Boeing Blames $1 Billion in Charges for $160 Million 2nd-Quarter Loss

The chargen include the steep cost to settle a Justice Department investigation.


Boeing Co. on Wednesday reported a $160 million loss for the second quarter on more than $1 billion in charges, 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 but 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.

Analysts surveyed by Thomson Financial were expecting a loss of 22 cents per share.

The charges included $571 million (euro451.88 million), after reserves, for the $615 million (euro486.7 million) settlement with the Justice Department and $496 million (euro392.53 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 (euro11.87 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 (euro569.01 million). It generated $7.1 billion (euro5.62 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 it 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 (euro790 million) to between $64.5 billion (euro51.04 billion) and $65.5 billion (euro51.84 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 (euro244.54 million), reflecting the Airborne Early Warning & Control program charge, and revenues were flat at $7.8 billion (euro6.17 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 (euro47.88 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.

Boeing's most recent quarterly loss had been for $192 million (euro151.95 million) in the second quarter of 2003.

Shares in the company fell $1.24 to $82.51 in premarket trading. The stock is up from $70.24 at the start of the year.


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