Medill Money Mavens » Transportation

Boeing Q2 profit drops 21 percent on sales decline

Laurenne Wallman — Thu, 29 Jul 2010 02:10:57 +0000

Boeing's profits dip 21 percent in second quarter.

Boeing Co. reported decreased earnings on fewer aircraft deliveries, causing its shares to fall. Still, the aviation giant beat Wall Street’s expectations.

Boeing earned $787 million, or $1.06 per diluted share, in the second quarter ended June 30, down 21 percent from $998 million, or $1.41 per diluted share, in the year-earlier period.

Wall Street analysts surveyed by Yahoo Finance had expected the company to earn $1.01 per diluted share.

Sales fell to $15.57 billion, down 9.2 percent from $17.14 billion in the year-earlier period.

Despite its second-quarter turbulence and previous expectation that 2010 would be a notable year, executives of the Chicago-based aircraft and defense manufacturer reaffirmed their 2010 outlook.

“With our commercial markets recovering, and the priorities of our government customers gaining clarity, we remain well positioned for growth in 2011 and beyond,” Jim McNerney, Boeing chairman, president and CEO, said in a statement released Wednesday.

According to Boeing, the company’s total order backlog at quarter-end was $312 billion, a 1 percent decrease, as the backlog for defense, space and security orders declined. At the same time, the backlog for commercial airplane orders rose.

Boeing’s commercial airplanes division reported second-quarter sales of $7.4 billion, down 12 percent from $8.4 billion in the year-earlier period, on 9 percent fewer airplane deliveries than in the year-earlier period, driven by supplier challenges and fewer planned wide-body deliveries.

The company said flight tests for the 787 Dreamliner continued during the second quarter. Boeing said it expects to deliver the 787, its new mid-size, fuel-efficient aircraft, at the end of this year. Total firm orders for the 787 program at quarter-end were 863 airplanes from 56 customers.

The 747-8 aircraft, which is a longer version of the 747 aircraft and is designed to be more fuel-efficient and less harsh on the environment, also continued flight tests during the second quarter. According to Boeing, a fifth plane was added to the flight test fleet on July 22.

The company reiterated Wednesday that delivery of the first 747-8 aircraft, planned for the fourth quarter, “may move a few weeks as the company completes flight tests and certification requirements.”

Kenneth Herbert, a Wedbush Securities analyst said Wednesday he believes the first deliveries of the 747-8, and likely the 787 as well, will fall into early 2011.

Sales in Boeing’s defense, space and security division also reported decreased sales of $8 billion, down 8 percent from $8.7 billion in the year-earlier period.

“The key for Boeing is to what extent it can maintain defense margins and revenues while the commercial sector recovers,” Herbet said. “Clearly the pressure on defense will continue to increase, as we are seeing, due to federal top-line budget pressure.”

According to analysts surveyed by Yahoo Finance, Wall Street is expecting third quarter earnings per diluted share to be $1.03, compared with a loss of $2.23 per diluted share in the third quarter last year.

For the first half ended June 30, Boeing earned $1.31 billion, or $1.76 per diluted share, down 19 percent from $1.61 billion, or $2.27 per diluted share in the year-earlier period.

Boeing reported net sales for the first half of $30.79 billion, a 9 percent decrease from $33.66 billion in the year-earlier period.

“If Boeing can maintain margins of at least high single digits, it will continue to provide a floor on the business and should provide strong cash flows,” Herbert said, adding that Boeing’s increasing orders, expected free cash flow of more than $5 billion and expected deliveries are indicative of substantial future sales.

The stock closed Wednesday at $67.32, down $1.30, or nearly 2 percent from Tuesday’s close.

Travel websites address oil spill fears for Gulf coast travelers

Traci McMillan — Thu, 01 Jul 2010 19:54:34 +0000

For those fearful of the effects of the oil spill on summer or fall travel plans, look no further. Some travel websites are finding ways to keep you updated on the spill and how it might affect your vacation plans.This week Hotels.com announced a more flexible cancellation policy for participating Florida hotels. Here is the scoop on this deal and what others are doing in response to the oil spill.

