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Boeing Earnings Top Estimates Despite 787 Setbacks, Boeing Reaffirms Outlook as Earnings Beat Estimates
(about 5 hours later)
Boeing reported Wednesday a first-quarter profit that topped analysts’ estimates, and it said the recent problems with the lithium-ion batteries on its 787 Dreamliner jets would not keep it from hitting its profit and revenue targets for the year. Boeing reported a first-quarter profit on Wednesday that topped analysts’ estimates, and it said the recent problems with the lithium-ion batteries on its 787 Dreamliner jets would not keep it from hitting its profit and revenue goals for the year.
Boeing’s shares rose 3.4 percent in afternoon trading, continuing a rally that began last month as the company devised a fix to the battery issues that had grounded the 787s since January. Boeing’s shares closed up 3 percent, continuing a rally that began last month as the company devised a fix to the battery problems that had grounded the 787s since January.
The Federal Aviation Administration on Friday approved modifications to minimize the odds that the batteries would emit smoke or catch fire. Some airlines are expected to begin flying the innovative jets again in May.The Federal Aviation Administration on Friday approved modifications to minimize the odds that the batteries would emit smoke or catch fire. Some airlines are expected to begin flying the innovative jets again in May.
On a call with analysts, W. James McNerney Jr., Boeing’s chief executive, said that the company expected to finish modifying the battery systems by mid-May on most of the 50 787s now in airline fleets. He said the company had started to make the changes right after the F.A.A. approved the battery modifications. In a call with analysts, W. James McNerney Jr., Boeing’s chief executive, said the company expected to finish modifying the battery systems by mid-May on most of the 50 787s now in airline fleets. He said the company had started to make the changes right after the F.A.A. approved the battery modifications.
In Japan on Wednesday, aviation regulators indicated that they were satisfied with Boeing’s battery changes and would declare the planes fit to fly as early as Thursday. In Japan on Wednesday, aviation regulators indicated that they were satisfied with Boeing’s modifications and would declare the planes fit to fly as early as Thursday.
“Boeing has come up with a fix that addresses a very wide range of potential problems,” said Hirohiko Kawakatsu, an air safety official at the Ministry of Transport. “In that regard, we see no problems with the fix.”“Boeing has come up with a fix that addresses a very wide range of potential problems,” said Hirohiko Kawakatsu, an air safety official at the Ministry of Transport. “In that regard, we see no problems with the fix.”
Mr. Kawakatsu said he did not expect the ministry to ask for substantial additional changes to the batteries. Japan’s approval would allow All Nippon Airways and Japan Airlines to resume flights. Together, the two airlines own about half of the 787 jets Boeing has so far delivered. Mr. Kawakatsu said he did not expect the ministry to ask for substantial additional changes to the batteries. Japan’s approval would allow All Nippon Airways and Japan Airlines to resume flights of the 787. Together, the two airlines own about half of the 787 jets delivered by Boeing so far.
The Ministry of Transport indicated that it was waiting until Wednesday’s conclusion of a hearing in Washington by the National Transportation Safety Board on its investigation into a battery fire on a 787 parked at Logan Airport in Boston in January as well as the F.A.A.’s initial certification of the lithium-ion batteries in 2007.The Ministry of Transport indicated that it was waiting until Wednesday’s conclusion of a hearing in Washington by the National Transportation Safety Board on its investigation into a battery fire on a 787 parked at Logan Airport in Boston in January as well as the F.A.A.’s initial certification of the lithium-ion batteries in 2007.
To date, investigators have not determined what caused the fire in the battery in Boston or smoke from a 787 battery in Japan in January.In its earnings report on Wednesday, Boeing said its first-quarter earnings jumped 20 percent to $1.1 billion, or $1.44 a share, from $923 million, or $1.22 a share, a year earlier. Revenue fell 3 percent to $18.89 billion from $19.38 billion. That was partly because Boeing delivered only one 787, because of the battery problems, compared with five in the year-earlier quarter. To date, investigators have not determined what caused the fire in the battery in Boston or smoke from a 787 battery in Japan in January. In its earnings report on Wednesday, Boeing said its first-quarter earnings jumped 20 percent to $1.1 billion, or $1.44 a share, from $923 million, or $1.22 a share, a year earlier. Revenue fell 3 percent to $18.89 billion from $19.38 billion. That was partly because Boeing had delivered only one 787, because of the battery problems, compared with five in the same quarter a year ago.
Excluding pension costs and other ancillary items, Boeing said its core operating earnings rose 5 percent to $1.87 billion, or $1.73 a share, from $1.77 billion, or $1.40 a share, a year earlier. According to Thomson Reuters, the average analyst estimate was $1.49 a share.Excluding pension costs and other ancillary items, Boeing said its core operating earnings rose 5 percent to $1.87 billion, or $1.73 a share, from $1.77 billion, or $1.40 a share, a year earlier. According to Thomson Reuters, the average analyst estimate was $1.49 a share.
On Wednesday, Boeing also reaffirmed earlier guidance that it expected its core earnings to reach $6.10 to $6.30 a share, on revenue of $82 billion to $85 billion, for all of 2013. Using traditional accounting measures, including the pension costs, it expected earnings of $5 to $5.20 a share for the year.On Wednesday, Boeing also reaffirmed earlier guidance that it expected its core earnings to reach $6.10 to $6.30 a share, on revenue of $82 billion to $85 billion, for all of 2013. Using traditional accounting measures, including the pension costs, it expected earnings of $5 to $5.20 a share for the year.
