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Wartime spending boosts Boeing

Prosperous times for defense contracts helped Boeing Co wow Wall Street with much better results than anticipated despite another troublesome quarter for its shrinking commercial airplane business.

The aerospace manufacturer reported a 31 percent decline in third-quarter earnings Wednesday, largely because of the heavy costs of shutting down production of the 757 jetliner. But the latest surge of business for its growing defense operations helped it turn an unexpectedly solid US$256 million profit, sending its stock up sharply.

Analyst Paul Nisbet of JSA Research said Boeing is reaping the same benefits as the other two biggest defense contractors -- Lockheed Martin and North-rop Grumman, whose third-quarter sales rose 23 percent and 57 percent respectively.

"We're seeing not only the well-publicized increases in defense spending for regular Defense Department operations, but we're seeing quite a bit of money coming in from supplemental budget amounts that are related to the war on terror, in Iraq and so forth," Nisbet said. "And we're seeing money coming in from Homeland Security."

"You put all that together ... and it's beginning to show up on the top line of these companies," he said.

Boeing's net earnings for the July-through-September period amounted to US$0.32 per share, down from US$372 million, or US$0.46 per share, a year earlier.

That was significantly higher than the US$0.25-per-share consensus estimate of analysts surveyed by Thomson First Call.

Revenues dropped 4 percent to US$12.24 billion from US$12.69 billion -- the bulk of it from the defense and space unit, where revenue climbed to US$7.3 billion.

With its deliveries and orders down drastically in a struggling airline industry, Boeing is expected to be displaced by Airbus as the world's largest commercial jet manufacturer when full-year figures are in.

Chief executive Phil Condit said it was a very good quarter for Boeing considering the tough aviation market.

Despite a meager 0.7 percent profit margin at the airplane division -- attributed to low production, higher pension costs and the 757 charge -- he said the unit is doing "a fantastic job in an incredibly difficult market" and should ultimately benefit from improving airline operating results and recent orders from low-cost carriers. But not any time soon.

"While these signs are encouraging, the downturn in the civil aviation market remains severe, so I expect a gradual market recovery to occur no earlier than `05," Condit told analysts on a conference call.

The company lowered its guidance for full-year earnings by US$0.05 a share to a range of minus US$0.02 to minus US$0.12 per share, citing the 757 shutdown decision that it announced Oct. 16. But it raised its guidance for this year's revenues to US$50 billion from US$49 billion because of strong defense sales.

Boeing left unchanged its forecasts for 280 airplane deliveries this year, 275 to 290 deliveries next year and US$52 billion in next year's revenues.

For the first nine months of the year, the company had a net loss of US$414 million, or US$0.52 a share, compared with a loss of US$98 million, or US$0.12 a share, over the same period next year. Revenues were US$37.29 billion, down 8 percent from US$40.37 billion.
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