> Hotels.com: The hotel booking site under the Expedia Inc. umbrella, offers a deal to cancel hotel reservations up to 5 p.m. Central Time on the day of arrival to receive a full refund for unused nights. The deal applies for 45 different hotels and resorts on the Florida coast.

The catch? You have to enter in the coupon code OILFLEX for travel plans up to Sept. 30. If you are looking for this deal on the website, you have to navigate to “deals” and scroll to the bottom of the page to locate flexible cancellation policy. According to hotels.com spokeswoman Taylor Cole, when booking the hotel you can also find a link on the page to learn more about specific cancellation policies.

Cole said the company hopes to encourage travelers “to think beyond the beach.” She said many of the affected cities have a variety of other activities and good restaurants that consumers should check out. But in order to give its customers “peace of mind,” the website has partnered with hotels to offer this promotional policy.

> Orbitz.com: Chicago-based Orbitz Worldwide Inc. seems to be the travel giant most on top of information for Gulf Coast travel. The site features daily updates on the oil spill, detailed trajectory maps and places to volunteer on the Coast.

In June, Orbitz launched its “Open Beach Guarantee,” a full refund policy for more than 240 hotels in the Gulf region for travel up until July 31. Company spokeswoman Jeanenne Tornatore said Orbitz is taking a “proactive” approach to the oil spill. If a beach is closed within 20 miles of one of these hotels, Orbitz will contact a customer who has unused hotel nights at the destination and offer a full refund. But a forewarning for customers: this only applies to standalone hotel reservations, not packages.

In order to determine whether a beach is closed or dangerous, Orbitz is following local government agency warnings.

Tornatore said Orbitz hopes to inform consumers while “supporting these communities” where tourism is a major industry. Orbitz has seen declines in bookings to the Gulf, but Tornatore said the impact is not significant since the region is not a major market for the company in the summer months.

> Expedia.com: Expedia’s parent site is solely focused on “ensuring travelers remain educated on the status” of the region, according to Expedia Inc. spokeswoman Katie Deines Fourcin. The website provides in depth information on the status of beaches which can be accessed through “customer support,” but has no plan to change refunding policies. However, Expedia already features no charges or cancellation fees for online bookings for any trip. She said most individual hotels do not have a penalty fee as long as travelers cancel 24 hours in advance.

Deines Fourcin said travel was “impacted immediately following [the oil spill],” including decreased bookings to Florida on the site. She said an obvious trend is a shift in booking from the west coast of Florida to the east coast.

She also noted that Expedia’s partner for advertising sales, Expedia Media Solutions, has announced a “one day media blitz” for each of the Gulf States to aid in boosting travel. The company is also matching 3-to-1 any dollars spent on advertising campaigns to support travel destinations that have suffered negative spillover but are not themselves impacted by the oil spill.

> Travelocity.com: The site posts information on the oil spill but did not have any comment on cancellations or new Gulf-related policies.

> Hotwire.com: No oil spill-related updates or postings and no special cancellation policies at this time. In response to any oil spill related travel concerns, a customer service representative said clients of the website may contact Hotwire customer support.

Caterpillar stock—not especially cheap, but if you own it, hold

Yan Da — Mon, 07 Jun 2010 04:05:38 +0000

The Dow Jones Industrial Average plunged 323.31 points to 9931.97 on Friday, the worst drop in about four months. Caterpillar Inc. was the worst performer, slumping 5.48 percent, or $3.35, to $57.76.

But, the Peoria-based construction manufacturer may have some potential.

Among 25 analysts polled by Bloomberg LP, 12 recommended to “buy” the stock, 11 of them recommended to “hold” and two persons had a “sell” recommendation.

“We believe our revenue forecast is reasonably conservative as demand from developed countries is not expected to recover in the near term, providing some upside potential to our revenues 2010 and 2011,” a recent JPMorgan Chase & Co. report said, rating the stock as “overweight” with a price target of $76, more than $18 higher than the stock’s last trade price.

The stock’s 52-week low was $30.01 on July 8, 2009, and 52-week high was $72.83 on April 26, 2010. The industry’s average is $43.03 as of Friday.

