Boeing gets about one-third of its revenue from defense. It used to be closer to half. All defense companies have been reorganizing their factories and looking for new customers after automatic federal spending cuts kicked in this spring.
The cuts were widely expected to be reversed by Congress, but most stayed in place.
Boeing's defense unit has held up relatively well by looking for more overseas customers, and by keeping a lid on prices. Even though revenue from military programs fell slightly in the second quarter, profits still rose. In fact, expected higher defense revenue was a key reason that Boeing raised its profit guidance for this year.
Credit Suisse analyst Rob Spingarn asked whether the automatic cuts, known as sequestration, are turning out to be as big a problem as was feared, or is it just that the deeper cuts haven't kicked in? On Wednesday's investor conference call, he asked, "How do you think about revenues from a slightly longer-term trajectory, given that we really haven't seen any impact yet?"
Chairman and CEO Jim McNerney said Boeing has tried to cut costs "very aggressively, and very early," and has focused on getting more international orders.
McNerney: "I think we've seen some impact of sequestration, but we have not begun to see most of it yet. And so we remain cautious. We think there's more to come on sequestration, more than we've seen so far. We are prepared for it, margin-wise, anticipating some pretty Draconian kinds of scenarios. We are not out of the woods at all."
- Technology & Electronics