![Boeing 737-7 MAX, N7201S. Farnborough International Airshow, July 16, 2018](https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1438906752/image_1438906752.jpg?io=getty-c-w750)
![Boeing 737-7 MAX, N7201S. Farnborough International Airshow, July 16, 2018](https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1438906752/image_1438906752.jpg?io=getty-c-w750)
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Boeing (NYSE:BA) reported 4 quarter and full yr earnings on the 31st of January and the inventory worth reacted positively gaining round 5% post-earnings. On this report, I will probably be discussing the fourth quarter and full yr outcomes by working division and handle related matters mentioned within the earnings name.
Unhealthy Boeing Information Dominates
Boeing’s management went into the earnings name with many stakeholders together with airline executives angered as grew to become clear in an interview from NBC News with Alaska Airlines CEO Ben Minicucci:
I’ m greater than annoyed and disillusioned. I’m indignant.
Earlier this yr, a model new Boeing 737 MAX 9 suffered an explosive decompression prompting the FAA to ground all Boeing 737 MAX 9 airplanes. The in-air accident was the most recent sign that every one remains to be not effectively at Boeing almost 5 years after the second deadly accident with the Boeing 737 MAX. In response to the accident, airways have began reviewing fleet plans, intensified pre-delivery scrutiny of Boeing jets and the FAA in the meanwhile has forbidden Boeing to increase 737 MAX production rates.
All of this comes at a time when the US jet maker was engaged on restoration of its manufacturing and design integrity in addition to its steadiness sheet. So, management went into the Boeing’s fourth quarter and full year earnings presentation with quite a lot of adverse momentum.
Boeing: A Dive Into The Q3 and Full 12 months Earnings
![This table shows the Boeing Commercial Airplane results.](https://static.seekingalpha.com/uploads/2024/2/4/9932311-1707107161736685.png)
![This table shows the Boeing Commercial Airplane results.](https://static.seekingalpha.com/uploads/2024/2/4/9932311-1707107161736685.png)
The Boeing Firm
Boeing noticed its fourth-quarter deliveries rise 3% and you could possibly say that isn’t an enormous leap in supply volumes as manufacturing is at the moment greater. So, the upper manufacturing charges usually are not but mirrored within the supply numbers. There’s at all times some lag within the greater manufacturing charges translation to deliveries, however delivering simply 5 items extra just isn’t indicative of extraordinarily robust supply efficiency in comparison with the identical interval final yr.
Revenues got here in at $10.5 billion, up 13% pushed by combine whereas earnings had been $41 million in comparison with a $603 million loss a yr in the past. I had anticipated the supply worth to be within the $10.6 billion to $10.7 billion vary, so Boeing missed my expectations on revenues by $185 million. Many Dreamliner operators have agreed on compensation packages with the Arlington-based aircraft maker which doubtless has additionally been granted within the type of further low cost on airplane deliveries.
On earnings degree, I had anticipated a $45 million loss in comparison with the $41 million revenue reported. So, Boeing carried out considerably higher regardless of lacking my income estimates. This was pushed by 41 million decrease analysis and growth prices and $77 million decrease irregular manufacturing prices. For the total yr, deliveries had been up 10% and supply worth was up 30% pushed by favorable supply combine. The working loss declined from $2.3 billion to $1.6 billion.
![This table shows the Boeing, Defense, Space & Security financial results.](https://static.seekingalpha.com/uploads/2024/2/4/9932311-1707107161653805.png)
![This table shows the Boeing, Defense, Space & Security financial results.](https://static.seekingalpha.com/uploads/2024/2/4/9932311-1707107161653805.png)
The Boeing Firm
Revenues on the protection section got here in at $6.75 billion, up 9% year-on-year. I are likely to mannequin this as a enterprise with $6 billion to $6.15 billion in quarterly gross sales. Seemingly, Boeing beat my expectations on that finish, nevertheless it also needs to be identified that the previous quarter was considerably weaker with revenues round $5.5 billion. So, it’s potential that some Q3 revenues had slipped into This autumn. Whereas worthwhile within the fourth quarter final yr, the protection, house and safety section swung again to a $101 million loss pushed by $139 million in value development on fixed-price growth contracts. Excluding this value development, the section can be at a break-even degree which reveals some success in stabilizing the enterprise but additionally does level at some unfavorable efficiency and blend results on the packages excluding the fixed-price growth packages.
