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Boeing Plunges After Weak 2016 Forecast Fans Slowdown Concerns

Image: Boeing Plunges After Weak 2016 Forecast Fans Slowdown Concerns

Wednesday, 27 Jan 2016 10:45 AM

Boeing Co. fell the most in five months after predicting weaker profit and fewer jetliners than analysts expected, stoking concerns that airlines’ appetite for new planes is waning amid global economic turmoil.

The company was the worst performer among the 30 members of the Dow Jones Industrial Average even though its fourth-quarter profit exceeded estimates by a wide margin. The stock plunged 9.5 percent to $115.87 at 10:14 a.m. in New York after earlier dropping as much as 10 percent, its steepest intraday decline since August.

Earnings excluding some pension expenses will probably be $8.15 to $8.35 a share this year, the company said Wednesday in a statement. That was more than $1 below than the $9.42 average of 22 analyst estimates compiled by Bloomberg. Boeing’s sales forecast of between $93 billion and $95 billion fell short of analysts’ projections of $97.3 billion.

Aircraft deliveries this year will fall from a record 762 in 2015, Boeing said, fueling concerns that revenue growth may be hampered by a saturated market and a sluggish global economy. Planemakers typically receive the bulk of payment for their products when they are delivered to customers.

“We’ve seen this telegraphed in the marketplace, we know there is softness in widebody sales” of models such as the 777, said George Ferguson, senior air transport analyst with Bloomberg Intelligence. “Boeing may be smart here and decide it’s not selling airplanes on the cheap. But that’s not going to make investors feel any better today, because that hurts earnings.”

Falling Deliveries

Boeing’s traditionally conservative annual forecast will be in the spotlight as Chief Executive Dennis Muilenburg addresses analysts later this morning. 

Aircraft deliveries should taper to 740 and 745 jetliners this year as Boeing cuts production of its iconic 747 jumbo jet and begins manufacturing a new version of the 737, its all-time sales leader. Executives have said they are studying a similar production cut for the best-selling 777 jetliner amid a transition to an upgraded model.

Boeing said it was reaffirming already announced manufacturing increases for its aircraft, without elaborating.

While the weaker earnings shouldn’t “negatively impact Boeing’s existing plans to return cash to shareholders, it could create doubt as to the sustainability of these plans, especially with the probable 777 rate cut/777X ramp still ahead,” Robert Stallard, an aerospace analyst with RBC Capital Markets, said in a report Wednesday. “And this doesn’t include any impact from an aerospace downturn if this should occur at some point before the end of this decade.”

Boeing expects operating cash flow to rise this year to about $10 billion, from $9.36 billion in 2015, as it works to drive down costs and build aircraft more efficiently. Its board also approved increasing the share repurchase authorization to $14 billion, to be made over the next two to three years. Fourth-quarter profit of $1.60 a share topped the $1.27 anticipated by analysts.

Deferred production costs for the Dreamliner rose to $28.5 billion during the fourth quarter from $28.3 billion in the previous quarter, Boeing said on its website. Boeing has said the figure, which measures funds already poured into inventory and labor against increases in production efficiency, will plateau this year as it speeds 787 output to 12 planes a month.

Investors have been searching for signs that costs have peaked for the Dreamliner, which has drained cash that Boeing should be reaping from a near-record order backlog. The jetliner is the first built of spun carbon-fiber composites rather than aluminum and entered commercial service in 2011, more than three years late.

The unexpected drop in jet deliveries “doesn’t point well to the long term,” Ken Herbert, aerospace analyst with Canaccord Genuity, said by phone. “You could think of 2016 as a plateau or a settling before further acceleration, but that certainly brings into question that acceleration into ’17, ’18, ’19.”


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Boeing Co. fell the most in five months after predicting weaker profit and fewer jetliners than analysts expected, stoking concerns that airlines' appetite for new planes is waning amid global economic turmoil.The company was the worst performer among the 30 members of the...
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2016-45-27
Wednesday, 27 Jan 2016 10:45 AM
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