January 30, 2019 / 12:42 PM / 19 days ago

Boeing shares soar on profit, aircraft forecast

(Reuters) - Boeing Co raised its profit and cash flow expectations for 2019 on Wednesday, sending shares up more than six percent amid a boom in air travel and faster production, though it was still fighting supplier delays on its cash-cow 737 jetliners.

FILE PHOTO: Employees are pictured as the first Boeing 737 MAX 7 is unveiled in Renton, Washington, U.S. February 5, 2018. REUTERS/Jason Redmond/File Photo

The world’s largest planemaker said it expects to deliver between 895 and 905 commercial aircraft in 2019, up from 806 aircraft it delivered last year, which - although just below company targets - kept it ahead of arch-rival Airbus SE for a seventh year.

Investors closely watch the number of planes Boeing turns over to airlines and leasing firms in a year for hints on the company’s cash flow and revenue.

Despite its rosy outlook, America’s biggest exporter faces possible turbulence on a number of fronts in 2019, including financial stress felt by some of its airline customers, signs of a broader economic slowdown and U.S. trade tensions with China, where Boeing ships about 1 out of 4 aircraft that it makes.

There are also unanswered questions related to the deadly crash of a Lion Air 737 MAX in Indonesia in October that thrust a spotlight on the newest version of the best-selling jet, as well as on airline training and maintenance.

Boeing Chief Executive Dennis Muilenburg told analysts during a conference call that he saw progress in fresh U.S.-China trade talks and separately said aircraft orders would be “moderated” but healthy in 2019, although deliveries dropped in January.

Muilenburg said Boeing would make a final launch decision in 2020 on a proposed new mid sized jetliner, aimed at a niche market falling between narrow- and wide-body aircraft, depending on the results of a round of commercial pre-marketing which it may begin this year. He had previously spoken of a launch decision in 2019.

The decision on whether to launch the new jet, known as NMA, is expected to reshape competition with Airbus, which dominates the top end of the medium-haul sector.

Muilenburg said Boeing started running 787 Dreamliner assembly lines at a rate ready to support higher output of 14 jets a month, confirming an earlier Reuters report, bringing it within reach of a closely-watched goal designed to boost cash and reduce costs.

The 787 transition to 14 per month will be completed by the second quarter, Muilenburg said.

Chicago-based Boeing said its quarterly operating margin on commercial aircraft increased to 15.6 percent from 11.6 percent from a year ago, driven by higher 737 production and higher margins on its Dreamliner.

Boeing’s upbeat forecasts and full-year 2018 results - which included surpassing the $100 billion revenue mark for the first time in its 102-year history - boosted shares nearly 7 percent to $388.64, helping boost the Dow Jones Industrial Average.

737 ENGINE DELAYS

Despite faster production, Boeing said it was still muscling through delays on engines supplied by CFM International - the trans-Atlantic venture between General Electric and Safran, which contributed to a major bottleneck at the Seattle-area 737 factory last year.

Related production problems dragged down quarterly free cash flow to $2.45 billion, below the previous year, Boeing said.

“We are deploying additional resources with them into their factories and supply chain,” Muilenburg said regarding CFM. “We do expect to recover, we’re seeing signs of recovery, but we still have work to go.”

A chunk of the earnings call turned to newer aircraft, with Muilenburg telling analysts the first all-new 777X widebody test airplane completed final body join and power-on ahead of flight tests later this year. The program remains on track for first delivery in 2020, he said.

Boeing also raised its full-year core earnings per share forecast to $19.90-$20.10 from $14.90-$15.10, and revenue to a range of $109.5 billion to $111.5 billion, from $98 billion to $100 billion, fueled by strong volume across its commercial, military and services businesses.

The company forecast operating cash flow between $17 billion and $17.5 billion in 2019, compared with cash flow of $15.32 billion in 2018, and above analysts’ average estimate of $16.73 billion, according to IBES data from Refinitiv.

It expects 2019 core earnings between $19.90 per share and $20.10 per share, and revenue between $109.5 billion and $111.5 billion.

Boeing’s core earnings rose to $5.48 per share in the fourth quarter, from $5.07 per share a year earlier, and came in above Wall Street’s estimate of $4.57 per share.

Quarterly revenue rose 14.4 percent to $28.34 billion, above analysts’ average expectation of $26.87 billion. Boeing’s 2018 revenue surpassed the $100 billion mark for the first time in its 102-year history.

Reporting by Ankit Ajmera in Bengaluru and Eric M. Johnson in Seattle; Editing by Sriraj Kalluvila and Nick Zieminski

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