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UPDATE 2-Boeing shares dip on cautious outlook despite Q4 profit jump

Alwyn Scott
Wednesday, 29 Jan 2014 | 10:22 AM ET

NEW YORK, Jan 29 (Reuters) - Boeing Co beat expectations for its fourth quarter profit on Wednesday and pointed to a surge in 2014 commercial aircraft deliveries, but its shares slid in early trade as its conservative profit and cashflow forecasts spooked investors.

The Chicago-based aerospace and defense company said net income in the quarter rose to $1.23 billion, or $1.61 a share, from $978 million, or $1.28 a share, a year earlier. Revenue rose to $23.8 billion from $22.3 billion in the quarter.

Core earnings, which exclude some pension expenses, rose 29 percent to $1.84 billion, or $1.88 a share, compared with $1.46 a share a year earlier.

Analysts had expected core earnings per share of $1.57 for the fourth quarter, and revenue of $22.7 billion, according to Thomson Reuters I/B/E/S.

However, despite the buoyant results, shares in the aerospace giant fell 4.4 percent to $131.00 in early trading on the New York Stock Exchange as investors worried about its cautious outlook for the year ahead.

Boeing said it expects core earnings to rise to as much as $7.20 a share in 2014, up less than 2 percent from $7.07 a share for 2013.

"It's conservative," said Ken Herbert, an analyst at Canaccord Genuity Inc, but added he did not expect analysts to lower their estimates in response.

Robert Stallard, analyst at RBC Capital Markets, said he expected concern about the 2014 forecast, but Boeing's pattern of conservative guidance at the start of the year was well-established.

He said the stock's decline reflected "initial sticker shock" at the numbers, but if Boeing follows past practice it will easily exceed those numbers.

A year ago, Boeing forecast full-year 2013 profit would be between $6.10 and $6.30 a share. By the end of the third quarter, the forecast had climbed to $6.50 to $6.65 a share. The actual figure topped that handily, at $7.07.

For 2014, analysts expect Boeing's core earnings to reach $7.57 a share, according to Thomson Reuters I/B/E/S.

Stallard was among those who noted Boeing's cash flow forecast was low. But analysts' estimates have been "increasingly optimistic, with no real "consensus'", he wrote in a note to clients.

Boeing's operating cash flow forecast of $6.25 billion for 2014 was about $1.5 billion short of expectations, said Carter Copeland, an analyst at Barclays.

That could reflect some new adjustments and expectations about plane production, including the 787 Dreamliner, he said.

Boeing said it would deliver between 715 and 725 commercial airplanes this year, a possible increase of nearly 12 percent from a record 648 in 2013.

MARGINS SHIFT

In another shift, Boeing's defense unit posted wider profit margins in the quarter, while margins in the commercial airplane business narrowed.

The defense business had been under pressure from declining U.S. defense spending.

Last summer, Boeing Chief Executive Jim McNerney said the company was "not out of the woods" in facing earnings effects from automatic budget cuts known as sequestration.

"We are entering the woods," he said.

But defense margins widened to 10.8 percent in the fourth quarter from 8.4 percent in the third quarter.

Defense companies have assumed the worst with budget cuts and have cut costs in anticipation, Stallard said. But the budget cuts have not been as bad as expected, he said, "so across the defense sector you're seeing pretty decent margins."

Margins for commercial airplanes, meanwhile, shrank to 10.3 percent in the fourth quarter from 11.6 percent in the third quarter.

But for the full year, commercial margins of 10.9 percent easily topped the forecast of greater than 10 percent, Stallard noted.

Boeing's latest results included a non-cash charge of $406 million to settle litigation over the canceled A-12 stealth bomber program.

The U.S. Justice Department announced a settlement with Boeing and General Dynamics Corp last week that includes three additional EA-18G fighter jets, which will be paid for by Boeing. 1/8ID: nL2N0L309C 3/8

Boeing said its earnings reflect a charge of 34 cents a share for the A-12 settlement, which was partly reduced by a 28 cent per share gain from a favorable change in tax regulations.

The tax benefit pushed the company's effective tax rate down to 14 percent.

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