EVERETT — The Boeing Co. must navigate several challenges to twin-aisle airplane programs based in Everett. But for now, the cash is coming in.
The aerospace giant on Wednesday announced a $1.7 billion in net profit for the third quarter of the year, beating Wall Street expectations.
A record-high 199 commercial airplane deliveries and an uptick in Boeing’s defense business fueled the company’s performance during July through September. Those deliveries included 37 787 Dreamliners, Boeing’s carbon-fiber-composite jetliner.
Boeing still loses money on every Dreamliner it sells, but it continues to close the gap, company leaders said Wednesday during a conference call with financial analysts and journalists.
During the call, they also said that “power on” has been achieved for the first Renton-built 737 MAX. And they confirmed plans to reduce 777 production to seven airplanes per month as the company starts making the first of its new 777X jetliner.
The Chicago-based company said it earned $2.47 per share. Earnings, adjusted for non-recurring costs and excluding certain pension expenses, were $2.52 per share. The average estimate of nine analysts surveyed by Zacks Investment Research had been for earnings of $2.22 per share.
The $1.7 billion profit was up from $1.36 billion posted during the same period last year.
After the announcement, the company’s stock price rose $2.24, closing Wednesday at $141.12, a 1.6 percent increase.
Commercial jet manufacturing is playing a larger role at Boeing, which is also a major player in defense and space. Payments from the delivery of new jets accounted for 68 percent of Boeing’s $25.8 billion in revenue. That, too, beat Wall Street estimates. Analysts had expected $24.7 billion.
The company makes enough money from other programs and services that it can absorb the 787 losses, which are also pushed into the future through an accounting method called deferred production cost. Currently, Boeing loses about $19 million per plane, down from $26 million earlier this year.
The total of deferred production costs is now $28.3 billion. That is about $150 million less than Boeing had previously projected by the end of September.
Growth of the accumulated deferred costs will slow and level out next year, Chief Financial Officer Greg Smith said.
Those future costs are not an immediate concern, given how much cash the company brings in, said Jeff Windau, an analyst for Edward Jones, in an interview after the call.
That could change, though, if demand for new airplanes slackens, he said.
“We’re not anticipating that happening,” but, he cautioned, “sometimes those things can turn quickly.”
Industry analyst Richard Aboulafia, vice president of Virginia-based Teal Group, said the program’s deferred costs are “fast approaching untenable.”
Boeing is digging a deep hole that it rationalizes with projections of fat profit margins from future 787 sales. The 787 faces increasing competition from Airbus’ A330neo and A350, Aboulafia noted.
Dreamliners in service are performing well and meeting or beating airlines’ expectations, according to Boeing, which had delivered 329 787s by Sept. 30.
Whether Boeing will recoup all 787 deferred production costs is an ongoing debate, RBC Capital Markets analyst Rob Stallard said in a note to clients after Wednesday’s call.
The company also has to keep 777 production busy while starting production of its successor, the 777X, he said.
Both airplanes are assembled in Everett. The 787 also is built in North Charleston, South Carolina.
Demand for commercial airplanes will need to be high beyond 2020 if Boeing is to handle these challenges, Stallard said. That “would make for the longest up cycle since the Wright brothers first took to the air.”
The company plans eventually to slow 777 classic production to seven planes a month.
“We haven’t finalized that plan yet,” Boeing CEO Dennis Muilenburg said. “We’re working through a variety of options. But as we look through all of those options we don’t see any scenarios that would take us below a seven-a-month production rate.”
Boeing might deliver fewer than seven 777s a month, though.
Muilenburg said production would occasionally include “firing blanks,” meaning the assembly line doesn’t slow down but a slot is left empty. So production rate stays the same, while output dips.
Demand continues to be weak for the Boeing 747.
“It’s a challenging marketplace for the airplane,” Smith said.
The company is already in the process of taking the 747 line from 1.5 a month this past August to 1 a month in March 2016.
“We’ll likely take another look at the rate early next year,” he said.
Boeing got a boost from its military business, which benefited from F-15 contract negotiations.
Revenue from defense and space was $8.35 billion, a 6 percent increase over the third quarter of 2014.
Boeing increased the 2015 projection for end-of-year revenue by $500 million and for commercial aircraft deliveries from 755 to 760 when it released the quarterly earnings report.
The company delivered a record 199 commercial airplanes during the quarter. That is 7 percent more than the same period last year. Through the first nine months of 2015, the company delivered 580 airplanes, compared to 528 in 2014.
The Associated Press contributed.
Dan Catchpole: 425-339-3454; dcatchpole@heraldnet.com; Twitter: @dcatchpole.
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