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Boeing Beats, Ups Guidance

The aerospace giant says its commercial jet business will show renewed growth.
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Updated from 9:18 a.m. EDT

The airline industry may be struggling, but


(BA) - Get Boeing Company Report

commercial jet unit continues to defy analyst expectations, prompting the company to raise its earnings guidance while releasing second-quarter earnings on Wednesday morning.

Boeing's comeback continues, with the aerospace giant announcing second-quarter net income of $607 million, or 75 cents a share, a dramatic improvement from a net loss of $192 million, or 24 cents a share, in the year-ago quarter. In reaction, shares rose 77 cents, or 1.6%, to $48.99, not far from their recent two-year high of $51.49.

Results in 2004 were boosted by a federal tax refund and the company's sale of its commercial finance unit. Excluding these two items, the company would have earned 50 cents a share in the second quarter. Analysts expected the company to earn 47 cents a share, according to Thomson First Call.

"Boeing delivered strong results in the second quarter as we continued to execute well in our core businesses and invest for growth," said Harry Stonecipher, Boeing's president and CEO, in a statement. "With our strong performance and improving outlook, we are raising our financial guidance for 2004 and 2005."

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Revenue came in at $13.1 billion for the quarter, up 3% from last year and topping the $12.9 billion consensus estimate. Growth was driven by a 9% rise in sales at its integrated defense systems unit, or IDS, where three of the unit's four segments saw year-over-year growth.

While sales from its commercial aviation unit slumped 3% year over year, the unit outperformed analyst expectations, who credited it for the company's better-than-expected quarterly results. The unit's operating earnings came in at $382 million, up 22% from last year, driven by 6.7% operating margins, a 130-basis-point increase from last year.

"The surprise was driven, we believe, by very strong results at commercial airplanes,

which added 11 cents upside, due to deliveries being 10% above our estimate and were rich in higher-margin 777s," said Nick Fothergill, analyst at Banc of America Securities, in a research note reacting to the earnings release. (Banc of America does and seeks to do investment banking with the companies covered in research reports.)

Commercial jet sales will also fuel Boeing's growth in 2005. While the company said that 2004 earnings would be stronger than expected due to the tax refund seen in the second quarter, it boosted its 2005 earnings outlook, citing higher commercial jet deliveries and lower-than-expected employee benefit costs.

All told, Boeing expects to make between $2.25 and $2.45 a share in 2004, up from earlier guidance between $2.05 and $2.25, but said its revenue outlook of $52 billion was essentially unchanged. Analysts expect the company to make $2.20 a share in 2004 on $52.1 billion in revenue.

In 2005, Boeing said that earnings would come in between $2.35 and $2.60 a share, up from earlier guidance between $2.20 and $2.45 a share with revenue coming in between $57 billion and $59 billion. Analysts expect the company to make $2.36 a share in 2005 on $56.9 billion in revenue.

At the core of its 2005 growth outlook will be a resurgence in commercial jet deliveries, which Boeing said will come in between 315 and 320 planes, vs. an earlier forecast of 300. Revenue from the commercial jet unit, which lost its position as the dominant player in the space to rival Airbus, a unit of EADS, will come in between $23 billion and $24 billion in 2005, up from an expected $20 million in 2004.