boeing stock, which means don’t sell — but don’t buy, either.

Boeing has enjoyed several years of heavy demand for new airplanes, resulting in a record $441 billion order backlog. Demand for new airplanes isn’t going away, but it likely will stabilize rather than continue growing, Mayes said.

The company this year also won’t be announcing any new jetliners, such as the 2013 debuts for the 777X and 787-10, which spurred a flurry of new orders in 2013.

Boeing projects deliveries to rise again in 2014 to between 715 and 725 aircraft, including 110 Dreamliners. Boeing delivered 65 787s in 2013.

Boeing plans to increase production of the 737 in Renton to 42 a month this spring, and earlier this month it rolled out the first 787 produced at a rate of 10 a month. That rate was made possible by adding capacity in Everett, giving the company’s North Charleston, S.C., facility time to increase its output.

“We have experienced a higher number of jobs behind schedule in mid-body sections,” which are produced in North Charleston for final assembly there and in Everett, Boeing CEO Jim McNerney said during the conference call.

The behind-schedule work was caused by adding the 787-9 and ramping up the production rate, and wasn’t unexpected, he said.

Boeing has substantially reduced the unit cost of the 787-8 while introducing the 787-9 and will continue to cut program costs, which will help improve the company’s cash flow in coming years, Chief Financial Officer Greg Smith said.

This year’s projected $7 billion operating cash flow before pension contributions is substantially lower than in 2013, when it was $9.7 billion, according to the company’s earnings statement.

Contract bonuses for Machinists and research and development costs are among the reasons for the difference.

Boeing paid out more than $300 million to members of the the International Association of Machinists and Aerospace Workers (IAM), who narrowly approved an eight-year contract extension and will gradually replace line workers’ pensions with defined contribution retirement plans such as a 401(k).

During bitter contract negotiations starting last fall, Boeing said cutting benefit costs is necessary for it to stay competitive.

But Boeing executives did not cut their own pensions.

When asked about his pension, worth $3.6 million a year, and the lack of shared sacrifice, McNerney was vague.

“We still have very large pension obligations that we need to address over the coming years,” he said.

McNerney also said that he is not planning on retiring anytime soon.

The company’s defense operations posted a profitable year, despite facing headwinds as developed countries cut military spending and international competition grew.

While commercial aviation is what investors are focused on, defense is “still nicely profitable,” Mayes said.

Bloomberg News contributed. Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com.

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