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Boeing stock soars on strong earnings, order backlog

by Sirena Rubinoff
July 25, 2007


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Photo courtesy of Boeing Co.

The Boeing 787 is expected for delivery in May 2008.

Boeing Co. shares soared to a record high Wednesday as the company reported strong second quarter earnings and a record order backlog of $279 billion. 

Some 75 percent of the backlog is in Boeing's commercial airline division, which is preparing for the first flight of the 787 Dreamliner in September.  As a result, the company has increased its 2007 guidance for revenue, earnings per share, cash flow and research and development.  

Chicago-based Boeing is ramping up its spending on research and development to $3.7 billion in 2007, an increase of about 12 percent from its earlier forecast,  to ensure it meets the May, 2008 delivery deadline for the Dreamliner.

Net income at the company surged to $1.1 billion, or $1.35 per diluted share, for the quarter ending June 30, compared with a loss of $160 million, or 21 cents per diluted share, reported in the same period a year ago.  The year-ago loss was due to legal and program charges totaling $1.18 per share. 

The company said without the costs associated with the legal settlement, its diluted earnings per share more than doubled from the 56 cents per share recorded in the second quarter of 2006.  Analysts far underestimated Boeing’s performance for the quarter, forecasting an average of $1.16 per diluted share, according to Yahoo Finance. 

Revenue rose 13.6 percent in the quarter to $17 billion compared with $15 billion in the second quarter of 2006.

“Boeing has a great commercial airplane backlog and there’s reason to believe the orders will remain relatively strong into 2008 and perhaps into 2009,” said Richard Tortoriello, equity analyst with Standard and Poor's. 

“We’re looking at 15 percent or more in earnings growth for the next three to five years and that kind of sustainable earnings growth is really what investors want and its worth paying what the current price is for the stock,” Tortoriello said.

The company's free cash flow grew 53 percent to $3.2 billion after capital expenditures, up from the $2.1 billion in the same period last year.

“Our businesses are delivering strong results and are exceeding our growth and productivity goals,” said Jim McNerney, CEO of Boeing. 

“The production on the commercial aircraft side was up 18 percent, which drove a pretty nice revenue increase on that side of the business.  On the Integrated Defense Systems side, there was only a slight increase in revenue, but a nice pop in the margins,” said senior research analyst JB Groh with D.A. Davidson & Co.

Boeing said its operating margin widened to 8.8 percent in the second quarter, compared with 8.5 percent in the first quarter and a negative 0.3 percent a year ago.

Given the amount of cash Boeing is generating, Groh said the company will be “actively looking at acquisition opportunities.” 
 
Tortoriello said Boeing is more likely to put its cash to work in other ways.  “I expect to see the dividend increase, share repurchases in large amounts and perhaps we’ll see some debt decreases as well,” he said. 

The company bought back 6.5 million shares for $620 million during the second quarter, which leaves $1.4 billion remaining under the current repurchase authorization.

Boeing raised its 2007 earnings outlook to $4.80 to $4.95 per diluted share, up from $4.55 to $4.75 per diluted share in 2006. The company increased its revenue guidance to $65 billion from a range of $64.5 billion to $65 billion. 

For the first six months of the year, Boeing earned $1.9 billion, or $2.48 per diluted share, compared with $532 million, or 69 cents per share in the same period of 2006.  Sales rose 10.7 percent to $32.4 billion from $29.3 million a year ago. 

Shares of Boeing were trading at $107.l6, up $3.36 per share, or 3 percent, after surging to a record high of $107.83 earlier in the session Wednesday.