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Boeing Earnings Breakdown: Is Boeing Stock Grounded Or Just Delayed?

Key Takeaways

  • Boeing was able to generate almost $3 billion in free cash flow, despite posting a massive loss for the quarter.
  • The Trump Administration negotiated the Air Force One program, and it’s costing the company money as they had to report a massive quarterly loss of $3.3 billion due to all of the losses.***
  • Boeing stock rose 5.24% to close at $177.58 yesterday but still underperformed the S&P 500 Index, which rose 5.54%.

Boeing is known for designing and manufacturing aircraft for commercial and military use. However, the company has been in the news more, lately, for losing investor confidence due to the massive loss that they reported for the third quarter of 2022. It’s not every day a company misses analyst estimates for revenue by $2 billion.

Boeing continues to deal with a variety of issues ranging from labor and training challenges to supply chain woes, along with a previously negotiated Air Force One contract that’s costing the company money as delays continue.

Is Boeing grounded or are they just delayed? We’re going to break down Boeing stock to see how the company is performing financially.

Boeing’s Earnings Report

Boeing announced Q3 earnings on October 26, 2022. We have to share one notable quote from CEO Dave Calhoun before we look at the earnings:

“Without a doubt, and you’ve heard it from all of the earnings calls over the course of the week, the supply chain, inflation, labor shortages, [and] macroeconomic challenges are challenging for everybody. That is reflected in these third quarter calls. Again, the charges in our fixed price development world, etc. — all of that’s embedded. We’re not anticipating or suggesting that the supply chain world is going to get much better in the near term.”

This quote is worth sharing because many companies are dealing with macroeconomic challenges as the world braces for the possibility of a global recession. Calhoun recently bet big on himself and his company, purchasing some $4 million worth of the stock himself.

Here are some of the financial highlights from the Boeing earnings report:

  • Boeing reported a third-quarter loss of $3.3 billion, up from the $132 million loss one year ago.
  • Third quarter revenue went up 4% year-over-year to $15.96 billion.
  • Boeing resumed delivery of the 787, after 2 years of delays from the FAA.
  • The company reported a loss per share of $6.18.
  • Operating cash flow was $3.2 billion, with $2.9 billion in free cash flow due to higher deliveries.
  • Boeing shares dropped about 9% after these results came out due to the challenges that the company will face in 2023.

These financials were disappointing as analysts weren’t expecting such a massive loss for the quarter. The worst part is that the fixed-priced contract with AirForce One will continue to cost the company money for the foreseeable future.

How does Boeing make money?

Boeing breaks down its revenue into four different segments:

  1. Commercial airplane deliveries. This division is responsible for the development and manufacturing of commercial airplanes. The quarterly revenue for this division increased to $6.3 billion thanks to the delivery of nine 787s. The program is currently producing at a lower rate than normal, and the company hopes to return to 5 planes per month.
  2. Defense, space, and security. This sector includes the research, development, and manufacturing of military weapons and aircraft. The largest customer here is the U.S. Department of Defense. Revenue for the third quarter in this sector dropped to $5.3 billion. This translated to $2.8 billion worth of losses due to fixed-price contracts.
  3. Global services. This sector offers platforms, systems, and services to defense and commercial customers globally. This division also involves the management of the supply chain, maintenance, engineering, pilot training, and digital services. Third quarter revenue went up to $4.4 billion, and the operating margin was up to 16.5% thanks to a higher volume of commercial services.
  4. Boeing capital. The company offers financing options for its customers, ranging from equipment sold under finance leases, operating leases, notes, and receivables. The net portfolio balance for the end of the quarter was $1.6 billion.

What’s wrong with the Air Force One deal?

It’s clear from the earnings report that Boeing is struggling with the defense division. The biggest issue with the Air Force One deal is that it’s a fixed-price contract. This means that the financial structure doesn’t take into account the current inflationary pressures. With raw materials rising in costs and global supply chain issues, the deal is now costing the company money.

It was recently announced that Trump’s Air Force One deal lost the company $766 million for the most recent quarter. This means that the losses for the project are at $1.9 billion since it started. The project to build two planes for the next Air Force One was negotiated by the Trump administration, but Boeing is responsible for the costs years later.

This puts the company in a terrible financial position. Management has gone on record to state that this unique deal has exposed them to risks that they should’ve avoided. Then-President Donald Trump had a personal role in negotiating this fixed-price agreement. In June, a report from the U.S. government warned that due to labor shortages and other issues, the project completion date would be delayed even further after already lagging three years behind schedule.

What’s next for Boeing stock?

There are many issues that need to be worked out with Boeing for the company to become profitable. The Boeing stock closed at $147.41 on November 2, making the price down about 29% for the year. The price went up slightly to around $156 the next morning after the company presented a multiple-day investor event in Seattle.

Boeing stock rose 5.24% to close at $177.58 Thursday, November 10 but still underperformed the S&P 500 Index, which rose 5.54%.

Where the stock is heading hinges on the following:

Covid issues in China

Due to the ongoing pandemic-related restrictions in China, there are many supply chain disruptions. Boeing is also impacted by worsening relations between the U.S. and China, which recently introduced sanctions against Boeing’s top defense executive, which is hurting the 50-year history of the company selling plans in China. A few years ago, China was responsible for 22% of Boeing’s aircraft revenue, the second- largest market behind the U.S.

Ongoing supply chain disruptions

The company believes that demand is strong enough to support its products, but they simply can’t deliver as expected. The quicker-than-expected return of the demand led to many global companies being unprepared. There’s also an ongoing labor shortage that Boeing doesn’t see improving in 2023.

Regaining investor confidence

Boeing must gain back confidence as the recent losses and unforgiving issues with the fixed-cost contracts are hurting the company’s financials. The company held a two-day investor event in Seattle for November 1 and 2 where they promised that the heavy lifting was done. CEO Dave Calhoun stated that the company could bring in $10 billion in cash annually by 2025 as they aim to improve operations after years of setbacks and issues. This investor event helped the stock go up about 4% on November 2, but there are still concerns over how the company will build up cash reserves as they struggle to handle the massive $57 billion debt load.

Should you invest in Boeing?

Most analysts aren’t in favor of Boeing stock due to the many challenges that the company continues to face. Some have even said that they have 57 billion reasons why they’re not for the stock since the company has a massive debt load of $57 billion, which will hurt future finances. The debt reduction will take a long time, especially as the company continues to lose money on previous deals.

Right now is not the time to be investing in Boeing. We’re not suggesting that the company can’t turn business around but there’s too much uncertainty surrounding the aircraft maker right now.

How Should You Be Investing?

Even though travel has returned in a post-pandemic world, many global companies are dealing with issues caused by high inflation and labor shortages. With persistent rate hikes and global issues, it’s a risky time to be investing in multinational companies.

The good news is that you can make your portfolio more defensive and limit your exposure to risk during turbulent times. Take a look at Q.ai’s Inflation Kit. Our artificial intelligence scours the markets for the best investments for all manner of risk tolerances and economic situations.

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