- Due to technical problems with the webcast, Boeing ended the earnings call this morning before Q&A and rescheduled at 1pm EST.
- The original, short post is updated with the re-do of the earnings call.
- The PDF slide show is here.
- See Scott Hamilton’s column on Forbes.
Jan. 27, 2016: Boeing’s outlook for 2016 disappointed Wall Street for lower-than-expected revenue, earnings per share and delivery projections, spurring a sell-off in the stock by almost 10% in the first hour of trading before the earnings call.
Because of a late Tuesday night story in The Seattle Times that a production rate cut in the 777 Classic line was coming, analysts expected this news. Boeing made it official: the 777 rate to 7/mo in 2017, a figure that was telegraphed in pre-Paris Air Show briefings last year. Boeing says it is confident of maintaining this production rate until entry-into-service of the 777X in 2020.
The production of the 737 will increase to 57/mo in 2019, which was forecast by LNC last year.
The 787 deferred production costs will decline once the rate goes to 12/mo by mid-2016, but deliveries will be about the same as 2015 due to delivery timing.
R&D will be about $3.6bn, with about 75% for Boeing Commercial Airplanes.
CEO Dennis Muilenburg said reauthorization of the ExIm Bank de-risks financing requirements, as does the tentative contract agreement with the engineers union, SPEEA, months ahead of the amendable date.
Muilenburg said passenger traffic remains strong, but cargo traffic continues to slow, “but we remain confident” in the long-term recovery, with about 250 large cargo freighters needing replacement by 2019.
- Despite current Chinese economic concerns, Boeing sees the market under-served today by 1,000 aircraft and in need of 6,000 aircraft over 20 years.
- Current oil prices won’t deter current or new purchases.
- The financing markets are gaining strength.
- 2016 book:bill should be about one. Cancellations at historic lows.
- 737 backlog 4,400 firm orders, driving rate increase in 2019 to 57/mo.
- Transition to 777X means production rate reduction to 7/mo starting in 2017. Sold out in 2016, about 80% sold out in 2017.
- Forecasts about 135 787 deliveries in 2016, plans on track to go to rate 12.
Greg Smith, CFO:
- 787-9 deliveries will greatly exceed 787-8.
- 787 program became cash positive in the fourth quarter, deferred production costs up ~$200m.
- Deferred production rate should start declining after 787 rate 12 achieve this year.
- Returning cash to shareholders remains top priority.
- Lower revenue projection in 2016 ($93bn-$95bn) reflects planned transition to 737 MAX as test airplanes, airplanes built in 2016 for 2017 delivery. (This means fewer 737 deliveries in 2016–Editor.)
- GS: Cash flow: Improved performance on 787 cash expected, headwinds include higher tax payments. Only one C-17 left to be delivered. The MAX transition will affect cash flow, but long-term view remains unchanged.
- GS: Production rates: The 777 rates coming down in 2017 will be all deliveries, in 2018 deliveries will be down as 777X flow time integrates into the line.
- GS: R&D will be “flat-ish” over next couple of years.
- DM: 737: We continue to see strength, fundamental confidence in the single-aisle market. Continuing to ramp up production to keep supply and demand in balance is the right thing to do. We continue to see about 40% replacement, 60% growth on balance.
- DM: Announced build rate vs delivery disconnect: if you take a look at this year compared with 2015, delivery guidance is down and the majority of that is the 737. There are about a dozen aircraft in that reduction that are 737 as more test aircraft and [2017 deliveries] are built in 2016. GS: Next year deliveries will slightly outpace production for these reasons. The 767 line also see fewer built rates. 16 last year, about 10 this year.
- GS: With more 787-9s delivered, there will be more revenues, offset by 737, 767 transition, 747-8 decline.
- GS: Did not answer a question from the Wall Street Journal whether a 787 forward loss can be avoided.
- DM: Since we launched the MAX it’s about 50-50 in terms of orders, leader in deliveries, but did not answer WSJ question about coming back to parity to the A320neo lead of more than 1,000 airplanes. We are going to run a disciplined, profitable business, not for market share but for long-term business. We remain confident in our strategy.
- DM: We want to set a tone of mutual respect with the employees of Boeing for the long-term.
- GS: No charge for 777 rate decrease vis-a-vis 747, because the 747 was not as profitable as 777. (Cutting six 747-8s a year and 16 777s a year.)
- DM: The rate 6 of 747-8 is a sustainable rate to bridge us to 2019 demand for very large aircraft freighters. About 45% of the current fleet needs to be replaced then, with 240 large airplanes that will be over 20 years old. GS: We’ve obviously got to continue to get orders through that period. We’ve got a great pipeline we’re working on. We expect the market to recover.