NEW YORK: : Boeing shares surged Wednesday after it reported better-than-expected quarterly earnings, lifted its full-year profit forecast and announced US$3.5 billion in additional 2017 share repurchases.
Shares of the aerospace giant leaped 8.5% in midday trading to US$230.58, boosting the Dow index into record territory.
“Our teams are delivering better performance in every segment of the business, which is reflected in our strong second-quarter results and improved 2017 outlook,” said chief executive Dennis Muilenburg in a news release.
“Our robust cash flow enabled us to return more value to shareholders, invest in future growth and in our people, including a plan to accelerate pension funding that also reduces risk and cyclicality in our business.”
The results showed how cost-cutting has helped offset the effects of lower commercial plane deliveries in the first half of 2017, compared with the year-ago period.
Boeing has cut about 6,000 jobs since January.
Net income in the second quarter was US$1.8 billion, up from the US$234 million loss in the year-ago period due to one-time costs on its military and commercial aircraft programs.
Revenues fell 8.1% to $22.7 billion.
A key factor in the strong results was Boeing’s plan to contribute US$3.5 billion in common shares to its pension plan in the third quarter, accelerating its pension payments for the next four years and reducing its taxes by US$700 million.
Executives pointed to a solid increase in profit margins in the commercial air division as it boosts output of popular aircraft, such as the Dreamliner 787.
Aerospace companies typically spend heavily in the early years of a new generation of planes, winning bigger returns as the manufacturing processes mature and become more of a well-oiled machine.
An example is the narrow-body Boeing 737, for which production was recently increased to 47 per month from 42 and is planned to ultimately hit 57 per month.
“This move going from 42 to 47 didn’t get a lot of fanfare, but our team really did it very cleanly,” Muilenburg said.
New plane model eyed
Boeing, which announced a new 737 plane at the Paris air show last month, also elaborated on its idea for a “middle of the market” plane that is still on the conceptual stages but has generated interest in the airline industry.
Muilenburg pointed to demand for a plane that can travel in the 4,000 to 5,000 nautical range, carrying 220 to 270 customers.
“This really reflects the fact that the overall market is growing in these new regional points, point-to-point structures are evolving, and those new regional structures aren’t well served by existing airplanes in general,” he said.
“It needs to have some of the efficiencies in terms of turn times that you get with the widebody airplane and it also needs to have the economic efficiencies with the narrow body airplane,” Muilenburg said.
“Those are the details we are working through with our customers right now.”
Earnings from Boeing’s defense division rose due to higher profit margins and more favorable timing on contract awards compared to the year-ago period.
The company boosted its full-year forecast targets, lifting the range for projected 2017 earnings-per-share to $11.10 to $11.30 per share, up from $10.35 to $10.55 per share.
It also said it would increase its 2017 share repurchases by $3.5 billion for a total of $10 billion in 2017.
Investors smiled on the news of the additional buybacks as well as the dearth of unexpected one-time charges that have marred prior earnings reports and the financial benefits of cost-cutting.
“Boeing continues to surprise on cost-reduction,” said Ken Herbert, analyst at Canaccord Genuity. “Confidence in the commercial and defense markets has increased, and Boeing is clearly outperforming our expectations on cash generation, as well as margin.”