Leeham News and Analysis

Boeing posts big 3Q09 loss

Here is a link to the press release. The earnings call is at 10:30am EDT today. The results were no particular surprise, as the $1bn charge for the 747-8 program and $2.5bn write off on the 787 were previously announced.

Aerospace analysts were fairly sanguine about the earnings.

David Strauss at UBS wrote:

Boeing (BA): No Surprises

• * Q3 loss of $2.22, better than expected CF: Q3 EPS at -$2.22 vs UBSe -$2.10 and consensus at -$2.12. Q3 includes $3.45 in previously announced 787 and 747-8 charges as well as an additional $0.14 for work incurred during Aug/Sep on first three 787 test airplanes. Operational results were lower than we had forecast on 9% revenue growth (UBSe 14%), including 3% growth at IDS, while 10.2% margins at BCA ex charges were above our 8.3% forecast. FCF at $1B was well above our forecast for a $350M use on working capital contribution (receivables & payables) and lower customer financing.
• * Adjusts guidance for charges, 787 schedule reaffirmed:BA lowered its guidance by $3.40 to $1.35-1.55 to reflect the 787 and 747-8 charges. R&D guidance was increased $3B to $6.6-6.8B. $2.5B is for 787 cost reclassification with remainder to adjust BCA “operating model” and for higher IDS R&D. FCF guidance was raised $100M to >$1.2B on lower capex and customer financing. BA commented it has begun the reinforcement of the wing to the side body area and remains on track for first flight by the end of 2009 and first delivery in Q4 2010.

Joe Nadol at JP Morgan wrote:

• We don’t see much new in the BA results this morning (although on the margin some of the underlying profits and cash flow looked good), and we don’t expect much of an update on the key issues today, particularly 787. Margins in both Commercial and Defense were a somewhat better than we had expected, and cash flow was strong, but we believe the key issue for BA remains the 787 program, and the company had nothing new to say in the release. While we expect many questions on the call to be 787-related, we are not expecting any change today to the company’s outlook for first flight by year end and first delivery in 4Q10. Potential production cuts are a secondary issue for the stock, in our view, but we don’t expect much news on this front either today.

• In a noisy Q3, Boeing reported a loss of $2.23, ahead of the $2.45 loss we had forecast. EBIT from BCA and IDS each exceeded our estimate, partially offset by higher net interest expense and a smaller-than-expected tax benefit.

• Excluding the $3.5 bln of charges and the incremental $772 mln of R&D over and above the $2.5 bln 787 charge, pre R&D margin at BCA was a strong 18.2%. The business had run at 17-17.5% in the first half, and we will be looking for additional info on the drivers of this performance and potential sustainability. Nevertheless, we still see several upcoming issues that are likely to push this figure down, including rate cuts, further development program delays, etc.

Noah Popanak at Goldman Sachs wrote:

GS Aerospace & Defense: Boeing (BA; Neutral): First Take: 787 schedule reiterated, cash flow solid.

• We believe the quarter and guidance are in-line with expectations given the 787 and 747-8 items were announced intra-quarter. In our view, the significantly more important items are: (1) 787 first flight (by year-end) and first delivery (in 4Q10) were reiterated, (2) 3Q cash flow of $1.2bn was strong and full-year cash guidance was reiterated, (3) the full-year BCA aircraft financing target was reduced, (4) there is no change to any build rate schedules, and (5) all 2009 guidance excluding charges was reiterated.
• Analysis
  We view today’s results positively and anticipate the market will do the same, as the quarter itself is largely a non-event (given the 787 and 747-8 charges were already announced), and there are other positives to point to in areas where investors have had significant concern. The most significant one is the reiteration of the 787 schedule, as there has been a lot of recent discussion in the market of further potential delays, but today the schedule was reiterated. Other major positives include strong cash flow, and a lower BCA aircraft financing target, two areas where there has been serious doubt with regard to BA’s full-year targets, and it now appears as if they will meet or exceed both.

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Boeing builds berms (with no delays)

Here in the Seattle area, there is a highly developed industrial, office and residential area called Kent Valley. As the name suggests, it is in a low-lying area that includes the Green River. And a flood plain, protected by the Hansen Dam, an old, old earthen dam that is in danger of breaching in the anticipated heavy winter rains.

Here is a KOMO TV (ABC-Seattle) story on the berms.

The Army Corp of Engineers said to prevent a breach and a catastrophic flooding, it may be forced to release waters into Kent Valley. (In one area of a suburb called Auburn, the main street could be 20 ft. deep even with a controlled release.)

A “flood emergency” has been declared by King County. Businesses, industries, residences, apartments and basically everyone who can have been constructing berms and sand-bagging. Boeing, with several facilities in Kent Valley (including the aforementioned Auburn), is building an eight foot berm around its facility. Naturally there are many questions from employees.

Here are some answers to some frequently asked questions at Boeing’s Kent Space Center regarding the Hansen Dam flood plans….

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