Boeing posts loss on charges

Boeing LogoJuly 27, 2016: Boeing posted a loss for the second quarter on more than $2bn in after tax charges, announced last week, and amounting to $3bn in before-tax charges.

The press release is here.

With advance warning last week, Boeing stock was up $2.95 in pre-market trading today an hour before its earnings call.

Boeing’s press release synopsis:

  • Revenue increased to $24.8 billion on strong commercial deliveries and services growth
  • Loss of $0.37 per share (GAAP) and core (non-GAAP)* loss of $0.44 per share reflect $3.23 per share impact related to previously announced 787 R&D reclassification and 747 & Tanker charges
  • Strong operating cash flow of $3.2 billion; repurchased 15 million shares for $2.0 billion
  • Backlog remains robust at $472 billion with nearly 5,700 commercial airplane orders
  • Cash and marketable securities of $9.3 billion provide strong liquidity
  • Reaffirmed cash & revenue guidance; EPS reflects reclassification, charges, solid performance & tax

Some initial analyst takes:

Bernstein Research (Outperform)

The earnings release looks positive ahead of the earnings conference call, with Boeing effectively increasing EPS guidance for the year by more than $1/share, after adjusting for the previously-announced charges (which are mostly non-cash); and reducing 787 deferred production cost by nearly $200 million more than we expected. We rate Boeing Outperform, target $176. We expect strong cash flow growth, with the 787 a key driver. Narrowbody demand remains strong, but our estimates are revised down slightly due to widebody weakness. Defense sales should be roughly flat with upside pote

Buckingham Research (Neutral)

We reiterate our NEUTRAL rating following BA’s 2Q16 earnings. While we remain neutral, we are getting increasingly negative as BA share price has risen in recent weeks despite weak orders, continued charges, FCF headwinds, and the potential for production rate cuts. We think the stock will trade up again today on a 2Q solid beat versus consensus. While BA beat consensus (ex the charges) and raised its 2016 guidance (ex the charges), we think one concern will be that BA did not raise its 2016 CFO guide of $10B. In addition, nothing in BA’s 2Q report changes our overall and long-term expectations for lower than expected widebody production rates, slowing advances, and lower than expected FCF.

Credit Suisse

787 Deferred Production rises ~$33M excluding 787 charges – this implies unit deferred is down to ~$1M.

At 27.7B, deferred production was ~$1B lower than Q1, but this was attributable to the charges on 787 (reflecting the write-down on test aircraft 4 and 5).

Excluding the charges, it appears that deferred production rose by ~$33M implying that unit deferred production is down to ~$1M (versus $4.7M in Q4) – a nice improvement.

Goldman Sachs (Sell)

The 787 deferred production balance decreased to $27.673bn from $28.651bn last quarter. That is a reduction of $978mn. The pre tax 787 reclassification charge, which comes out of deferred, was $1.235bn. Boeing says the all in change to deferred from the reclassification is $1.011bn, a $33mn qoq increase, with the program adjustment partially offsetting the unit adjustment. It is unclear to us that program adjustment from this item reflects recurring / ongoing 787 deferred improvement. Last quarter’s sequential change in 787 deferred was $141mn and our estimate for this quarter was $100mn.

Morgan Stanley (Neutral)

Boeing’s Q2 results were solid operationally (ex-preannounced charges) with upside to earnings expectations in Commercial and Defense. In addition, the core EPS guidance reduction was well below the Q2 charges, with most of the upside from Defense, tax, and other company-wide items. The better than expected results and guidance ex charges combined with the fact that the stock is near a resistance level could set up for upside today but the key debates here are unlikely to change much. (Please see the variance table on page 2.)

Free Cash Flow (FCF) of $2.5bn was 8% above our forecast. As previously disclosed, 2016 cash from ops guidance was unchanged at $10bn. News earlier this week that Boeing has delayed payments to suppliers should fuel an ongoing debate about sustainable cash flow here but the result was in line with our forecast and puts Boeing on track to the 2016 guidance.


5 Comments on “Boeing posts loss on charges

  1. All the numbers are essentially qualified with the proviso that Boeing may not be paying suppliers at the present time.

    Hard to have bad cashflow if your pulling in early payments for deliveries and refusing to pay your supply chain.

  2. Very good business policy, I would say. Use advanced payments of your customers to buy back shares while you are loosing money.
    To which lengths will the top management go to fill their pockets with profitable stock options? From the outside it appears they would even run the company in the ground for it.
    Or maybe they thinks it’s too late anyway – no chance to ever make a profit with the 787 or the 777X, the 747-8 dead in the water, no money and guts left to start a 737 successor. So what the hell, let’s plunder the company just like Putin and his cronies plunder Russia and let somebody else clear up after us.
    Or maybe they have a miraculous plan to make Boeing great again…

    • They’re going to build a wall… a big wall…

      … across the oceans so people can drive their cars along the top of it and not have to take planes at all.

  3. Credit Suisse: “787 Deferred Production rises ~$33M excluding 787 charges – this implies unit deferred is down to ~$1M.”

    So they are still losing “~$1M” per 787!?!?

    To be at that level after producing close to 450 airframes is astounding

  4. Get set for a series of losing quarters at B driven by:

    1) additional KC 46 w/o on the WARPS issue as well as probable contractual penalties for late deliveries & performance. Amount likely north of $1 billion. This program is the gift that keeps on giving.
    2) eventual LARGE 787 program w/o from the obscene deferred balances. Say $ 15 billion or so. Timing is uncertain but Deloitte is known to be nervous as heck on this subject… Another endless saga.
    3) 747 line shut down expenses, write down of jigs etc… Probably around $1 billion as a SWAG.

    Get some popcorn and watch the movie…

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