Embattled aerospace and defense giant Boeing (BA – Free Boeing Stock Report) has reported September-period financial results. As expected, the company's performance was lackluster because of its ongoing troubles with its 737 Max 8 platform. Despite the softer-than-anticipated showing, Boeing shares were up modestly following the announcement, as we suspect investors expected the bad news to be even worse.
For the interim, revenues were just shy of $20.0 billion, and 21% below the year-earlier tally. Although sales of defense products increased 2%, to $7.0 billion, the company recorded significant expenses related to the troubled 737 Max. All told, earnings came in at $2.05 a share, down roughly 50%, year over year.
As a refresher, all of Boeing's 737 Max 8 aircraft have been grounded around the world for about eight months now, following two crashes that claimed the lives of 346 individuals. The catastrophes stemmed from the erroneous activation of the aircrafts' software that controls a plane's pitch. Boeing immediately began working on a fix, and the patch was recently rolled out. The fix is now being evaluated by regulators and airlines, but it is unclear when these planes will fly again. Moreover, it appears that management was aware of the software problems well before both crashes, and this has obviously damaged Boeing's reputation. In addition to the myriad of wrongful death lawsuits that have/will be filed, not to mention potential hefty fines from government agencies, Boeing will probably lose quite a bit of business (or suffer delays) over this ordeal. Several members of Boeing's leadership have also experienced the brunt of this situation, and have been removed from their respective positions. For example, Dennis A. Mullenburg is still the CEO, but was just ousted as chairman of the board. His grip on the top job also appears tenuous at this time. (This, however, is just our opinion).
Looking ahead, we expect Boeing to continue to struggle. Getting the 737s back in the air will help alleviate some of the issues, and management ``assumes that regulatory approval and a return to service will occur by the end of this year''. In regard to this timeline, we certainly have our doubts. Either way, the company will then have to deal with the fallout (e.g., lawsuits, regulator conditions/fines, more potential employee turnover, bad press, etc.). This will probably take years to sort out in full.
As such, Boeing's financial outlook is incredibly ill-defined at this time, though we are once again reducing our share-net estimate for 2020. We now expect the bottom line to come in at $20.00 per share. Our previous estimate was $23.00 a share. We will be continuously monitoring this situation and additional revisions, most likely to the downside, are almost assured.
We are not recommending the stock. Since the Max 8 grounding, the equity has only lost 10% of its value. Although certainly a meaningful decline, there is an argument to be made that the issue should have been hit much harder. Nevertheless, the 737 mess continues to unfold, and visibility is poor. Simply put, we recommend that investors avoid this situation for the time being.
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
