Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

And So It Begins: Boeing Announces Cuts to Defense Division

Friday, November 9th, 2012
By for Profit Confidential

Boeing Announces Cuts to Defense DivisionThere were two hurdles investors and business people were worried about. The first was the presidential election; the second was the fiscal cliff. While the presidential election has concluded, the ensuing gridlock that will now become a reality has many investors and business leaders worried that no definitive steps will be taken to help secure America’s future in the short term.

The earnings outlook appears bleak for many industries, and budget cuts are now becoming closer to a reality. While there were optimists hoping that one party would be in charge of both the White House and the House of Representatives, this split means a greater risk of not being able to compromise and come up with a deal to stop the harsh budget cuts set to be enacted in 2013.

The earnings outlook has been poor this financial reporting season, with a high level of earnings warnings. With President Obama stating that he’s in favor of higher dividend taxes, higher capital gains taxes, and greater regulation and increased costs associated with running a business, and with the inability of the Democrats to work with the Republicans in eliminating massive budget cuts, many investors are worried and are selling stocks ahead of these headwinds.

The Boeing Company (NYSE/BA) has just announced what I think will be a common theme—more budget cuts. Boeing stated that in its defense division, the firm will cut 30% of management jobs from its 2010 levels. The company will also be closing facilities in California and eliminating several business units to meet its goal for massive budget cuts. (Source: “Boeing announces defense division restructuring,” Reuters, November 7, 2012.)

With the lack of visibility in eliminating the fiscal cliff, many in the defense industry are anticipating large budget cuts. This negative earnings outlook is forcing companies to massively restructure and downsize. Boeing, the second-largest supplier to the Pentagon, is looking for $4.0 billion in total savings to try to improve its earnings outlook amid a forecast of massive defense budget cuts.

Boeing did state that these cuts were not in response to the fiscal cliff budget cuts or the presidential election. While that’s its public stance, I believe that this level of uncertainty is certainly a factor. In addition, I believe company management has been listening to what Obama has been stating in his goal of reducing military spending, making the necessary budget cuts to maintain a solid earnings outlook for its business.

While the commercial jet business is holding up well, approximately 40% of Boeing’s revenue comes from the defense division. With defense budget cuts looking to be more likely following the re-election of Obama, I think this will weigh heavily on the earnings outlook for all firms in the defense sector. When combined with higher taxes on capital gains and dividends, many investors will be looking for the exit.

  • He Beat the Market Eight Times Over Last Year!

    His Top 19 Picks Averaged a Gain of 216.23% in 2013 at their price highs... But Michael Lombardi's upset because his picks averaged a better gain in 2009! Now he's promising to make 2014 his best year ever for making money in the stock market!

    Story and Michael's weekly stock-picks here.

VN:F [1.9.22_1171]
Rating: 9.0/10 (2 votes cast)
VN:F [1.9.22_1171]
Rating: +2 (from 2 votes)
And So It Begins: Boeing Announces Cuts to Defense Division, 9.0 out of 10 based on 2 ratings
  • scott2345

    Obama gave his White House staff of friends and butlers, about 500 in number, a salary increase of 6%. Many were earning $240K or better before the raise. I sleep better knowing Jay Carney is not starving.

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.

Sasha Cekerevac - Investment Advisor, Fund AnalyzerSasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what to look for as an investor. His newsletters provide an experienced perspective on what the big funds are planning and how you can profit from it. He is the editor of several of Lombardi’s popular financial newsletters, including Payload Stocks and Pump & Dump Alert. Add Sasha Cekerevac to your Google+ circles

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.