Advertisement
YOU ARE HERE: LAT HomeCollections

Boeing 2nd-Quarter Profit More Than Doubles, Beats Wall St.'s Forecasts

Aerospace: Aircraft giant attributes the gain to improved production efficiency and increases its targets for next year.

July 16, 1999|LESLIE HELM | TIMES STAFF WRITER

SEATTLE — Boeing Co. said Thursday that its second-quarter profit more than doubled compared with last year, exceeding Wall Street's expectations and adding more evidence that the giant aircraft maker has recovered from its debilitating problems of recent years.

The aerospace giant also raised its targets for future profitability, saying it expects to earn profit margins of 5% to 6% next year, up from the previous forecast of 4% to 5%, despite a looming slowdown in commercial airplane orders.

Crediting dramatic improvements in production efficiency, Boeing said its earnings jumped to $701 million in the quarter, from $258 million the year before, on a 13% increase in sales.

Excluding a one-time gain from the settlement of a federal income tax audit, the company earned 56 cents a share, compared with 26 cents in the year-earlier quarter. Analysts had expected earnings of about 48 cents, according to a survey by First Call Corp.

"The second quarter reflects a growing momentum and a growing confidence in the company," Phil Condit, Boeing's chief executive, said in a telephone news conference.

The company also laid out its first "Value Scorecard," a set of numbers Boeing will release quarterly that will measure its progress toward its goal of joining the top 25% of the S&P 500 in terms of shareholder returns.

Under the new targets, for example, the company plans to cut overhead by $1.6 billion by the end of next year, in large part by cutting inventory, consolidating its facilities and substantially shrinking its supplier base.

The 122 million square feet of factory and office space Boeing now occupies across the country will be cut by 22% by next year. And the company plans to shrink the number of its suppliers to about 18,000, from 31,500 today, within three to five years.

The move to cut suppliers, together with consolidation efforts by other aerospace companies, could have wide repercussions for the hundreds of machine shops, including those in Southern California, that supply Boeing and its subcontractors.

"I think you could be seeing 10% to 20% of the machine shops go out of business in the next 18 months," said David Goodreau, chairman of the Small Manufacturers Assn. of California. In the Los Angeles area alone, Goodreau said that could mean 50 to 100 mom-and-pop companies shutting their doors.

"You begin to lose the core competencies that make [these machine shops] a significant part of the Los Angeles economy," Goodreau said.

Analysts are quick to downplay the significance of those moves to Boeing's recovery in the near term. They point out that with shrinking orders for airplanes, production will fall next year and maybe even the year after. The company is projecting that revenue will fall next year to $48 billion, down $10 billion from this year. That will force Boeing to cut costs faster just to keep profit level.

"They've been so bad in the past couple of years; they are just getting back to where they should have been all along," said Bill Whitlow, analyst at Seattle-based Safeco Assets, a money management firm. Whitlow said Boeing won't see the real benefits of its cost cutting until airplane orders begin to rise in the next "up" cycle, perhaps in three years' time.

Whitlow pointed out that the second-quarter results would have been less impressive if not for an expected $265-million reduction in research and development, as the company completed development of key product lines such as the new-generation 737.

Significantly absent from yesterday's announcement was any talk of outsourcing more of the thousands of parts Boeing now makes at inflated costs.

Parts purchasers at Boeing have calculated that the company could save hundreds of millions of dollars by switching to outside suppliers for many of these items. The issue is a key subject of current talks with the machinists union, which would like to keep that work inside the company. The union's contract expires later this year.

Boeing shares fell 88 cents to close at $46.75 on the New York Stock Exchange.

Advertisement
Los Angeles Times Articles
|
|
|