Hi all
Look in the middle a fund manager says the stock is going no wehre for the next few years
yikes I think if things go the way it does now it will go somplce and thats down hill
Dump Condit
Seattle--Dec 21--The Boeing Co. has announced so much bad news over thepast year that top executives will probably have to polish their resumes ifany more big disappointments come along in 1999. After productionbottlenecks and financial losses, Boeing stock has lost credibility on WallStreet as the value of its shares has lost one-third of its value in 1998.
"They had better perform quite a bit better than they have suggested. Thereshouldn't be any more revisions downward," Paul Nisbet, an analyst at JSAResearch in Newport, R.I., told Bridge.
Boeing's downfall has been fast and furious. Little more than a yearago, the company was taking record orders and working out its merger withthe last remaining rival in the US for commercial airplanes, McDonnellDouglas. That left the European consortium, Airbus, as the only remainingadversary for the manufacture of commercial airplanes.
But Boeing had a hard time doubling production after dismissingthousands of employees and eliminating contractors. A largely inexperiencedstaff and severe parts shortages resulted in out-of-sequence work and $3billion in write-offs. Those charges contributed to the company's $178million loss in 1997, its first full-year loss in a half century.
Throughout 1998, the bad news seemed to lurk around every corner.Earlier this month, Boeing said that it would cut employment levels more deeplythan previously announced and reduce production on some commercial airplaneprograms. The company also lowered its financial estimates. It was the fourthtime Boeing investors were blindsided by bad news in little more than a year.
Commercial aircraft deliveries are projected at 620 in 1999, from 550this year. Consolidated revenue is expected to be around $58 billion, upfrom this year's $56 billion. Net earnings for next year are seen at $1.5billion to $1.8 billion, above this year's $1 billion. Lowered expectationsfor revenues and profits were blamed on the Asian economic crisis.
BOEING'S PEAK EARNINGS SEEN BELOW PAR IN 2000
But analysts value cyclical stocks on peak earnings to buttress theweaker periods, and Boeing's peak in 2000 is seen at less than half of whathad been expected previously. After the peak ends, production and profitswill go downhill. Wall Street brokerages lowered their ratings, and pricesfor Boeing shares tumbled immediately. Growth in the share price isn't seenany time soon.
"I don't expect anything out of the stock for a couple of years," saidWilliam Whitlow, a portfolio manager at Safeco.
Amid this glum outlook, the company's executives need to be cautious.
"You can be wrong once and make everybody think you've got the lowestnumbers you can get and survive," Nisbet said. He suggested that the boardof directors would likely roll more heads if any further blunders are seen.
Earlier this week, CEO Phil Condit told subordinates that he has theconfidence of the board, which fired Ron Woodard, head of the commercialairplane division, last summer.
Nisbet reckons that Boeing could perform better than Wall Streetexpects next year.
"I think they could surprise us on the upside," he said.
But he wants Boeing to deliver fewer airplanes in 1999 than it hasprojected.
"I would like to see some delays next year. There is nothing to begained by delivering 620, then 500 the next year. That's a painful process.It would be better to deliver 550 for 2 years. That would obviously be totheir advantage," Nisbet noted.
"The Street is looking for continued improvements in the productionsituation," Bob Toomey, an analyst at Piper Jaffray, said. "They need toshow some improvements in margins. The recent evidence is that they're wellon the road to doing that." Toomey cited data showing that Boeing metdelivery targets in October and November. But he stressed efficiency as akey goal.
AIRPLANE MANUFACTURING EFFICIENCIES MUST RISE IN 1999
"They've got to hammer down the cost per unit," Toomey emphasized.
"They need to show some progress in increasing manufacturing efficiency.They need to get around their manufacturing problems and get their costs down,"Whitlow said.
The best way of doing that is to "reduce the head count and manufacturethe airplanes."
All the analysts agree that Boeing needs to cut costs.
"But there is not a lot of room left to cut costs," said Richard Aboulafia,an analyst with the Teal Group in Fairfax, Va.
"They've got to start developing new products in key areas, but theydon't have investor confidence now," he emphasized. He asserted that Boeingneeds to introduce a new stretch version of the 747, the world's largestcommercial airplane, and bring out a "new, narrow fuselage, but it doesn'thave to be next year."
Another way to improve the bottom line is through continuing to do agood job in its space and defense business, which now accounts for half ofBoeing's revenues.
Job cuts in the commercial aircraft sector will be brutal. Boeing plansto reduce employment, from the June 1998 high point of 238,000, by as manyas 38,000 by the end of 1999. That will have a ripple effect on the economyin the Seattle area, where Boeing has about two-thirds of its manpower.
Economists believe that every Boeing job creates 2 jobs elsewhere in thelocal economy, so a loss of 22,000 Boeing positions means double thatnumber of direct job losses in other sectors.
Gov. Gary Locke's chief economist forecasts unemployment in Washingtonstate rising from its present level of 4.7 to 5.5
in a year. Aerospace isthe largest employer in Washington state, followed by computer software andthe forestry sector.
In one respect Boeing continues to stand tall--notwithstanding itsrecent problems--by giving a shot in the arm to the US trade balance. TheAerospace Industries Association said the industry's exports rose $8.6billion from last year's record level of $50.4 billion in 1998, and itprojects continued growth. Boeing is a big part of that, being the largestcompany in the sector.
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