For the total yr, revenues rose 8% to almost $25 billion and its working loss declined from $3.5 billion to $1.76 billion. So, the enterprise remains to be loss making and one can surprise when margins will regrow however we noticed important progress in chopping losses however that was additionally pushed by a big de-risk try final yr and maybe with the earlier de-risk makes an attempt in thoughts it’s considerably disappointing to proceed seeing value development on a quarterly foundation.
![This table shows the Boeing Global Services financial results.](https://static.seekingalpha.com/uploads/2024/2/4/9932311-17071071617031908.png)
![This table shows the Boeing Global Services financial results.](https://static.seekingalpha.com/uploads/2024/2/4/9932311-17071071617031908.png)
The Boeing Firm
In some ways, World Companies is the star of the present for Boeing. It’s the enterprise section that continues to develop and continues increasing its working margins. Fourth quarter revenues grew 6% to $4.85 billion on 17.4% margins leading to 33% greater earnings. Typically, I mannequin the World Companies section as a $4.75 billion quarterly revenues enterprise with 16% margins. It will likely be fascinating to see whether or not Boeing can flip this right into a $4.75 billion enterprise or extra with 17.5% margins going ahead. For the total yr, the section noticed 9% development to $19.127 billion in revenues and earnings improved 22% to $3.3 billion.
![This image shows a Boeing 777 commercial airplane on the taxiway.](https://static.seekingalpha.com/uploads/2024/2/4/9932311-17071071622886724.png)
![This image shows a Boeing 777 commercial airplane on the taxiway.](https://static.seekingalpha.com/uploads/2024/2/4/9932311-17071071622886724.png)
The Boeing Firm
General, Boeing reported revenues of $22 billion exceeding analyst estimates by $940 million whereas earnings per share had been -$0.47 beating estimates by $0.32. Boeing’s efficiency in This autumn, we noticed decrease value for Boeing Business Airplanes which helped the section reserving a small revenue, whereas the Protection section continues to expertise value development and its robust revenues might need been extra reflective of a slip from Q3 to This autumn than really being consultant of development. The providers enterprise continues to carry out effectively as demand for air journey is excessive and that drives flight cycles in addition to providers and spare elements demand.
Boeing Debt: 2023 Free Money Circulate Was A Watch Merchandise
With Boeing making an attempt to execute a multi-year trajectory to cut back debt and clear up its balance sheet, eyes positively are on the money movement efficiency. Throughout the Boeing Investor Day presentation, the corporate guided for $4.5 billion to $6.5 billion in working money movement with $3 billion to $5 billion in free money movement. That steering had fairly a variety and ultimately was conservative, so it by no means actually got here underneath strain however when Boeing’s provider Spirit AeroSystems (SPR) detected manufacturing points earlier this yr forcing a downward revision on the Boeing 737 supply goal for the yr, the money movement efficiency grew to become an excellent nearer watch merchandise.
![This table shows Boeing's cash flow in 2023.](https://static.seekingalpha.com/uploads/2024/2/4/9932311-17071071617118654.png)
![This table shows Boeing's cash flow in 2023.](https://static.seekingalpha.com/uploads/2024/2/4/9932311-17071071617118654.png)
The Boeing Firm
Boeing’s fourth quarter money movement efficiency actually was not an eye fixed grabber. In reality, its working and free money movement efficiency declined year-over-year. Maybe that can also be not extraordinarily shocking. Out of the $181 million discount in free money movement, $105 million was pushed by greater CapEx and the rest was on working degree. Boeing solely delivered 3% extra airplanes through the quarter whereas additionally experiencing value development within the protection enterprise and certain additionally compensating airways for supply delays.
