Boeing profit jumps 18 percent, but cash is scarce

Wed Oct 22, 2014 3:07pm EDT
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By Alwyn Scott

(Reuters) - Boeing Co BA.N reported an 18 percent increase in quarterly profit and raised its full-year core earnings forecast for the third time, reflecting booming commercial aircraft demand and increasing profitability in its defense business.

But shares of the Chicago-based aerospace and defense giant slipped 4.3 percent, as analysts viewed the profit gain as a given and were more concerned that costs of the 787 Dreamliner are creeping higher, while the company's cash generation, a key measure for investors, was low.

Last year, Boeing blew past its cash forecast, booking $9.7 billion in operating cash flow before pension contributions, compared with a forecast of more than $8.5 billion.

But this year Boeing has a lower forecast of more than $7 billion, and in the first nine months has booked only $4.6 billion. For comparison, it had already booked $8.3 billion at the nine-month stage in 2013.

"Where's the cash?" RBC Capital Markets Analyst Robert Stallard asked in the headline of a note to clients.

During a conference call with analysts and journalists, Boeing Chief Financial Officer Greg Smith said cash flow would be "very strong" in the fourth quarter. He didn't provide details, and Boeing's official forecast rose to "more than $7 billion" from "about $7 billion."

Smith also "laid out some pretty clear operating reasons for why the 787 is not going to see a massive or rapid shift in cash returns over the next year or so," Stallard told Reuters. Boeing is stocking up on parts for its 787-9 model, and would try to do the same with the -10 variant, as a way to lower the risk of production snafus, and that will consume cash, Smith said.

The deferred production costs of the high-tech plane now appear likely to reach $26 billion, up from the $25 billion Boeing had forecast, analysts suggested. Smith didn't contest the number but said he didn't see the cost reaching $27 billion.   Continued...

The Boeing logo is seen at their headquarters in Chicago, April 24, 2013. REUTERS/Jim Young