Caterpillar’s earnings per share for the past 12 months were $2.07, according to Bloomberg. Its price-to-earnings ratio is 27.90, showing that its stock price is in line with its earnings. Analysts are expecting earnings per share at $3.14 this year. The industry’s average p/e is 26.69.

Even though Caterpillar’s stock price is higher than the market’s average, “those earnings are going to be improving pretty quickly,” said Adam Fleck, an analyst at Morningstar Inc. The Institute for Supply Management’s Manufacturing Index showed that manufacturing sector continues to pick up, growing for the 10th consecutive month in May.

But manufacturing expansion in U.S. is not the only good news for Caterpillar. Tremendous growth in emerging economies in Asia and Latin America is even more helpful, Fleck said.

“The main driver behind our improved outlook is robust growth in Asia/Pacific and Latin America and continued improvement in mining and energy globally,” said Jim Owens, Caterpillar’s chairman and chief executive officer, in the company’s most recent earnings release.

For the last several quarters, Caterpillar’s debt to equity ratio, a measure that evaluates the company’s financial health, continued to go down. According to Zacks Investment Research, Caterpillar’s debt ratio was 2.27 for the first quarter this year, down from 2.48 in the last quarter of 2009 and 2.71 in the third quarter last year.

Moody’s Investors Service Inc. changed the outlook on Caterpillar from “Negative” to “Stable” on June 2.

“The stable outlook reflects Moody’s expectation that CAT has ample operating and financial strengths to restore credit metrics to levels that are much stronger than current levels,” the report said, adding that Caterpillar is recovering demand in Asia, North America and Latin American markets. In addition, it has a highly competitive global position in the construction equipment and high-horsepower engine markets.

Caterpillar has bet on the rail business for the future. The company announced Tuesday that it signed an agreement to acquire Electro-Motive Diesel Inc., a LaGrange, Ill.-based locomotive manufacturer, for $820 million.

“This acquisition represents the latest step in our strategic plan to aggressively grow our presence in the global rail industry,” stated Doug Oberhelman, vice chairman of the company. “Rail has proven to be a highly efficient and sustainable method for moving freight and people, and we see a positive long-term future for the continued growth of the rail industry.”

Air New Zealand worth a look

David Noell — Fri, 28 May 2010 20:45:22 +0000

Air New Zealand should benefit from next year's Rugby World Cup (Image courtesy Flickr user griffs0000)

The average American isn’t very knowledgeable about the game of rugby; most Americans seem to think of it as a confusing version of football.

But the savvy American investor has a good reason get acquainted with the game because of the investment opportunity it affords.

The Rugby World Cup is set to take place in New Zealand in September and October of 2011, and is poised to help the country’s transportation companies, including Air New Zealand Ltd.

The airline’s shares fell about 1.7 percent on Friday to close at $1.19 in New Zealand dollars, or about 81 U.S. cents, on the New Zealand Stock Exchange.

Russell Shaw, an equities analyst at Macquarie Securities, said Air New Zealand should get most of the traffic from those traveling to and from the country during the tournament. “Extra services are being added to cope with the expected increased demand, and with an existing 76 percent market share and the most comprehensive regional network domestically, we would expect (Air New Zealand) to garner the lion’s share of tourist traffic before, during and after the tournament,” Shaw said in an e-mail.

“The exposure of New Zealand as a tourist destination during the world cup should prompt a strong flow of additional holidaymakers over the following 12 months,” he wrote.

The airline company will benefit from the timing of the cup, as September and October are usually down months, according to Jason Bloom, equities analyst at UBS New Zealand Ltd. “I think they will benefit, it will basically extend the peaks for an extra couple of months,” Bloom said.

New Zealand recently released its budget and Bloom sees positive news in it for Air New Zealand. “Corporate tax rates here are dropping from 30 to 28 percent, so that’s a clear benefit,” Bloom said.

“We’re also getting personal tax cuts here, which are quite significant so people will generally have more money in their pockets, which should help them,” Bloom continued.

Macquarie’s Shaw didn’t see the budget as distinctly positive or negative for Air New Zealand, but he does think investors should keep their eyes on future government action. According to Shaw, the government might sell some of its stake in the airline. Since the government owns around 75 percent of the airline, this could mean more liquidity for Air New Zealand.

