Boeing Says 2011 Profit Hurt By 787, Defense Cuts

01/26/2011 10:29 am ET | Updated May 25, 2011

MINNEAPOLIS — Boeing Co. said on Wednesday that its 2011 profit will be hurt by delays to its new 787 and higher pension expenses.

Those factors plus smaller profit margins drove Boeing shares down more than 3 percent.

The airplane builder and defense company also said its fourth-quarter profit fell 8 percent to $1.16 billion. Revenue dropped 8 percent to $16.55 billion.

Boeing is being hit by several tough-to-manage forces. The 787 is running three years late, and earlier this month it pushed back delivery of the plane from February until at least July. Pension expenses are rising. And the Pentagon as well as overseas governments are tightening defense spending. Half of Boeing's revenue is from defense and space-related work.

It plans to deliver 485 to 500 airplanes in 2011. That includes 25 to 40 of the new 787s and its revamped 747, split about equally between the two planes.

Boeing aims to make 10 787s per month by the end of 2013, Chairman, President, and CEO James McNerney said on a conference call with analysts. Boeing had built in a time cushion when it originally set the 10-planes-per-month goal, "and a lot of that margin is now gone," he said.

Boeing would be sharply increasing the production rate of the 787 around the same time it is increasing production of its 777 and 737, as well as repositioning its defense business. McNerney said he's confident Boeing can handle all that.

"The underlying operating engine of this company is running very well," he said.

Customers pay about 40 percent of a 787's price while it's being built, with the other 60 percent due at delivery, said Chief Financial Officer James Bell. Boeing expects a profit margin of essentially zero on the first batch of 787s, though the plane "is not in a loss position" even with the most recent delay, Bell said.

Citi analyst Jason Gursky said investors may have been surprised that 787 margins will be so close to zero. "My impression was that they were expecting very low margins," but not that low, he said.

The company has declined to say how many planes are included in the first batch for accounting purposes. Bell said they would disclose that when the first plane is delivered.

Boeing now expects to make $3.80 to $4 per share for 2011 on revenue of $68 billion to $71 billion. Its pension expense will rise from $1 per share last year to $1.58 per share this year. If not for the higher pension expense, its 2011 profit would be closer to the $4.59 per share expected by analysts surveyed by FactSet.

For the fourth quarter, Boeing's profit worked out to $1.56 per share, down from $1.75 per share a year earlier. Not counting special items, Boeing said it would have earned $1.11 per share, which is about what analysts estimated.

Revenue for Boeing's commercial airplane division fell 11 percent to $8.18 billion. The operating profit from commercial planes dropped 39 percent to $627 million.

Its defense and space business revenue fell 5 percent to $8.17 billion. Operating profits dropped 2 percent to $816 million.

Boeing finished 2010 with a full-year profit of $3.31 billion, or $4.45 per share. Revenue fell 5.8 percent to $64.31 billion.

Boeing shares fell $2.22, or 3.1 percent, to close at $70.02.

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