Tanker charge tarnishes Boeing's 2nd-quarter profit

By Sweta Singh

(Reuters) - Boeing Co (BA.N) reported a 52 percent jump in quarterly profit, helped by higher commercial plane deliveries and one-time tax gains, but investors were spooked by rising costs in its military tanker programme.

Boeing's shares fell as much as 3 percent after the company said it took a $272-million (159 million pounds) charge related to its tanker programme and maintained its 2014 cash-flow forecast.

The stock was the biggest loser on the Dow Jones Industrial index (.DJI), which was down 0.41 percent by midday on Wednesday.

The planemaker said the charge reflected additional engineering and system installation costs related to the aerial tanker programme, which has already raised concerns over cost overruns.

"To us it is worrying that Boeing is booking a charge of this magnitude at a relatively early stage in this long-term programme, particularly given recent assurances from management that everything was going to plan, RBC Capital Markets analyst Robert Stallard wrote in a note to clients.

The planemaker retained its cash flow outlook at $6.25 billion for the year.

"This may create doubt as to whether Boeing can generate the cash flow that many are hoping for," Stallard wrote.

The company delivered 181 aircraft in the second quarter. This included 30 Dreamliner jets and 124 narrow-body 737s.

The company's ability to churn out Dreamliner jets is crucial to its financial performance this year as it is relying on commercial jets to offset a weak defence business.

While Boeing still loses money on each 787 it builds, it gets closer to breaking even as production increases.

The planemaker delivered its first stretched Dreamliner 787-9 in the quarter.

Boeing and its European rival Airbus Group NV (AIR.PA) have been ramping up production to cater to increasing demand from airlines. Boeing is going full throttle and said in January it was producing 10 Dreamliner jets per month.

Boeing's delivery forecast shows that the planemaker is on track to deliver a record 715-725 jetliners this year, having delivered 342 in the first half.

The company's net income rose to $1.65 billion, or $2.24 per share, from $1.09 billion, or $1.41 per share, a year earlier.

It recorded tax benefits of $524 million in the quarter, which included a pre-announced benefit of $116 million.

Core earnings, which exclude some pension and other costs, rose to $2.42 per share from $1.67.

Edward Jones Equity Research Christian Mayes said investors were been looking for more improvement in the company's underlying business.

"While the headline earnings number looked good at first glance, it turned out that it was helped to a large degree by one-time tax benefits,” he said.

Revenue rose 1 percent to $22.05 billion, missing the average analyst estimate for the first time in six quarters.

Analysts on average had expected earnings of $2.01 per share on revenue of $22.23 billion, according to Thomson Reuters I/B/E/S.

Revenue from commercial airplanes business was up 5 percent, while revenue from its defence, aerospace and security division fell 5 percent.

Total backlog of $440 billion as of June 30 was unchanged from the start of the quarter, the company said.

The company also increased its 2014 core earnings forecast to $7.90-$8.10 per share from its previous forecast of $7.15-$7.35 per share.

Boeing Chief Executive James McNerney said on a conference call with analysts that he has no plans to retire even as he turns 65 next month.

"We're continuing to build the succession plan and alternatives to succeed me eventually, but there's no discussion of it yet," he said.

(Additional reporting by Bill Rigby; Editing by Savio D'Souza and Saumyadeb Chakrabarty)