The outlook for the airline isn’t entirely optimistic as the airline industry has to deal with lots of uncertainty. “The problem with the airline sector is you never know when something is going to go wrong,” Bloom said. “We didn’t predict the volcano a few months ago, but these things kind of pop up, unfortunately” Bloom said.

UAL may look cheap, but don’t rush to buy

Daniel Hom — Wed, 05 May 2010 21:33:04 +0000

A mockup of a future United Airlines plane following a merger between UAL and Continental Airlines. (courtesy UAL and Continental Airlines)

The airline industry just can’t seem to get a break. Economic downturns. Volatile fuel prices. Volcanic ash clouds.

But for Chicago-based UAL Corp., there has been a lot of movement in its favor. A week ago, the company reported its first first-quarter operating profit for the first time since 2000. Revenues grew 14.9 percent to $4.2 billion year-over-year. Its current price-to-sales ratio is 0.18 and ranks low compared with the competition. And then there’s the merger with Continental Airlines Inc. to create the world’s largest airline—a deal that brings a lot of potential for growth.

Yet UAL’s stock is trading short of its 52-week high of $23.83. In fact, since the initial jump in stock price to $22.11 following the merger announcement on Monday, the stock price has fallen 10.5 percent to close at $19.78 today.

Sound like a stock ripe for a buy?

Not so fast, said Chicago-based Morningstar Inc. analyst Basili Alukos, who has set a fair-value estimate of $21 but cautioned against thinking all the news signaling an undervalued or cheap UAL stock. “I could say yes [UAL is undervalued] today,” he said, but added the caveat that because of the leverage embedded in an airline, things could change overnight.

The airline industry is volatile, and Alukos said that’s a core problem with trying to determine an airline company’s valuation. He classifies UAL’s uncertainty level as “extreme,” a label also given to several of UAL’s competitors, including AMR Corp. and US Airways Group Inc.

UAL also struggles with a high total debt-to-capital ratio of 149 percent, though its liabilities have fallen to $7.5 billion for the first quarter of 2010 from a peak of $8.7 billion back in the second quarter of 2008. Still, numbers like these are common in the industry today. “Airlines are very heavily leveraged,” Alukos said.

The extra wildcard for UAL in an already unstable industry is the merger with Continental Airlines. If the merger goes through, Alukos said, the value of their combined synergy could be significantly greater than each airline by itself. That alone could make a case for an investment opportunity. “They [UAL] have the second-most potential of any airline,” he said.

But potential isn’t always concrete ground to make the claim of an undervalued company going hand-in-hand with a solid investment opportunity. There has been some good news with UAL, and they may end up being a good gamble. Just be sure to have Lady Luck around.

How charged are the high Volt claims?

kellen.henry — Wed, 12 Aug 2009 17:40:29 +0000

BY KELLEN M. HENRY– MEDILL NEWS SERVICE

The U.S. Environmental Protection Agency isn’t sure whether General Motors’ triple digit mileage claims will meet the road for its Chevrolet Volt when it is released next year.

The ailing automaker announced Tuesday following a viral marketing campaign that its forthcoming plug-in car will have an estimated fuel economy of 230 miles per gallon. The Chevrolet Volt would run 40 miles on its charge before tapping into the gasoline reserve.

The EPA has yet to confirm GM’s claims, according to the agency’s response to the Green Car Advisor blog through Edmunds Inc.

The EPA statement said:

EPA has not tested a Chevy Volt and therefore cannot confirm the fuel economy values claimed by GM. EPA does applaud GM’s commitment to designing and building the car of the future – an American-made car that will save families money, significantly reduce our dependence on foreign oil and create good-paying American jobs. We’re proud to see American companies and American workers leading the world in the clean energy innovations that will shape the 21st century economy.

Competitors in the electric car market have yet to break the 100 mpg barrier in terms of EPA rating, although Nissan has made assertions, similar to GM’s, that its Leaf vehicle would get 367 mpg.

Toyota’s recognizable Prius hybrid, for instance, receives a fuel efficiency of 51 from the department.

In response to questions about the Volt’s potential EPA rating, the Green Car Advisor took a look at the mileage claims.

