NEW YORK (CNNfn) - Analysts are getting ready to lower earnings estimates at Dow component Boeing Co. due to a strike by technical and engineering employees that reaches the one-month mark on Thursday.|
"I think it's going to hurt them by around 15-to-20 cents a share, assuming it goes on to the end of the quarter," said Chris Mecray, analyst with Deutsche Banc Alex. Brown.
With no talks in sight and management and union positions appearing to harden, a quick resolution appears unlikely.
Mecray and most other analysts have yet to formally lower their estimates, though, waiting to get a better sense of any settlement of the dispute. "I'd like to get a little more visibility," he said.
But he and other analysts see little chance of Boeing getting out of the period making the 54 cents a share now forecast by earnings tracker First Call. The company made $469 million, or 50 cents a share, in the first quarter of 1999.
"The odds of missing the quarter are clearly going up," said Cai von Rumohr, analyst with SG Cowen Securities Inc.
Disruption of deliveries is problem
Boeing's only statement on earnings was made March 2, when it said, "financial impact on the company is presently uncertain, and will depend on a number of factors such as the duration of the strike, the nature of post-strike recovery plans, and performance of other business units."
The immediate impact on company profitability is that the strike has virtually stopped delivery of aircraft to customers, because the strikers are needed to certify the planes as airworthy. The company said it delivered 15 of the 30 planes scheduled for delivery from Feb. 9 through the end of last month.
No deliveries have occurred yet in March, and the company is not releasing statistics on how many planes were due to be delivered.
While the company says it hopes that deliveries can be resumed quickly after delivery, the chance of losing revenue originally expected this increases with each day.
Union officials said deliveries could take a longer time to resume than the company expects because strikers who were not present when work was done on aircraft could be reluctant to sign-off on that work.
Analysts have concerns beyond deliveries
The company declared an impasse in talks Sunday and imposed its final offer. Under the offer, technical employees, who earn an average of $45,000 annually, will get raises of between 2 and 5.5 percent, while engineers, who earn an average of $64,000, would see merit-based raises of up to 8 percent.
The union, the Society of Professional Engineering Employees in Aerospace, is seeking signing bonus and benefit improvements in line with other unionized employees at Boeing. It is seeking unfair labor practice charges against the company, as well as an end to the company's right to certify aircraft as airworthy during the strike.
Beyond the first quarter results, the larger concern for many observers is how the strike will be resolved, and what will be the attitude of strikes and the employees who crossed the line once the dispute is over.
The company estimates that about 25 percent of the 22,000 technical and engineering employees have reported to work throughout the strike. That number has stayed relatively constant throughout the strike. The 75 percent who have stayed out include a large number of non-members of the union.
As a group, the technical and engineering employees were seen as far more cooperative with management than the production workers represented by the International Association of Machinists. Many worry that cooperation will be lost.
"I don't lose any sleep whether they miss by 2 or 6 or 8 cents. The concern is how this ends, do they come back as one team, or do they come back one at a time with an attitude," said von Rumohr. "That could impact [on whether] you recover in the quarter."
Many observers are surprised by the level of anger by the employees, only 60 percent of whom belong to the union. Many non-members have honored the lines, and the union itself seemed badly split before the strike started, with only 51 percent of engineers and 62 percent of technical employees voting to reject management's final pre-strike offer.
"They've got zero strike fund, but as strike has gone on, it's gotten stronger," said Joe Nadol, analyst with Donaldson Lufkin & Jenrette Securities.
Length and strength of strike a surprise
The union has raised about $200,000 to distribute to strikers on a needs-basis, including $50,000 from the AFL-CIO on Tuesday. Both union and company officials said they are concerned about lingering problems after the settlement of a strike.
"How this is settled could have a huge impact," said Charles Bofferding executive director of the union. "If the company steps up and we settle this the right way, we can minimize this. But with each day that goes by, more people give up on Boeing."
Company spokesman Peter Conte disputed the company has done anything to antagonize the strikers.
"We have made an appeal for people to return to work so we can begin process of moving forward," he said.
Penalties could hit revenue next quarter
Analysts are in agreement that the company is unlikely to lose any orders because of the strike, and expect it should recoup revenue lost in the first quarter later in the year.
"If anything, right now Boeing has an advantage bringing in new orders, because (competitor) Airbus Industrie's orders are more backed up," said Nadol.
But Mecray said Boeing's contracts have penalties for late deliveries, and those penalties could start to be a problem by next month, costing the company more than any savings from not having to pay strikers.
"I suspect if it goes beyond the quarter they will start to feel some impact from the penalties," he said. A Boeing spokesman said he could not comment on the potential cost from penalties.
Shares of Dow component Boeing (BA: Research, Estimates) fell 1 to 33-3/4 in trading Wednesday afternoon, near the 52-week low of 33-1/2.
Analysts said other issues, including problems for blue chip, old-line manufacturers in general, and concerns about rising fuel prices hurting airlines' ability to order new planes, are equal to concerns about the strike.
While the consensus recommendation is just above a neutral rating, Mecray and von Rumohr have buy recommendations on the stock right now.
"In normal market it could get back to 60," said von Rumohr. He said he thought even with a bear market for blue chips the stock could get back to between 45 and 50.
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