Boeing profit beats estimates despite 787 problems

Wed Apr 24, 2013 12:35pm EDT
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By Alwyn Scott

NEW YORK (Reuters) - Boeing Co's first-quarter earnings jumped nearly 20 percent, handily beating analysts' estimates and showing little impact from the 787 Dreamliner problems, sending the company's shares up more than 3 percent in midday trading.

Boeing, in its quarterly report on Wednesday, stood by its sales, earnings and cash forecasts for the full year, reassuring investors that it expects to deliver all of the jets it had planned, including Dreamliners.

Cost-cutting and higher profit margins more than offset a small decline in sales. Boeing delivered the same number of commercial jets as in the year-earlier quarter, but with deliveries of low-margin 787 halted, margins improved.

Regulators grounded the plane after batteries overheated on two 787s in January, which stopped deliveries. The company did not release a cost estimate for the Dreamliner problems, as some analysts had expected. But on a conference call, it said the majority of the cost of fixing the battery issue had been reflected in the first-quarter results.

The cost of analyzing the problem, redesigning the battery system, testing it and retrofitting the 50 Dreamliners in service was absorbed in large part by shifting resources around the company, CFO Greg Smith said.

On an accounting basis, the expense will be folded into the cost of producing more than 1,100 Dreamliners, so it will not be felt in the company's earnings, he added. He declined to provide a figure for that total cost.

Jason Gursky, an analyst at Citigroup in San Francisco, estimated that a cost of $200 million spread over 1,100 aircraft would add just over $200,000 to the cost of the jet, which has a list price of about $207 million and sells for about half that.

"It's a rounding error of a rounding error of a rounding error," Gursky said.   Continued...

Logos of some Boeing 787 commercial airline clients are seen on a fuselage of the aircraft at the Singapore Airshow in Singapore February 14, 2012. REUTERS/Kevin Lam