June 2004 
Volume 03, Issue 2 
Focus on Finance

Face-to-face with Boeing owners

Analysts recognize company's emphasis on execution, growth


Face-to-face with Boeing owners A key audience-more than 200 owners, investors and securities analysts whose opinions can have a tremendous effect on the Boeing stock price-gave a generally positive response to the work Boeing has done to deliver shareholder value and position itself for growth.

Boeing senior leaders last month gave this constituency a first-hand account of the company's plans and efforts at the annual Boeing investor conference, held in New York. For Boeing, the goal of this annual event is to build the confidence these key investor representatives have in the company's strategy, leadership, performance and future outlook. Their support of Boeing's achievements and outlook can translate into higher stock prices. That in turn can enhance employee benefits tied to Boeing stock, such as the Boeing stock holding in the Voluntary Investment Plan savings plan. Proper valuation and confidence in Boeing's outlook is also important for capital market participants, who influence the company's ability to raise capital to fuel growth and pursue new work for the company and its people.

Based on the reports issued by several attendees after the event, investors are picking up on the key messages about Boeing, including two primary points:

• A focus on execution. Boeing President and CEO Harry Stonecipher told conference attendees that the failure to execute is a bigger threat to Boeing than its competitors are. Attendees picked up on this message. "We believe Boeing's main focus is execution on the existing backlog and 7E7 development, as well as improving its standing with its government customers to drive improving earnings and cash flows," wrote Sam Pearlstein of Jefferies & Company. Heidi Wood of Morgan Stanley, meanwhile, wrote that Stonecipher "has challenged the business executives to expect more of themselves" and set a goal for a 7 percent after-tax return on sales.

• Growth potential. Wood wrote that Alan Mulally, Boeing Commercial Airplanes president and CEO, "is speaking bullishly for the first time in four years." Steve Binder of Bear Stearns wrote that Mulally "spoke of upward rate pressure on the 737 and 747-400 programs and the strong prospects for the 7E7. And Nick Fothergill of Banc of America Securities noted that Jim Albaugh, Boeing Integrated Defense Systems president and CEO, "was confident that Boeing's current portfolio was diverse and sufficiently focused on priority areas"-notably, network-centric applications such as Future Combat Systems.

Despite this feedback, only one analyst chose to upgrade its rating on Boeing's stock or raise its expectation on where the stock price may reach. Analysts who cover Boeing based such decisions on various factors, including weak near-term demand for airplanes, the costs needed to develop the 7E7 and possible risk in the satellite business. However, in announcing its first-quarter 2004 financial results in late April, Boeing raised its expectations for revenues in 2005 and its guidance on earnings per share for 2004 and 2005.

Attendees at conferences such as this realize these events are inherently designed to talk up the host company. But several representatives at the Boeing event noted that the company's executives made their forecasts amid a backdrop of realism.

Fothergill wrote that Albaugh "took a realistic view, in our opinion, about pressures on the U.S. defense budget and (its) programs decisions ahead." And Howard Rubel of Schwab Soundview Capital Markets noted that Boeing has "done multiple planning scenarios and factored lower growth into its outlook" to account for a reduced growth rate in defense spending.

"We were up front, reasoned and realistic in addressing the Department of Defense budget and the growth within it. We were similarly direct in our discussion about risks and opportunities facing Commercial Airplanes. Investors gave us high marks for addressing their concerns," said David Dohnalek, vice president of Investor Relations for Boeing.

Underscoring Chief Financial Officer James Bell's assertion that Boeing's "financial health is excellent and we're deploying our strong cash flow to return value to investors," Boeing share performance was up 5.7 percent for the year through May 24; the Dow Jones Industrial Average, meanwhile, was down 4.7 percent, and the Standard & Poor's 500 index was down 1.9 percent.

Next year's investor conference will take place in Seattle in May.



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