For the total yr, working money movement got here in at almost $6 billion placing the working money movement efficiency on the greater finish of the projected vary whereas $4.4 billion in free money movement additionally ended up within the greater finish of the guided vary marking a $2.1 billion constructive swing in money movement efficiency for the yr.
Sequentially, Boeing’s liquidity improved from $13.4 billion to $16 billion with consolidated debt of $52.3 billion in each durations. This additionally marked an enchancment of $2.6 billion in web debt bringing the web debt to $36.3 billion. So, sequentially consolidated debt remained steady, and one can surprise why Boeing just isn’t accelerating debt compensation. I consider the corporate goals for a minimal liquidity of $15 billion so there was not an enormous house to speed up debt compensation. Moreover, Boeing’s debt is fastened price which shields the corporate from rate of interest fluctuations on present debt which removes the set off to speed up debt compensation. Moreover, the corporate additionally weighs the advantages of debt discount towards brief time period investments of its money and with debt being fastened price its return on funding could be greater than its rate of interest financial savings making it the higher path to take.
Liquidity firstly of the yr was $17.2 billion with $57 billion in debt placing the web debt at $40 billion. So, liquidity got here down a bit, nevertheless it was pushed by free money movement being utilized for debt discount and a few continued inefficiencies on a few of Boeing’s packages and segments.
Boeing Management Focuses On Boeing 737 MAX 9 Debacle
![This image shows a Boeing 737 MAX 9 commercial airplane in the skies.](https://static.seekingalpha.com/uploads/2024/2/4/9932311-17071071622304547.png)
![This image shows a Boeing 737 MAX 9 commercial airplane in the skies.](https://static.seekingalpha.com/uploads/2024/2/4/9932311-17071071622304547.png)
The Boeing Firm
The one factor that Boeing executives couldn’t do is put an excessive amount of emphasis on the monetary outcomes and talk about intimately how good or unhealthy they had been and rightly so. It’s broadly thought-about that the issues at Boeing originate from a monetary targeted mindset the place the main focus is on monetary numbers fairly than engineering and manufacturing energy. Ultimately, the Boeing inventory worth had turn into the main focus piece or product fairly than industrial airplanes and aerospace services and products.
With that in thoughts and the teachings realized from Boeing’s terrible response to the Boeing 737 MAX disaster, Boeing executives took one other method this time taking full duty and promising transparency. Whereas this does appear courteous, it’s the solely proper factor to take action I gained’t be applauding Boeing’s CEO David Calhoun for doing what needs to be widespread sense and a part of integrity.
As a board member of The Boeing Firm, Boeing’s board together with Calhoun despatched the earlier CEO to stakeholders to defend Boeing’s pursuits in a questionable method just for Calhoun to later query Muilenburg’s motives which in all equity additionally dented or ought to have dented Calhoun’s credibility as Boeing’s CEO. In a report, I wrote 4(!) years in the past I already identified that Boeing’s new CEO had a credibility issue and in my opinion the Boeing 737 MAX 9 debacle solely stresses that within the 4 years that Calhoun is the CEO of The Boeing Firm he has been unable to return the concentrate on engineering and manufacturing high quality. Ultimately, Calhoun is the chief of Boeing, however he fails lead Boeing to greener pastures on the symptoms that matter and people are security, reliability and high quality. With out these an engineering firm can not ship a product. Calhoun carries out a message to the general public on the matters of high quality, security and reliability with out really making the constructive adjustments which are wanted at Boeing by which case stay simply that… phrases. An excessive amount of goes improper and with the FAA scrutinizing Boeing and the provision chain extra closely, one can solely watch for a message of a subsequent manufacturing defect to return out and Boeing’s management will flip it right into a story of how the corporate detected the problem and decisively acted. In reality, whereas this report was awaiting publication, one other manufacturing issue on the Boeing 737 MAX was discovered.
