Shares of Boeing Co. fell the most among stocks on the Dow Jones Industrial Average on Wednesday as a cost for the KC-46A aerial tanker rekindled concern that the planemaker would struggle with another new aircraft program.
The $272 million after-tax expense for the military jet overshadowed Boeing’s increase in its full-year profit forecast. Second-quarter earnings also beat analysts’ estimates Wednesday, buoyed by faster production that is sending jetliner deliveries to record levels.
“It is worrying that Boeing is booking a charge of this magnitude at a relatively early stage in this long-term program, particularly given recent assurances from management that everything was going to plan,” Rob Stallard, a New York-based aerospace analyst with RBC Capital Markets, said in a note to investors.
The stock slid 2.3 percent to $126.71 at the close in New York, its biggest daily drop since April 10. The decline was the biggest among the 30 companies in the Dow, and the second- largest in the Standard & Poor’s 500 Industrials Index.
Boeing’s delays producing the composite 787 Dreamliner hang over the development of the tanker, which is modeled on the 767 wide-body passenger jet produced since the 1980s. Redesigned wiring harnesses, rather than new innovations, increased engineering and manufacturing costs for the aerial refueler, said Jim McNerney, chairman and chief executive officer of the Chicago-based company.
“The issues at hand are well-defined and understood” and the spending kept the tanker on track to begin flight testing next year, he told analysts Wednesday on a conference call. With a potential market of 400 airplanes valued at $80 billion, the tanker “remains a franchise program for Boeing, and we expect to realize strong returns over decades of production and in-service support,” McNerney said.
Boeing’s quarter was “tarnished” by the tanker charge, Howard Rubel, a Jefferies LLC analyst in New York, said in a telephone interview. “The company seems to be spending to keep the program on schedule as opposed to making excuses for why it’s going to slide.”
Earnings for 2014 excluding some pension expenses will be in a range of $7.90 to $8.10 a share, Boeing said, compared with a previous projection for $7.15 to $7.35. Second-quarter profit on that basis of $2.42 a share exceeded the $1.98 average of 20 analysts’ estimates compiled by Bloomberg, continuing Boeing’s streak of beating or matching estimates extending to 2009.
The company handed over 181 commercial jets to customers last quarter, the most ever. Sales increased 1 percent to $22 billion, trailing the $23 billion projected by analysts. Revenue in the commercial business rose 5 percent to $14.3 billion and slid 5.4 percent to $7.75 billion in Boeing’s defense operations as the U.S. government pares military spending.
Boeing’s results were buoyed by two tax-related gains: $116 million that had been previously announced as well as a $408 million benefit disclosed Wednesday.
The net gain from the one-time tax boost amounted to 34 cents a share, while a lower share count after Boeing spent $1.5 billion on stock repurchases also bolstered earnings per share, according to Christian Mayes, an Edward Jones & Co. analyst in Des Peres, Missouri, who rates Boeing as hold.
“They did a little bit better than expectations,” Mayes said by phone. “But after you strip out the one-time items, it wasn’t that much better.”
Since last year, Boeing has used a profit measure dubbed core earnings per share, a figure the company says gives a clearer picture by adjusting for market fluctuations in pension cost. Net income jumped 52 percent to $1.65 billion, or $2.24 a share, from $1.09 billion, or $1.41, a year earlier.
Boeing is benefiting as its factories churn out 737, 777 and 787 aircraft at the fastest pace ever amid an order backlog shared with Europe’s Airbus Group NV that’s valued at about $1 trillion.
While Boeing still loses money on every Dreamliner it assembles, losses are shrinking as it smoothes out production kinks and takes advantage of supplier discounts that took effect earlier this year, Douglas Harned, a Sanford C. Bernstein & Co. analyst in New York, told clients Tuesday in a note.
Investors are tracking how the supplier agreements affect the 787’s deferred production cost, an accounting measure that is supposed to drop as the assembly expense declines with a projected gain in efficiency. Boeing estimated a ceiling of $25 billion last year, up from a previous forecast of $20 billion.
The cost measure rose 4.8 percent to $24.24 billion from the previous quarter, reflecting a slowing pace of increases that is “trending in the right direction,” said Jefferies’s Rubel.
McNerney said he intended to stay on at Boeing after he turns 65 next month. The company’s policy is for executives to retire at that age.
“The heart will still be beating, the employees will still be cowering, I’ll be working hard,” he said. “There’s no end in sight. We’re continuing to build a succession plan and alternatives to succeed me eventually, but there’s no discussion of it yet.”
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