Current Date: 4 December, 2021

Boeing Rises After Burning Less Cash Than Expected Despite Top & Bottom-Line Loss

Boeing Rises After Burning Less Cash Than Expected Despite Top & Bottom-Line Loss

Boeing's 787 woes continued for another quarter, with the aerospace giant reporting that it generated less revenue, operating profit and earnings than expected in Q3, a quarter which again was beset by "one-time" charges including a $185 million accounting charge for the latest delay to its Starliner spacecraft along with about $183 million in costs stemming from disrupted production of its 787 Dreamliner. It anticipates spending about $1 billion in total for troubles with the marquee wide-body jet. The offset: Boeing burned far less cash than expected which is also the reason why its shares are modestly higher in the premarket.

Here are the details:

  • Revenue $15.28 billion, -10% q/q, +8.1% y/y, missing the estimate of $16.49 billion
    • Commercial Airplanes revenue $4.46 billion, +24% y/y, missing the estimate $5.30 billion
    • Defense, Space & Security revenue $6.62 billion, -3.4% y/y, missing the estimate $6.92 billion
    • Global Services revenue $4.22 billion, +14% y/y, beating the estimate $3.96 billion
  • Core loss per share shrank to 60c vs. loss/share $1.390 y/y, but also missed the estimate loss/share 17c

Some other notable highlights:

  • Backlog $367 billion, -6.6% y/y; the total commercial airplane backlog was 4,163 airplanes valued at $290B
  • Commercial airplanes operating loss $693 million, -49% y/y, missing the estimate loss $346.7 million
  • Defense, space & security oper income $436 million, -31% y/y, missing the estimate $697.1 million
  • Global services oper income $644 million, missing the estimate $487.8 million
  •  Delivered 85 airplanes, including 62 737 MAX

And some commentary and context from the press release and investor presentation, courtesy of Bloomberg:

  • Commercial Market Is Showing Improved Signs of Recovery
  • Increasing Freighter Production & Conversion Capacity
  • Boosting Jet Freighter Output & Conversions: CEO
  • Boeing’s 2021 Freighter Sales Highest in History
  • The current 787 production rate is about two airplanes per month and the company expects to continue at this rate until deliveries resume and then return to five per month over time
  • “Going forward, supply chain capacity and global trade will be key drivers of our industry and the broader economy’s recovery,” Boeing President and Chief Executive Officer David Calhoun said
  • “ Commercial market demand continues to gain traction with broad-based vaccine distribution and border protocols beginning to open,” Calhoun said
  • Boeing said it’s continuing to make progress on the global safe return to service of the 737 MAX
  • On 787, low production rates and rework are expected to result in approximately $1 billion of abnormal costs, of which $183 million was recorded in the quarter
  • Since the FAA’s approval to return the 737 MAX to operations in November 2020, Boeing has delivered more than 195 737 MAX aircraft and airlines have returned more than 200 previously grounded airplanes to service
  • The 737 program is currently producing at a rate of 19 per month and continues to progress towards a rate of 31 per month in early 2022, and the company is evaluating the timing of further rate increases

Commenting on its flagship Commercial Airplane division, Boeing said reported "continued momentum on safely returning the 737 to service", however this was offset by 787 deliveries which remain impacted amid an ongoing engagement with FAA. The company is currently producing 787s at 2/mo until deliveries resume, returning to 5/mo over time. Continued 787 troubles meant continued charges and in Q3, Boring recorded $183M of abnormal cost in the quarter; and anticipates a $1B total.  Boeing also continues to expect first 777X delivery in late 2023.

It wasn't all bad news, however, and Boeing reported negative adjusted free cash flow of $507 million, down 28% q/q, and down 90% y/y; this number was far better than the consensus estimate of negative $1.86 billion.

The smaller than expected cash burn meant that net debt was roughly flat, with cash declining by $1.3BN q/q, roughly in line with debt.

As Bloomberg summarizes, Boeing continues to work to resolve quality lapses, repair relations with regulators and lighten its debt burden from last year’s travel-market collapse and prolonged grounding of its Max aircraft after two fatal crashes. Restarting Dreamliner deliveries that have been halted for months is key to Boeing’s financial turnaround. But the planemaker must first address quality defects and win regulatory approval.

Sanford C. Bernstein analyst Douglas Harned estimated before Boeing’s release that the company has about $9 billion in cash tied up in Dreamliners parked around its factories and in desert storage lots.

Investors gave Boeing the benefit of the doubt and ignored the latest top and bottom line misses and instead focused on the cash burn improvement, which helped Boeing shares gain 1.1% to $212.11 before the start of regular trading Wednesday in New York. The stock had declined 2% this year this year through Tuesday while the Dow Jones Industrial Average advanced 17%.

Boeing's Q3 investor presentation can be found here.

Tyler Durden Wed, 10/27/2021 - 08:28

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