Utilizing yet one more failure to indicate decisiveness is what Calhoun additionally did through the earnings name:
We have been good at taking pauses. I’ve most likely taken extra pauses within the final three years, and I will apologize to all our traders now, than have been taken in 10 years earlier than it. However that is what we do, and it is how we get higher.
The truth is, after 4 years by which we should always have seen a brand new Boeing with a brand new mindset, the corporate has progressed little to forestall high quality points underneath Calhoun’s management and every time he seemingly takes credit score for appearing decisively when yet one more subject surfaces. For my part, complimenting management on doing the easy factor units a really low bar as a result of at this level management needs to be asking itself how this continues to occur underneath the present management whereas that exact same management carries out a message of being targeted on security and high quality. To me it appears that is partially the results of finishing up a message to the general public, however not adequately growing the instruments, processes and mindset to execute on that message.
For my part, if something, the continued points that Boeing has confronted on its packages together with the newest MAX 9 points placed on show that the present management is just incapable of cultivating a greater tradition at Boeing. I consider that ultimately you possibly can see the present points confronted with the Boeing 737 MAX 9 because the product of Calhoun’s management and I consider that the one cause why he’s nonetheless Boeing’s CEO is as a result of the MAX 9 accident was non-fatal. Nevertheless, in my opinion that doesn’t imply that Calhoun ought to keep. Had the MAX 9 accident occurred at cruise altitude, likelihood is excessive the end result would have been very totally different.
Analysts Focus On Boeing Certification Timelines
Whereas management targeted on stressing their place on security, high quality and integrity analysts targeted on certification timelines for the Boeing 737 MAX 7 and the Boeing 737 MAX 10 which have turn into much less sure. On the subject of the Boeing 737 MAX 7, Calhoun leveraged his assembly with politicians mentioning he met with Senator Duckworth. Boeing had requested that assembly and Calhoun used the content material of that assembly to spotlight to stakeholders that Duckworth, who can also be a embellished pilot, had no security issues relating to the MAX 7:
We did not have a debate in regards to the security of the 7 and the 7 in its certification work was shifting alongside at a fairly regular tempo.
He additionally mentioned the senator identified that Boeing needed to introduce the MAX 7 to the general public after which provide you with an engineering repair months later. Seemingly that sparked one thing inside Calhoun and the corporate will probably be delaying the MAX 7 service entry and assign further engineering assets to develop the engineering repair for the nacelle heating subject on the Boeing 737 MAX.
Nevertheless, trying past the dialog and contemplating that the MAX 7 is the much less in style mannequin within the MAX household whereas the Boeing 737 MAX 10 is considerably extra in style amongst prospects, I consider that the MAX 7 is used as a form of bargaining chip the place the MAX 7 certification is being delayed appeasing lawmakers whereas Boeing tries to maintain the Boeing 737 MAX 10 on observe as a lot as potential. Ultimately, it makes enterprise sense to sacrifice the timeline of a much less in style product in favor of the timeline of a extra in style one and hoping to maintain political interference on Boeing’s manufacturing and product plan to a minimal.
Boeing Does Not Present Monetary Steerage For 2024
Given the present circumstances, Boeing management didn’t subject a steering for 2024 and ultimately you could possibly say the uncertainty additionally doesn’t permit the corporate to take action. Boeing no doubt has baseline plans that inform provider grasp schedules together with sensitivity evaluation in case some packages such because the MAX expertise delays however at this level I consider these situations usually are not agency sufficient to subject a steering.
I consider that there are legitimate causes for Boeing to not subject a steering from perspective of usability of mentioned steering given the excessive diploma of uncertainty embedded, which may irritate shareholders if Boeing misses steering. Concurrently issuing a steering sends a improper message to stakeholders, particularly that the corporate continues to concentrate on financials in a “business as usual” trend regardless of a brand new disaster manifesting itself. Throughout the earnings name management additionally acknowledged that this isn’t the appropriate time to subject a steering and they don’t need to get forward of the regulator.
