Since reporting second-quarter earnings last week, shares of Boeing (NYSE: BA) have lost $25 in value — a stock market decline of greater than 13% — as of this writing. That shouldn’t come as an unlimited surprise, though.
Boeing’s earnings were truly awful. Bad enough, in fact, to cost Boeing’s CEO his job.
Boeing by the numbers
Boeing “missed earnings” in an unlimited way last week. On the best line, revenue came in greater than $300 million below expectations at $16.9 billion. On the underside line, the company reported a net lack of $2.33 per share. The company’s money flow statement showed a money burn of $4.3 billion in a single quarter.
To put these numbers in historical perspective, sales declined 15% yr over yr, while losses grew 832%. Free money flow — positive in last yr’s Q2 — rolled over to point out negative. Money burn, which was also negative in Q1, accelerated inside the second quarter. Up to now this yr, Boeing has burned through greater than $8.2 billion total, reducing money reserves to $12.6 billion, versus debt of $57.9 billion.
What is occurring mistaken at Boeing
Management blamed the declines on two facets primarily, citing “lower business delivery volume and losses on fixed-price defense development programs.” Industrial plane deliveries inside the quarter totaled only 92 units, 32% fewer than in last yr’s Q2, resulting in a 32% reduction in revenue at (what was once) Boeing’s biggest business. In contrast, sales slipped only 2% at the company’s defense, space, and security unit.
Operating losses soared at each businesses, rising 87% at business airplanes and 73% at Boeing Defense, Space, and Security (BDS), with operating profit margins getting worse and worse at each units.
Only Boeing’s global services unit showed any improvement the least bit over last yr, and even here, it was minimal. Revenues eked out a 3% gain, operating margins rose only 2%, and profit margins fell.
Help wanted: A recent CEO for Boeing
Despite all the above evidence that each is just not well at Boeing, CEO Dave Calhoun insisted the company is “making substantial progress strengthening our quality management system and positioning our company for the long term.” But he won’t be around to see them.
Just minutes after earnings came out, Boeing announced that Calhoun would retire from Boeing after lower than 4 years on the helm. The change was planned as Calhoun announced back in October he would step down once the company found a recent CEO.
On Aug. 8, former Rockwell Collins and RTX exec Robert K. “Kelly” Ortberg will take over as CEO and take a look at to repair what Calhoun couldn’t.
He’ll have his work cut out for him.
What needs fixing at Boeing
As is well-known by this point, Boeing has multiple problems that need fixing, starting with chronic issues with quality control in its business airplanes unit (doors falling off planes and whatnot).
As management confirmed, though, the company also must contend with a Pentagon push to shift more risk onto its contractors by insisting on fixed-price deals on defense contracts. This shift has already cost Boeing billions of dollars in write-downs for its Air Force tanker contract, as an illustration, which Boeing won on a fixed-price bid, making Boeing nervous about moving into further such fixed-price deals in the long term. The problem is, if Boeing refuses to sign fixed-price contracts, it could start losing defense contracts to competitors who will sign them. That might cost Boeing not only revenue in the long term — but profits, too.
Scan a bit higher, and chances are you’ll also find issues with Boeing’s space business (which is a small but not insignificant an element of BDS). Specifically, a Starliner crew transport — the spacecraft that Boeing is depending upon to satisfy its multibillion-dollar business crew contract with NASA — is currently docked on the International Space Station, where it has been stranded for the past two months. Greater than two weeks past its sell-by date, Boeing and NASA are still considering whether it’s secure to utilize Starliner to bring its two-astronaut crew back to Earth. Within the event that they ultimately determine it’s not secure, NASA will presumably need to make use of a SpaceX Crew Dragon to retrieve the astronauts.
Such an ignominious end to Boeing’s ISS mission could conceivably put the final word nail in Starliner’s coffin and persuade Boeing to terminate its manned spacecraft project entirely, resulting in billions of dollars of write-downs for BDS — and way more billions of dollars of losses for Boeing itself.
What it means for investors
As a $100 billion blue chip stock, you wouldn’t ordinarily expect a company like Boeing to be a dangerous bet. Nevertheless, the times when an investment in Boeing could possibly be considered “secure” are at an end. Boeing hasn’t even been able to afford a dividend since 2020. And why not? Consistent with data from S&P Global Market Intelligence, Boeing hasn’t been profitable since 2018.
Boeing today is a turnaround play, pure and easy. And an investment in Boeing is definitely a bet that recent CEO Kelly Ortberg can fix what his predecessors have broken.
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Wealthy Smith has no position in any of the stocks mentioned. The Motley Idiot has no position in any of the stocks mentioned. The Motley Idiot has a disclosure policy.
Boeing’s Going, and Its CEO is Already Gone was originally published by The Motley Idiot