Boeing Profits Disappoint Investors Sales Offset By Higher Costs

Boeing Co.’s stock dropped as much as 7.5 percent Monday after the company reported disappointing profits and said it expects to make less money on each airplane it sells through the rest of the year.

Wall Street was also disappointed in Boeing’s quarterly figures even though they showed profit tripled in the three months.

Boeing stock fell as much as $7.62-1/2 during morning trading, but recovered slightly to close at $95.37-1/2, down $6.62-1/2, on the New York Stock Exchange.

Boeing reported a profit of $377 million, or $1.09 a share, up from $119 million, or 35 cents a share, a year earlier. Revenues climbed 70 percent, to $7.3 billion from $4.3 billion a year ago.

But industry analysts had been planning for even higher earnings and were concerned about Boeing’s warning that profit margins would be squeezed by rising deliveries of the 777 and the latest version of the 737. New aircraft models typically see less profit per jet because of the cost of retooling and generally higher production costs in the first years, Boeing said.

The company benefited from profits from the newly acquired defense and space units from Rockwell International Corp. But the company saw higher research and development costs, higher interest payments from the Rockwell purchase and a higher income tax rate.

Boeing Chairman Phil Condit said the company is making more airplanes and that the rapid increase in employment and parts requirements has hurt productivity at company plants and some suppliers. Overtime work in engineering and production has been at high levels, he said, a condition that should continue for the next several months.

Boeing said last week that it had added more than 5,000 employees since mid-January, bringing total company employment to nearly 153,000. In all, the company expects to add 10,000 employees this year, compared with 21,000 in 1996.

Condit, speaking to reporters following Boeing’s annual shareholders meeting later in the day, discounted the stock price tumble.

“I don’t put a lot of worry into short-term moves,” Condit said.

The forecasts for lower margins “has the market spooked a little bit,” said analyst Bob Toomey at Piper Jaffray. However, he said he doesn’t see any long-term problems.

“The near-term dislocations from a very rapid production ramp-up is affecting them,” he said. “I’m confident they will work out these bugs.”

Commercial jets accounted for $5.3 billion in first-quarter revenue, compared with $3 billion a year ago, while defense and space revenue was $2 billion, up from $1.3 billion last year.

At their annual meeting, Boeing shareholders approved resolutions to allow an earlier-authorized two-for-one stock split, and new employee and management incentive plans. Overwhelmingly rejected were resolutions offered by religious groups to require Boeing to develop an ethical code for military contracts, and to adopt guidelines for dealing with China aimed at human rights.

Boeing and McDonnell Douglas agreed to merge late last year, but the merger was only indirectly discussed at Monday’s meeting. The merger still must be approved by regulators and by shareholders of both companies. Boeing has tentatively scheduled a special meeting July 25 for stockholders to vote on the merger.