January 25, 2012 / 2:28 PM / in 6 years

Boeing 2012 earnings to be hit by pension expense

(Reuters) - Boeing Co (BA.N) said on Wednesday that a pension expense larger than Wall Street had anticipated would weigh on its 2012 earnings, but it handed investors good news with expectations for increased commercial aircraft deliveries this year.

The world’s largest aerospace and defense company said the expense would amount to 83 cents per share, and it forecast earnings, including the expense, of $4.05 to $4.25 per share on revenue of $78 billion to $80 billion.

Analysts, on average, had expected 2012 earnings of $4.96 per share, according to Thomson Reuters I/B/E/S.

Boeing gave the outlook as part of its fourth-quarter earnings report, which showed higher-than-expected profit on the strength of its commercial airplane deliveries.

“People had been expecting the pension expense was going to go up, but the amount of the increase was more than I was looking for,” said Kenneth Herbert, an analyst with Wedbush Securities. “I was looking for something in the range of 50 cents.”

Shares of Boeing, a component of the Dow Jones industrial average, were up 0.47 percent at $75.72, after an earlier decline that took its shares to $72.85.

“It’s too early for me to say if it’s another incremental expense in 2013,” Herbert said.

Boeing said the pension expense was partly due to lower interest rates on its pension fund investments over the last two years.


Boeing reported fourth-quarter net profit of $1.4 billion, or $1.84 per share, compared with $1.2 billion, or $1.56 per share, a year earlier.

Excluding a favorable tax settlement of 52 cents per share, the company earned $1.31 per share, beating an average Wall Street forecast of $1.01, according to Thomson Reuters I/B/E/S.

The company, which competes with Airbus EAD.PA for orders, said revenue had risen to $19.6 billion compared with $16.6 billion.

RBC Capital Markets analyst Robert Stallard said in a research note that Boeing had a “solid operating quarter” driven by good margins on its commercial and defense sides.

Revenue for its commercial planes division increased by 31 percent to $10.7 billion. Boeing delivered 477 planes last year, up from 462 in 2010. The company gets paid for airplanes at delivery.

Boeing predicted that it would deliver 585 to 600 commercial airplanes in 2012, more than the 570 Airbus has said it expects to deliver this year. Boeing said that its forecast included an expected 70 to 85 deliveries, half of which will be 787 aircraft and the rest 747-8s.

Revenue for its defense, space and security business rose 4 percent to $8.5 billion.

The company, which boasted an order backlog worth $356 billion, splits its operations between commercial airplanes and defense programs. The defense side of Boeing’s business is grappling with government spending constraints, but Boeing said it expects greater spending in international markets.

“We enter 2012 with renewed momentum,” Chief Executive Jim McNerney said in a statement. “Our priorities for the year are to continue with disciplined increases in production rates for our commercial airplane customers,” he said.


    The company lost the 2011 commercial airplane order race to Airbus. Boeing orders, adjusted for cancellations, totaled 805, compared with 1,419 for Airbus.

    Boeing has pledged to strike back in 2012 with sales of its revamped narrowbody, the 737 MAX, which features a new, fuel-efficient engine. The plane is due to enter service in 2017.

    Boeing won its first firm orders for the MAX in December as part of a $19 billion deal with Southwest Airlines (LUV.N). The company said it had more than 1,000 orders and commitments for the MAX at the end of 2011, and said that could reach 1,500 by the end of 2012.

    The MAX competes with the Airbus A320neo, which also has a new engine. Airbus overtook Boeing in the global passenger jet market in 2003.

    Boeing is working to increase production rates on its commercial airplane programs, including the 787 Dreamliner, its new, long-delayed, carbon-composite aircraft. The first delivery of the Dreamliner was made in September after three years of delays.

    The company wants to produce 10 787s per month by the end of 2013.

    Aviation industry experts have said the target is too ambitious , but Boeing is standing by it.

    “I think as each week passes, each month passes, my confidence does grow,” McNerney told analysts on a conference call. “These ramp-ups are always difficult and it has our attention.”

    Reporting By Kyle Peterson; editing by John Wallace.

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