Net Income Declines 38 Percent On Halted Deliveries

We expected the news to be grim... and it is. Boeing announced Wednesday income declined 38 percent in the third quarter of 2008, to $695 million... while earnings per share declined 33 percent to $0.96 per share.

The planemaker said both hits reflect the ongoing strike by workers represented by the International Association of Machinists, and "supplier production challenges on customer-furnished galleys for certain wide-body airplanes." Combined, those items reduced third-quarter commercial airplane deliveries by approximately 35 units and net earnings by an estimated $0.60 per share. Revenues for the quarter declined 7 percent, to $15.3 billion.

"While the suspension of commercial airplane deliveries had a major impact on the quarter, we effectively executed the remainder of our business and kept our focus on the strong balance sheet we have built over the past few years," said Chairman, President and CEO Jim McNerney. "That balance sheet, along with our broad-based, record $349 billion backlog, gives us exceptional flexibility for weathering an extended work stoppage and for adapting to circumstances that may arise from the global financial crisis and softening global economy."

Boeing says it will provide updated financial guidance and an assessment of the schedule for its affected airplanes after the strike concludes... which few see as a likely occurrence in the foreseeable future, as both sides have taken an increasingly hard line in mediated talks. A new round of those talks is scheduled to start Thursday.

For the nine months of 2008, net income fell 9 percent to $2.8 billion, earnings per share decreased 4 percent to $3.76 per share, and revenue fell 1 percent to $48.2 billion. The operating margin was slightly lower at 8.7 percent.

"There were no significant write-downs due to the global financial crisis," Boeing added.

On the commercial side, Boeing's third-quarter revenues were $6.9 billion, 16 percent below the same period last year, driven by the fewer deliveries due to the strike and supplier production challenges. The labor strike has affected production of all airplane programs in Seattle, Portland and Wichita, according to the planemaker. Earnings from operations declined to $394 million from $945 million in the year-ago period due to the lower deliveries, the absence of supplier R&D cost sharing payments and additional 747 program costs.

For the first nine months, BCA revenues decreased 3 percent to $23.7 billion on lower deliveries due to the strike and galley shortage. Operating earnings decreased 18 percent to $2.2 billion while margins were 9.1 percent, driven by the lower deliveries, infrastructure cost absorption and additional 747 program costs that were partially offset by lower research and development spending.

BCA booked 149 gross orders during the quarter and 625 during the first nine months. Contractual backlog rose to a record $276 billion, increasing 8 percent year-to-date to approximately eight times BCA’s annual revenues.

In better news for the company, Boeing Integrated Defense Systems (IDS) third quarter revenues rose 6 percent to $8.5 billion on higher volumes across all segments. Operating earnings rose 4 percent to $854 million, yielding an operating margin of 10.1 percent. The strike reduced IDS operating margins by an estimated 0.4 points.

That's a marked shift from last year... when IDS weighed down Boeing's sizable good fortunes in the commercial segment.

FMI: www.boeing.com, www.goiam.org