Aerospace and defense giant Boeing (BA – Free Boeing Stock Report) has reported June-period financial results and, as expected, the company incurred a large loss. The poor performance stemmed from the company's troubled 737 Max 8 aircraft. Boeing shares are trading modestly lower in early morning trading following the news.
For the quarter, Boeing posted revenues of just $15.8 billion, 35% below the prior-year figure. Although sales of defense products increased 8%, to $6.6 billion, the company recorded a 737 Max-related charge that lowered revenues by $5.6 billion. That also impacted the bottom line by $8.74 per share and, overall, Boeing sustained a share loss of $5.21.
At this time, all 737 Max 8s remain grounded around the world. This stems from two crashes that claimed the lives of 346 individuals. The catastrophes were the result of the erroneous activation of the aircrafts' software that controls a plane's pitch. To fix this issue, Boeing rolled out a software fix and it is being reviewed by the FAA. If/when the FAA certifies the software is not presently known, nor do we know when 737 Max 8s will return to the skies. As such, Boeing management has refrained from issuing forward-looking financial guidance. Simply put, Boeing will continue to post lackluster financial results until the 737 problems are resolved. For full-year 2019, we now expect earnings of just $8.00 per share, less than half of what the company earned in 2018. That said, our estimate is, admittedly, ill defined, due to all of the 737 unknowns.
Looking ahead, getting the 737s back in the air is just part of the problem. According to news outlets, Boeing knew about the software problem well before both crashes, and this has obviously damaged the aerospace behemoth's reputation. In addition to the myriad of wrongful death lawsuits that have/will be filed (which will almost assuredly take years to conclude), Boeing will probably lose quite a bit of business (or suffer delays) over this ordeal.
We are not recommending the stock at this time. The 737 mess continues to unfold, and visibility in regard to the progress made is poor. Thus, we suggest that investors refrain from taking new positions here until the problems are fully fleshed out and resolved. On the other hand, shareholders who have continued to hold through this difficult time may want to stay the course, but should be prepared to maintain their positions for some time.
About The Company:The Boeing Company is a leading manufacturer of commercial jet aircraft. It also produces fighters (F-15, F/A-18), C-17 cargo carrier, V-22 helicopter, E-3 AWACS, E-4 command post, E-6 submarine communicator, ground transportation systems, develops the space station, and does work on the F-22 (ATF).
– Ian Gendler
