The company said first-quarter profit was up 19 percent despite the drop in revenue. It offered upbeat outlooks for the 787 Dreamliner’s profitability and production rates for the 737, but took another charge on the Air Force tanker program.
Boeing Chief Executive Dennis Muilenburg offered some assurances Wednesday that production rates of its big widebody jets in Everett won’t go any lower than the five- per-month output planned starting this summer.
But that doesn’t mean the current wave of layoffs is at an end. On a teleconference call to discuss first-quarter earnings, he reiterated Boeing’s intention to tamp down costs and make its factories more efficient as it girds for a slowing aerospace market.
“We work in a very competitive marketplace,” said Muilenburg. “The tough affordability actions we’ve had to take have been necessary.”
Series of write-offs
Among other things, the quarterly results revealed the latest in a long series of KC-46 tanker write-offs.
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Boeing took a charge of $142 million to cover additional costs needed to incorporate changes into the initial production tankers.
A year ago, Boeing wrote off $243 million on the tanker program after charges totaling $1.3 billion in the two years before that.
Yet Muilenburg cited “steady progress towards completing tanker development.”
Boeing’s overall revenue slumped in the first quarter of the year as the plane maker delivered just 169 commercial jets, the fewest since the first quarter of 2014.
That’s in part because of reduced production of the 777 in Everett, but also because newly built 737 MAX jets are stacking up undelivered in Renton before that new model’s entry into service next month.
Revenue fell 7.3 percent to $21 billion in the first quarter, about $200 million less than analysts had estimated.
That overshadowed a surprise gain in cash flow as the manufacturer kept costs in check and started to slowly reap a long-awaited payoff from the 787 Dreamliner.
First-quarter operating cash flow was $2.1 billion, well over the analyst consensus forecast of $510 million reported by S&P Capital IQ.
Yet while management raised its forecast for 2017 earnings because of improved tax expectations, it didn’t raise the year-ahead cash outlook — indicating that the first-quarter cash boost may be exceptional.
Wells Fargo analyst Sam Pearlstein wrote in a note to investors that the current company and analyst estimates “reflect the best-case scenario for cash-flow growth over the next several years,” indicating that any shifts ahead may be lower, not higher.
The expectation that rising 737 production rates and higher profits per plane on the 787 Dreamliner will generate a lot of cash has led investors increasingly to look to cash flow as a guidepost to Boeing’s future business success. So the failure to raise the guidance disappointed.
“The stock has been a highflier for a while,” George Ferguson, an analyst at Bloomberg Intelligence, said Wednesday. “People clearly had high expectations and this was a middling report.”
Boeing had risen 18 percent this year through Tuesday, the third largest gain among the 30 members of the Dow Jones industrial average.
Wednesday, the shares closed down 1 percent for the day at $181.71.
Muilenburg attempted to steady nerves frayed by the current global slump in widebody jet sales.
Boeing already plans to cut output of the 777, which was at 8.3 jets per month last year and is now at seven jets per month, to just five per month this summer.
“When we step to the five a month … that’s the floor that we see in the factory,” Muilenburg said.
He said the sales gap in 777 sales looming in the next few years is close to being filled.
Next year, Boeing will begin assembling the first 777X models and so actual deliveries will sink to 3.5 of the current model 777 per month.
That means about 84 of the current 777swill be delivered in 2018 and 2019. Of those, Muilenburg said some 75 are already sold — counting the 15 in the still-not-finalized agreement with Iran.
He also expressed optimism that current production of the 787 Dreamliner at 12 jets per month may yet rise to 14 per month, though new sales have to materialize for that to happen.
Muilenburg seemed certain that at least the 787 rate won’t fall.
“At 12-per-month rate, we are in very, very solid position,” he said. “We’re not looking at scenarios that would drop us down from 12 a month.”
Another positive is that production costs of the 787 continue to fall with each 787 that rolls out of Everett.
The marquee aircraft, with a frame made of spun carbon-fiber, emerged — on a per-airplane basis — as a moneymaker for Boeing last year after a decade of losses.
As a result, the total of 787 deferred production costs fell $316 million last quarter to $27 billion.
That represents the still-to-be-recouped money the company sank into inventory and manpower after the Dreamliner entered the market three years late after a series of production and supply-chain breakdowns.
Boeing has promised a steep improvement in cash and savings from the Dreamliner as it refines the plane’s manufacturing process, builds more higher-margin models like the 787-9 and no longer has to compensate customers for late deliveries.
For the full year, the company forecast adjusted earnings of $9.20 to $9.40 a share, up from a previous estimate of $9.10 to $9.30, mainly because of a reduction in the expected tax rate.