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Boeing 1Q profits soar
April 20, 2001: 2:18 p.m. ET

No. 1 aircraft maker beats forecasts as income more than doubles and sales climb
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Profits soared at Boeing Co., easily topping forecasts on Wall Street, as the world's largest aircraft maker posted a big jump in sales compared with a year earlier, when a strike hurt its results.

Boeing (BA: up $0.52 to $61.15, Research, Estimates) earned $762 million, or 89 cents a share excluding one-time items, in the first quarter. Analysts surveyed by earnings tracker First Call had forecast earnings per share of 80 cents in the period. A year earlier, earnings were $359 million, or 41 cents a share, due to a strike by engineers and technical workers that hit commercial aircraft deliveries.

Sales jumped 34 percent to $13.3 billion. Most of the gain was from commercial aircraft, its largest unit, where revenue increased to $8.4 billion from $5.2 billion a year earlier. The commercial aircraft unit also produced most of the gain in profits, as its operating income more than tripled to $860 million from $259 million.

Military sales slipped to $2.4 billion from $2.8 billion, as operating profit there also fell to $246 million from $294 million. But that decline was more than balanced by increased sales in its space communications segment, where revenue climbed to $2.2 billion from $1.7 billion a year earlier, and profit climbed 40 percent to $84 million from $60 million.

The profit margins in the commercial aircraft division were the company's best performance in recent memory. The unit's operating income equaled 10.2 percent of revenue, which helped bring the company's overall operating revenue up to 9.2 percent of revenue.

Phil Condit, Boeing's CEO, said the company remains committed to reaching a 10 percent or better operating margin at every unit of the company, and believes that improvement is possible even from current levels in commercial aircraft.

"I think there's upside," he said when asked by an analyst if these margins were as good as the company could get. "It may not be up sequentially quarter to quarter due to a change in product mix. But overall the goal is to drive it up, and I think it's doable."

It wasn't long ago that Boeing was suffering from severe efficiency and operating problems. A strike by the International Association of Machinists in the last quarter of 1995 and problems integrating the purchase of McDonald Douglas in 1997 left the company struggling with production problems and inefficiencies, while European competitor Airbus Industrie made headway in jet sales to major airlines.

The company's earnings excluding special items fell to 63 cents in 1997, and in the four quarters following the closing of the McDonald Douglas deal, the company lost 7 cents a share.

Hitting the 10 percent profit level at commercial aircraft is a sign the company's fight back from those problems has been achieved, said Chris Mecray, aerospace analyst with Deutsche Banc. Alex. Brown. But he said the company will have a hard time meeting Condit's goal of improving those margins.

"The rebound surprised me with the speed it was effected," said Mecray

"I would say the turnaround story is complete. They've returned their margins where they were before the problems. But it is heavier lifting from here on. I think they have still continued upside, but they're getting into a zone where they have to do a lot of hard work to get there."

Boeing, the world's largest aircraft manufacturer and the nation's largest exporter, had a one-time tax gain of $475 million. With that, net income came to $1.2 billion, or $1.45 a diluted share, up from $418 million, or 48 cents a share.

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Boeing reaffirmed earlier guidance on profits, profit margins and sales. The company said its order backlog was little changed during the quarter, edging up to $124.1 billion from $120.6 billion at the end of the previous quarter. The company, one of the 30 components of the Dow Jones industrial average, announced last month its plans to relocate its headquarters out of Seattle.

Condit told reporters in a conference call Friday that the company expects to choose from among Chicago, Denver or Dallas by mid-May, and be relocated by the time schools open in September.

He also said the company will not need to take any charge to cover the cost of the move and the severance expenses for the 500 staff members it will leave behind as it cuts its headquarters work force. He said cost savings from the new headquarters and incentive packages from the winning city should cover the costs.

Condit told analysts and reporters he was not overly concerned about the possibility of worsening relations between the United States and China hurting the company's sales in the long term. "With China, there are always several major bumps along the way," he said. "I don't see any major long-term shift there and I remain optimistic about the China market."

But he did admit the company's sales to China could take a short-term hit if relations are seriously strained. "We are a pretty high visibility player, and that always puts us on the front line," he said. graphic