Boeing Co. reported a $160 million loss for the second quarter on more than $1 billion in charges Wednesday, including the steep cost to settle a Justice Department investigation into its defense contracting.
The world's largest aerospace company reduced its 2006 earnings guidance because of the charges, causing its stock to fall as much as 5 percent in morning trading. It also raised its estimate for 2007, citing the strength of the commercial airplane business, a modestly growing defense business and increased productivity companywide.
The loss was the first in three years for Boeing and came in a year in which its commercial aircraft business has seen a resurgence while rival Airbus SAS has struggled.
Chairman and CEO Jim McNerney said the charges “overshadowed solid fundamentals” during the quarter.
The net loss for the April-through-June period amounted to 21 cents per share and compared with net earnings a year earlier of $566 million, or 70 cents per share.
The consensus estimate of analysts surveyed by Thomson Financial was for a loss of 22 cents per share but several had expected a much smaller loss, assuming that Boeing would deduct at least some of the settlement charge. It did not.
The possibility the company might move to effectively reduce the settlement cost had dismayed several U.S. senators, who signed a letter expressing their concern. McNerney told analysts that while the bulk of the settlement likely was tax-deductible, Boeing decided not to write it off in order to send a message about its willingness to accept accountability.
“Without question, the short-term financial impact of the taxability issue is significant,” he said on a conference call. “However, the long-term value of Boeing's reputation is even more significant.”
The charges included $571 million, after reserves, for the $615 million settlement with the Justice Department and $496 million to cover delays of up to 18 months in an international airborne surveillance system for Australia and Turkey. Both were disclosed in late June.
Revenue increased 2 percent to $15 billion from $14.7 billion, in line with analysts' expectations.
The Seattle-based commercial airplane division paced the company in the quarter with a 10 percent revenue jump that helped its operating earnings rise 51 percent to $719 million. It generated $7.1 billion in sales, or 47 percent of the total.
Boeing delivered 97 commercial planes in the quarter, its highest second-quarter total since 2002 and out-booked Airbus in aircraft orders in the first half by 496 to 117. The company also said it has 364 firm orders from 25 customers for its new 787 jet, which the company has begun manufacturing and assembling and intends to test-fly in 2007.
Growth at the airplane unit, along with higher productivity, prompted Boeing to increase its 2007 earnings per-share guidance by 15 cents to a range of $4.25 to $4.45 and its 2007 revenue guidance by $1 billion to between $64.5 billion and $65.5 billion.
“Boeing's outlook is strengthening due to sustained demand for our commercial airplanes, our steady but modestly growing defense business, and our companywide focus on growth and productivity,” McNerney said in a news release.
The defense business remained shadowed by ongoing investigations and lawsuits over its contracting. Operating earnings from the St. Louis-based division declined 62 percent to $309 million, reflecting the Airborne Early Warning & Control program charge, and revenues were flat at $7.8 billion.
The biggest of the investigations was resolved last month with the record settlement ending the government's three-year investigation relating to the hiring of former Air Force official Darleen Druyun and the alleged use of secret documents obtained from rival Lockheed Martin Corp. to win contracts.
Because of the charges, Boeing reduced its outlook for 2006 earnings per share to between $2.40 and $2.55, down from $3.25 to $3.45. But it raised its outlook for 2006 revenue to $60.5 billion from $60 billion, with the boost coming from commercial airplanes.
The company reiterated its expectation to deliver 395 planes in 2006, up 36 percent from last year, and 440 to 445 in 2007.
Analyst Paul Nisbet of JSA Research said the results show a "very healthy" company, with the clouds over its defense business having largely dissipated. He said the most noteworthy item from the results was cash flow, with the company generating $2.4 billion from operations in the quarter and $4.5 billion so far this year.
“When you're up around $4.5 billion, you're really coining it. That comes from the huge amount of orders they've had,” mostly in commercial aircraft, he said.
Boeing's most recent quarterly loss had been for $192 million in the second quarter of 2003.
For the first six months, Boeing had net earnings of $532 million, or 69 cents per share, down 52 percent from $1.1 billion, or $1.36 per share, a year earlier. Revenue rose 7 percent to $29.3 billion from $27.4 billion.