Boeing Boosts Outlook Despite Tanker Problems -- 2nd Update

By Doug Cameron Features Dow Jones Newswires

Boeing Co. said Wednesday that demand for its single-aisle jets could merit a further rise in production beyond the 35% increase already envisaged by the end of the decade.

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Higher output of its 737 jets and the improved profitability of its 787 twin-aisle planes have helped Boeing's share price almost double over the past year as it channeled most of the extra cash to shareholders in the form of buybacks and higher dividends.

Boeing Chief Executive Dennis Muilenburg said the 737 was already sold out beyond the end of the decade, and there was pressure from customers to boost monthly output beyond the 57 jets envisaged in 2019. Boeing recently boosted output to 47 a month and plans to raise this by another five next year.

His comments came as Boeing reported forecast-beating quarterly earnings alongside a modest boost to its profit and cash flow guidance for the year. However, its shares declined following another charge on its military tanker program and limited detail on how it plans to reach aggressive targets for expanding its services business.

Boeing already has orders for 5,700 commercial jets representing seven years of output at planned production rates. Rapid growth in passenger and freight traffic, especially in developing markets, has fueled optimism that the longstanding boom-and-bust cycles of the jet industry are smoothing.

One area where Boeing doesn't plan to focus on is the market for smaller jets seating 100 to 150 passengers, targeted by the planned partnership between Airbus SE and Bombardier Inc.

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"Recent changes in the marketplace, discussions between Airbus and Bombardier, don't change our plans," Mr. Muilenburg said on a quarterly call.

He also continued to rail against other planned consolidation in the aerospace industry, notably the planned combination between United Technologies Corp. and Rockwell Collins Inc. announced last month.

"Until proven otherwise, we remain skeptical," he said of a deal that would unite two of Boeing's largest suppliers, potentially reducing its own leverage to cut its costs and boost profit margins.

Boeing provided few new details of the services unit formed in July, which is expected to have sales this year of up to $14.5 billion and margins of as much as 15.5%, well ahead of its core plane making and defense units.

The unit aims to double its market share of selling spares and services and boost revenue from the business to $50 billion over the next several years.

The push into services has irked many Boeing suppliers, who rely on the segment for their own profits. United Technologies revealed Tuesday that it doesn't make any money on new parts sold to Boeing, just on spares.

Boeing beat expectations for the sixth quarter in a row after a record 202 commercial airliner deliveries in the latest period.

Boeing shares were lower in premarket trading, with investors likely focused on the performance of the company's new services unit. Profits fell to $1.85 billion in the third quarter from $2.28 billion a year earlier, with the latter lifted by a large tax gain. Per-share earnings declined to $3.06 from $3.60 but were $2.72 after stripping out certain pension items, 6 cents ahead of consensus.

Boeing added 10 cents to the midpoint of its full-year profit guidance and another $250 million in operating cash flow.

The latest quarter included $329 million in additional costs for the KC-46A Pegasus refueling tanker, having already taken about $1.5 billion in charges on the program.

Boeing shares were recently down 3.3% at $257.17.

Write to Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

October 25, 2017 13:01 ET (17:01 GMT)