Senior Editor John O’Dell writes:

That the Volt might or might not get the equivalent of 230 miles per
gallon doesn’t mean it actually would go 230 miles if you put a single
gallon of gas in its tank and sent it out to find its way in the world. That’s preposterous.

The EPA’s mileage rating for electric vehicles delves into the hypothetical realm of gas mileage equivalence and not true miles and gallons, according to the article. The fuel efficiency ratings for electric vehicles, though different than for traditional vehicles, still depend on how the vehicle is being driven.

Industry analysts remain skeptical as well, according to an article in the New York Times Wednesday, because “GM has a poor track record of introducing green technology into the market.”

The Volt’s true traveling capacity will be proven down the road when the vehicle is released in 2011. The question is whether 230 miles in the green direction are enough to carry GM where it needs to go.

Factory orders increased in June

kellen.henry — Wed, 05 Aug 2009 19:47:53 +0000

BY KELLEN M. HENRY– MEDILL NEWS SERVICE

New orders for manufactured goods increased 0.4 percent the U.S. Census Bureau reported Wednesday in a preliminary report on the manufacturing industry in June, following a 1.1 percent increase in May.

Factory orders were expected to fall 0.8 percent, according to a survey of economists by Bloomburg L.P. Excluding volatile demand for transportation equipment, orders rose 2.3 percent in the month.

Manufacturing is seeing some inventory reductions, which means businesses may eventually start ramping up production to keep up with demand as the economy shifts into recovery mode. In the same vein, the federal “cash-for-clunkers” program has boosted the perceived demand for cars, though its overall economic impact is uncertain.

Economist Ryan Sweet, with Moody’s Economy.com, told Bloomberg:

Manufacturers’ customers are growing more comfortable with the level of their stockpiles, which sets the stage for an increase in orders and production.

The June increase in factory orders means new orders have now been up four of the last five months. However, new orders for manufactured durable goods in June fell 2.2 percent after two consecutive monthly increases.

Marketing “green” vehicles in hopes of bringing in the green

kiransood — Wed, 22 Apr 2009 18:01:40 +0000

American automakers are hoping to market the idea that smaller can be better, when it comes to cars. Europe and Japan have successfully marketed smaller vehicles for years. (Blog.wired.com)

BY: KIRAN SOOD – MEDILL NEWS SERVICE

Consumers might be willing to pay $2,000 to $3,000 more for a hybrid or alternative-fuel vehicle, but not before automakers address financial risks such as resale value and long-term reliability, auto experts said.

At the Society of Automotive Engineers 2009 World Congress, a three-day convention in Detroit that began Tuesday, experts discussed strategies automakers need to employ in order to sell today’s buyers on ideas for cars of the future.

Right now, consumers are primarily concerned about personal financial risks associated with a hybrid vehicle investment, including resale value, availability and costs of battery replacement, reliability, and fuel costs that remain low, according to research from Synovate Motoresearch Inc.

The success in marketing green hybrid and alternative-fuel vehicles will be based on overcoming these concerns, said Scott Miller, CEO of Synovate, in a speech at the convention.

Consuming less and emitting less are trends that will influence consumer behavior for years but the extent that impact must be evaluated within the context of concerns over personal finance and risk. You basically have told consumers to just wait, and you can’t do that.

Miller added that automakers need to guarantee a certain resale value and offer buyers maintenance contracts and improved warranties to combat the perception that new technologies are less reliable.

Part of the challenge in marketing “green” vehicles lies in overcoming American’s obsession with big SUVs and trucks, and proving that smaller can be better. In Europe and Japan, cars are lighter, and smaller. Partly because of size restrictions, Europeans have come to prefer smaller cars.

In Asian nations, improved and lightning-fast transportation systems have decreased the public’s dependence on personal vehicles.

Regardless of how consumers react right now, automakers have no choice but to continue to make more hybrids to keep up with increased governmental fuel standards. The key to marketing these vehicles is to find a way to convince consumers that small can be hip, stylish, safe, and reliable – now.

