Boeing Estimates: How accurate and clear are the predictions?

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By the Leeham News Team

Analysis

July 29, 2024, © Leeham News: Annual projections for the upcoming year are an important piece of information released to the world at large for any publicly traded corporation, on what can be expected for the near and extended future.

Boeing (BA) reports its 2Q2024 earnings this Wednesday. An update of its guidance may be forthcoming as Boeing continues to work through additional costs following the Jan. 5 accident involving a 737-9 MAX with Alaska Airlines.

Boeing relies heavily on the use of estimates when filing its annual report and this information is crucial to investors when considering whether to invest, hold, sell or short stock in the company. Not only are estimates used in its financial reporting system, generally known as Program Accounting, but each year BA puts out an expected value of revenue to be generated in the future.

This prognostication is based on converting a percentage of the backlog for the following year and for a total period of four years to come. The 2023 projection is as follows:

"Our total backlog includes contracts that we and our customers are committed to perform. The value in backlog represents the estimated transaction prices on performance obligations to our customers for which work remains to be performed. Backlog is converted into revenue, primarily based on the cost incurred at delivery and acceptance of products, depending on the applicable revenue recognition model. Our backlog at December 31, 2023 was $520,195 [million]. We expect approximately 16% to be converted to revenue through 2024 and approximately 62% through 2027, with the remainder thereafter," Boeing wrote.

There is also a caveat:

"There is significant uncertainty regarding the timing of when the backlog will convert into revenue due to timing of 737 and 787 deliveries from inventory and timing of entry into service of the 777X, 737-7 and/or 737-10," Boeing writes in its 2023 annual report.

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