The company said the cost of dealing with the 787 battery problems was also partly offset by increases in first-quarter deliveries of its highly profitable 737 and 777 jets. Cost-cutting also helped its large military business increase its profit despite government budget cuts. The company said the cost of dealing with the 787 battery problems was partly offset by increases in first-quarter deliveries of its highly profitable 737 and 777 jets. Cost-cutting also helped its large military business increase its profit despite government budget cuts.
Boeing has never publicly estimated the cost of the battery problem, and its executives declined to provide any numbers on the earnings call. Analysts have said the final tally could be hundreds of millions of dollars after airlines are compensated.Boeing has never publicly estimated the cost of the battery problem, and its executives declined to provide any numbers on the earnings call. Analysts have said the final tally could be hundreds of millions of dollars after airlines are compensated.
Gregory D. Smith, Boeing’s chief financial officer, told analysts that the first-quarter results included an estimate of the cost of redesigning and replacing the batteries, which he said was “minor in comparison to the overall numbers.”Gregory D. Smith, Boeing’s chief financial officer, told analysts that the first-quarter results included an estimate of the cost of redesigning and replacing the batteries, which he said was “minor in comparison to the overall numbers.”
Mr. McNerney said Boeing’s sales contracts do not require it to compensate airlines for the disruptions to their schedules. But  he said there were “a few places where we’ll work with our customers, and there are a variety of ways we can work with them, that can ensure that the disruption doesn’t hurt the operations more than it needs to.” Mr. McNerney said Boeing’s sales contracts did not require it to compensate airlines for the disruptions to their schedules. But he said there were “a few places where we’ll work with our customers, and there are a variety of ways we can work with them, that can ensure that the disruption doesn’t hurt the operations more than it needs to.”
Analysts said the compensation could include discounts on future jet purchases as well as cash payments.Analysts said the compensation could include discounts on future jet purchases as well as cash payments.
Mr. Smith said that 15 to 20 percent of the 787 deliveries this year would come in the rest of the second quarter, as Boeing starts to push out the 25 jets that have been held up at its factories by the battery problems. Mr. Smith said that 15 to 20 percent of the 787 deliveries this year would come in the rest of the second quarter, as Boeing starts to deliver the 25 jets that have been held up at its factories by the battery problems.
 The safety board’s hearings on Wednesday had some theatrical moments. The situation reflected the difficulty of investigating a highly technical incident involving three major companies — Boeing; Thales, a French electrical-component maker; and GS Yuasa, the battery maker — on three different continents whose representatives all speak different languages. The safety board’s hearings on Wednesday had some theatrical moments. The situation reflected the difficulty of investigating a highly technical incident involving three major companies — Boeing; Thales, a French electrical-component maker; and GS Yuasa, the Japanese battery maker — on three different continents whose representatives all speak different languages.
Even simple questions were sometimes lost in translation. At one point, the board’s chairwoman, Deborah A. P. Hersman, questioned a representative from GS Yuasa, who had said the company had already build 14,000 cells similar to the ones used on the Boeing 787 for other applications, including space satellites. Even simple questions were sometimes lost in translation. At one point, the board’s chairwoman, Deborah A. P. Hersman, questioned a representative from GS Yuasa, who had said the company had already built 14,000 cells similar to the ones used on the Boeing 787 for other applications, including space satellites.
“The 14,000 cells that are similar to this one in design. When you say similar to this one, do you mean the same chemistry?” Ms. Hersman asked.“The 14,000 cells that are similar to this one in design. When you say similar to this one, do you mean the same chemistry?” Ms. Hersman asked.
“The chemistry is different,” Takahiro Shizuki, a manager at GS Yuasa’s large-scale battery unit, said in Japanese through a translator.“The chemistry is different,” Takahiro Shizuki, a manager at GS Yuasa’s large-scale battery unit, said in Japanese through a translator.
“O.K. So when you say there are 14,000 cells that are similar to this that you’ve had experience with, the chemistry is different, they’re not lithium-ion cobalt cells,” said Ms. Hersman, who seemed a little puzzled.“O.K. So when you say there are 14,000 cells that are similar to this that you’ve had experience with, the chemistry is different, they’re not lithium-ion cobalt cells,” said Ms. Hersman, who seemed a little puzzled.
“They are not.”“They are not.”
“What are they?” she pressed.“What are they?” she pressed.
“Well, this is a technological secret, so I cannot say here. But I can just tell you it’s not cobalt.”“Well, this is a technological secret, so I cannot say here. But I can just tell you it’s not cobalt.”
“So they are not exactly the same. Are they the same size?”“So they are not exactly the same. Are they the same size?”
“No,” he said, then added, “To be precise, the cell production method and structure are the same.”“No,” he said, then added, “To be precise, the cell production method and structure are the same.”
 Under more questioning, Mr. Shizuki then said other cells GS Yuasa produces for satellites come in different shapes than the ones on the 787, and have only one set of winding electrodes. Those on the 787s have three.  Under more questioning, Mr. Shizuki then said other cells that GS Yuasa produced for satellites come in different shapes than the ones on the 787, and have only one set of winding electrodes. Those on the 787s have three.

Hiroko Tabuchi contributed reporting from Tokyo.

Hiroko Tabuchi contributed reporting from Tokyo.