Automakers face conundrum: Root for low gas prices, or push alternative fuel vehicles

kiransood — Thu, 16 Apr 2009 11:54:02 +0000

A display at the Chicago Auto Show for the Chevrolet Volt, by General Motors Corp. It is the first extended-range vehicle intended for commuters. (Kiran Sood/ MEDILL)

BY KIRAN SOOD – MEDILL NEWS SERVICE

As automakers continue to push alternative fuel vehicles on the floors of showrooms across the country and in flashy displays at auto shows in Chicago and New York, is anyone truly paying attention to their cries?

The auto industry is facing another problem, in addition to trying to keep their heads above water, pay back government bailout funds and attract people to buy cars. They now have to please environmentalists and President Obama with increased fuel efficiency standards. Some argue that by trying to push alternative fuel vehicles right now, their cries are falling on deaf ears.

When fuel prices go up, the demand for hybrid and alternative fuel vehicles goes up, as consumers want vehicles that will allow them optimal mileage for the price per gallon. Last summer, when gas prices were $4 a gallon, consumers were actively searching for vehicles that could give them more bang for their buck.

But, with gas prices stable in recent months – hovering around $2 – the demand for hybrid and alternative fuel vehicles has dropped.

According to AutoNation, the largest network of car dealerships in the country, if gas prices continue to remain volatile, automakers will continue to have stockroom floors full of alternative fuel vehicles that consumers simply don’t see a need for right now.

“Stabilizing the price of gas will go a long way toward strengthening America’s auto industry and reducing our dependence on foreign oil,” said Mike Jackson, chairman and chief executive officer of AutoNation.

General Motors Co. is experiencing the conundrum as we speak. By 2014, GM expects cars and crossovers to make up 81 percent of its products, selling a smaller percentage of pickup trucks than today. It expects 65 percent of the vehicles it sells to run on “alternative fuel.”

However, unless gas prices soar again, the decreased sense of urgency on fuel economy will likely cause GM to change their plan and offer fewer hybrid cars by 2012.

The only thing that is certain is that as automakers will continue to implement survival mechanisms to weather the storm. It remains to be seen whether or not consumers will find a need to buy vehicles at all right now, given the circumstances, let alone a costly energy-efficient hybrid vehicle.

Spring break not a break from the recession for college students

Tian Huang — Mon, 02 Mar 2009 17:53:14 +0000

BY TIAN HUANG - MEDILL NEWS SERVICE

The weather outside is still frightful in Chicago, but for college students, spring break is just around the corner, which, if you go by MTV stereotypes, means a crazy week of partying in Cancun or Panama City Beach. Still, with everyone feeling the effects of the recession, will college students still be willing to go anywhere but home this year?

Annie Martin, a student at Northwestern University, said she’s not even traveling home.

“I did consider going home and airfares were a little less expensive than they usually are but not by much,” Martin said. “Because it’s so close to graduation, I wanted to save my money for an apartment or other post-graduation expenses. This is especially true since I don’t have a job lined up yet.”

Martin added that her parents’ financial situation further convinced her that she should forgo a vacation this year.

“My parents have lost significant amounts of their retirement money through the stock market and I feel bad about doing anything extravagant right now,” Martin said. “There’s not a whole I can do to help them but it feels a little disrespectful, especially because my tuition is eating up so much of their money right now. “

Melina Kolb, another student at Northwestern, said she is planning on making a trip somewhere close because she hasn’t been paid at her job.

“I actually have been doing a lot of work, but the thing is, I do freelance, and my employer is having trouble paying me on time,” Kolb said. “So it’s like I have money theoretically, but then I don’t physically have it because he’s having trouble himself getting investors and advertisers for our project. I’ve seen really great deals that I’m definitely tempted by, but I also feel guilty and worried that I don’t have the money for it, even with it being so cheap.”

In fact, Liz Schaaf, branch manager of STA Travel Inc., a travel company geared toward students, said she’s been seeing more students take on domestic travel this year.

“Domestically, students seem to be going to Florida or San Diego, in California,” Schaaf said.

Shaaf added that Northwestern students who travel during this time of the year typically “go off the beaten path,” preferring to go to places like Costa Rica and Europe during their one week off. Plane ticket prices to those locations have dropped this year due to lower fuel surcharges, according to Schaaf.

Unwilling to pay anything for travel? Click here and apply to be STA Travel’s 2009 World Traveler Interns and travel the world for free!