Boeing's Profits Drop After Charge

Revenue for the second quarter is unchanged year over year.
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Updated from 9:22 a.m. EDT

Delays in both the 787 program and a military surveillance aircraft caught up with

Boeing

(BA) - Get Report

in the second quarter, as net income fell by 19% from a year earlier.

The commercial jet and defense-systems maker said two weeks ago that it would take a charge for late delivery of two advanced radar system planes to the Australian military. On Wednesday, Boeing said operating earnings at its commercial aircraft division fell $183 million, due to costs related to 787 delays and to a delivery mix that favored narrowbodies over widebodies.

Boeing earned $852 million or $1.16 a share, including the previously disclosed charge of 22 cents. Analysts surveyed by Thomson Reuters were expecting $1.23. Revenue was flat at $17 billion and was about $200 million below estimates.

In the same period a year earlier, Boeing earned $1.05 billion, or $1.35 a share. Boeing's stock ended down 3.7% at $66.72.

The company reaffirmed its 2008 profit guidance of $5.70 to $5.85 a share, as well as next year's forecast of $6.80 to $7 a share. Referring to the delays for the new aircraft types on an earnings conference call, CEO Jim McNerney said: "When we have stumbles in innovation, we can largely cover it with a strong productivity program."

A bright spot for the 787, he noted, is that testing of its composite materials shows "strength at greater levels than we even thought."

So far, Boeing has not been hurt by order delays from airlines hindered by skyrocketing fuel costs. "We have experienced a minimum impact on backlog, with only a handful of deferrals by U.S. customers," McNerney said.

While Boeing assumes more deferrals and some cancellations by airlines will be forthcoming, "there is sufficient reserve in our guidance to deal with their issues," said CFO James Bell.

During the quarter, revenue for Boeing Commercial Airplanes fell 2% to $8.6 billion. Bell said division earnings were impacted equally by delivery mix, as customers took more narrowbody jets than widebody jets, and by 787-related costs. Regarding the 787, Boeing reaffirmed that the first flight is expected in the fourth quarter, with the first delivery scheduled for the third quarter of 2009.

In Integrated Defense Systems, revenue was flat at $7.9 billion. Operating earnings were $637 million after the $248 million charge on the Airborne Early Warning & Control program.