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Boeing Profit Increase Beats Forecasts

Aerospace: Positive earnings report is seen as a sign the firm is beginning to recover. The news triggers a rally in Boeing stock.

April 16, 1999| From Times Staff and Wire Reports

Boeing Co., taking a sizable step toward recovery from its dreary performance last year, posted a first-quarter profit Thursday that handily exceeded Wall Street's forecast.

The results fueled a rally this week in Boeing's stock, which had plummeted last year in the face of massive production problems at the giant aerospace and defense concern and a downturn in sales to Asia.

Boeing jumped $3.69 a share to close at $41.69 on the New York Stock Exchange Thursday, giving it a 19% gain for the week so far.

"Boeing showed a solid improvement in operations this quarter," said Peter Jacobs, an analyst with the investment firm Ragen MacKenzie Inc. in Seattle, where Boeing is headquartered.

"They still have a long way to go, but considering how bad the problems have been, this quarter certainly demonstrates that at least the worst of the problems are behind them," he said.

Boeing said its net income in the three months ended March 31 soared to $469 million, or 50 cents a diluted share, from a depressed level of $50 million, or a nickel a share, a year earlier. Boeing had been expected to earn 42 cents in the latest quarter, according to a survey of analysts by Zacks Investment Research Inc.

The company's first-quarter sales rose 12% to $14.4 billion from $12.9 billion a year ago.

"We continue to see the benefits of a very focused effort to improve," Boeing Chairman Philip Condit told analysts in a conference call. "Production in the factories is much healthier."

Boeing, long known not only as one of the biggest aerospace companies but also among the best managed, stunned both the aviation world and Wall Street last year with its problems.

The plane maker first struggled to ramp up production to handle a surge in airplane orders and digest its purchase of McDonnell Douglas Corp., then saw its crucial Asian market fall off much more sharply than it had first estimated.

The problems hammered Boeing's financial results, triggered massive layoffs in the greater Seattle area, punished Boeing's stock, hampered major Boeing suppliers such as Los Angeles-based Northrop Grumman Corp. and tarnished the reputation of Condit and the rest of Boeing's management.

Indeed, management's prior miscalculations and ongoing softness in demand for jetliners from Asia and elsewhere prompted some analysts to maintain a cautious view about Boeing's latest results.

"The quarter is irrelevant," said Peter Aseritis of the investment firm CS First Boston in New York. "Boeing is still telling you that commercial airplanes [sales] are going to fall $9 billion next year. The cyclical downturn is still coming."

Boeing, in fact, did say its revenue for 2000 will drop to about $49 billion from $58 billion this year. And despite its recent production gains, Boeing said it doesn't see its profit margin widening next year.

One reason: Boeing's competition for new sales with rival Airbus Industrie of Europe remains intense, which makes it hard for either to raise prices. Boeing predicted "continued pricing pressures" in 1999.

Even so, the first-quarter upturn in Boeing's performance was enough to cheer many stockholders.

"Boeing is a huge blue-chip stock with massive market share and great traditions," said Richard Aboulafia, an analyst at the aerospace research firm Teal Group in Fairfax, Va.

"It doesn't take much to convince investors to get back in."

Boeing said its commercial airplane group posted pre-tax operating profit of $382 million, up from just $23 million a year earlier, on a 21% sales gain to $9.8 billion from $8.1 billion.

The company delivered 148 commercial jets in the first quarter, up from 108 in the comparable quarter of 1998. Its order backlog for jetliners stood at $84.1 billion as of March 31, compared with $86.1 billion three months earlier.

Meantime, Boeing's military aircraft and missiles division reported operating earnings of $322 million, up from $252 million, and its space and communication's group said its first-quarter earnings also rose, to $61 million from $44 million.

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