Airplane Household |
Low |
Excessive |
Mid |
2023 |
Improve vs. Low |
Improve vs. Excessive |
Improve vs. Mid |
Boeing 737 |
509 |
621 |
565 |
396 |
29% |
57% |
43% |
Boeing 767 |
36 |
36 |
36 |
32 |
13% |
13% |
13% |
Boeing 777 |
36 |
36 |
36 |
26 |
38% |
38% |
38% |
Boeing 787 |
90 |
124 |
107 |
73 |
23% |
70% |
47% |
Complete |
671 |
817 |
744 |
527 |
27% |
55% |
41% |
I’ve put collectively a desk for every program with low, excessive and averaged manufacturing and supply assumptions and what we see is that even when Boeing can not transcend a manufacturing of 38 per 30 days in 2024, there’s important upside in comparison with Boeing’s commercial airplane deliveries in 2023. Even within the low case state of affairs, manufacturing may enhance by as a lot as 144 items because the jet maker unwinds a majority of its Boeing 737 MAX and Boeing 787 stock. The excessive case state of affairs just isn’t one thing that I might count on Boeing to realize, however it could theoretically be potential if Boeing depletes almost all of its stock in 2024. The averaged of Mid state of affairs would enhance deliveries by round 40% and can be near the variety of airplanes deliveries from Airbus in 2023. So, that wouldn’t be an unrealistic state of affairs in my opinion.
So, what we are able to conclude is that barring any full and extended supply stops Boeing is about to considerably develop deliveries in 2024, presumably within the 650-750 unit vary, and may have the ability to exceed the supply development price of 10% seen in 2023.
Conclusion: Boeing Stays Troubled However 2024 Provides Upside
I believe the conclusion is that 2023 outcomes confirmed a mixture of strengths and weaknesses. Deliveries weren’t what Boeing and its stakeholders had anticipated firstly of the yr, however its value execution on irregular manufacturing value and analysis and growth was robust for the airplane enterprise. The Protection enterprise noticed robust fourth quarter revenues, however value development continued whereas the providers companies is performing exemplary.
Boeing’s web debt did lower, which is a crucial factor to remember. What traders also needs to take into account is that even when manufacturing doesn’t climb for the MAX program it is extremely doubtless that Boeing’s supply quantity will considerably rise helped by an unwind of stock. So, 2024 positively didn’t have the beginning that traders had been hoping for, however Boeing’s stock gives padding to proceed rising deliveries at an accelerated price. My greater questions are whether or not the present management is the appropriate one to steer this firm into the mid-decade and the way strong development within the industrial airplane enterprise could be past 2024 as a result of the manufacturing charges that Boeing at the moment targets for the 2025-2026 timeframe would depart little house to extend supply numbers as there will probably be no stock so as to add to the produced plane to from the supply movement. In different phrases, manufacturing price will increase would possibly merely be offsetting the supply price from Boeing’s stock after which some however not far more.
I consider Boeing’s management additionally is aware of this and that’s the reason it is going to be making an attempt to make use of 2024 to get issues with a purpose to safe permission to extend manufacturing and purpose to soundly and incrementally enhance manufacturing past the at the moment focused charges for mid-decade. For my part, on the finish of the day, the earnings name wasn’t a lot about earnings however extra about viewing administration response and motion on the most recent issues which have surfaced at Boeing. Whereas the responses administration gave, I’m unconvinced that Calhoun can lead Boeing into the appropriate course. He’ll have the ability to enhance manufacturing, however in my opinion he has not proven himself capable of domesticate and promote the required adjustments at Boeing together with a change in management tradition by motion.
Editor’s Be aware: This text discusses a number of securities that don’t commerce on a significant U.S. change. Please concentrate on the dangers related to these shares.