Tax overhaul helps boost Boeing – Manufacturing News

on Jan31

31 January 2018 | 7:00 pm

(Bloomberg) — Boeing Co. jumped the most in six months after the planemaker said record aircraft deliveries this year would bolster cash and reverse a two-year sales decline.

Jetliner shipments will rise to as many as 815 this year, up almost 7 percent from 2017, the manufacturer said Wednesday as it reported earnings. Operating cash flow, a focus for investors, will increase to about $15 billion.

The world’s largest aerospace company is extending a remarkable stock rally as it benefits from strong demand and plans to ramp up output of the 737, its largest source of profit. Boeing is also getting a boost from U.S. corporate tax cuts, which are taking effect just as the 787 Dreamliner starts to generate hefty cash gains after a decade of losses.

“It’s a very visible, must-own stock right now,” said Carter Copeland, an analyst at Melius Research, who added that strong numbers across the board will probably entice more investors.

The shares advanced almost 5 percent to close at $354.37 after climbing as much as 6.9 percent for the biggest intraday gain since July 26. That made Boeing the top performer on the 30-member Dow Jones Industrial Average, a perch it has held for much of the past year.

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The stock has more than doubled since the start of 2017 as Boeing surpassed General Electric Co. to become the largest U.S. industrial company by market value.

STEADY GAINS

As GE stumbled, Boeing’s steady performance and willingness to hand shareholders bucketfuls of cash attracted investors, said Ken Herbert, an analyst at Canaccord Genuity. The Chicago-based manufacturer has pledged to return the equivalent of its free cash flow to investors through an $18 billion share buyback program and 20 percent dividend increase approved by directors in December.

Boeing is forecasting the first sales growth in three years as it lifts 737 output by 11 percent and pockets additional tax savings. Revenue has declined since 2015 as Boeing slowed deliveries of its highly profitable 777 jetliners amid waning sales and a shift to a new model.

In 2018, total revenue will range from $96 billion to $98 billion, the company forecast, compared with the $93.6 billion expected by analysts. Adjusted earnings this year will rise to $13.80 to $14 a share, Boeing said. Analysts were predicting $13.38.

Fourth-quarter adjusted earnings jumped to $4.80 a share, or $3.06 a share excluding a gain tied to the recent U.S. tax cut. Analysts had predicted $2.90 a share. Revenue climbed 8.9 percent to $25.4 billion, compared with the $24.7 billion analysts expected.

TAX WINNER

For the manufacturer of the carbon-fiber 787 Dreamliner — a source of Boeing’s cash riches — the timing of corporate tax cuts “could not have been much better,” said Douglas Harned, aerospace analyst at Sanford C. Bernstein & Co.

Boeing was able to claim deductions at the old 35 percent rate over the years as it recorded cash losses on the Dreamliner. The aircraft accumulated almost $30 billion in production and inventory costs as Boeing worked out supplier snarls and compensated airlines for tardy deliveries. The company said it expects to be taxed at a 16 percent effective rate this year.

The balance of inventory and factory costs for the Dreamliner fell $590 million to $25.4 billion during the fourth quarter from the previous three-month period. Deferred production costs for the 787, Boeing’s most advanced plane, have declined 11 percent since peaking at $28.7 billion at the start of 2016.

MARGIN GOALS

Under Chief Executive Officer Dennis Muilenburg, Boeing has rolled out new planes such as the 737 Max and 787-10 with few glitches, while rival Airbus SE battled engine delays for its A320neo and A330neo. Muilenburg’s campaign to make Boeing leaner has lowered the cost of goods and services.

Boeing’s core businesses moved closer to Muilenburg’s target of mid-teen profit margins by the end of the decade. Sales at the global services unit rose 17 percent to $4 billion, while operating margins slid more than a percentage point to 15.4 percent.

Muilenburg has touted the services unit — created last year from a hodge-podge of existing businesses providing spare parts, maintenance and consulting services — as a source of growth and profit. He set a $50 billion sales target over the next five to 10 years.



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