Boeing releases results this week: 4 questions about its stock right now
It has been a difficult 18 months for Boeing (NYSE: BA) investors, the stock having first been affected by the immobilization of the 737 MAX in March 2019 after two fatal crashes and, more recently, by the COVID-19 pandemic.
Boeing shares have lost about half of their value so far in 2020 as Airlines companies prepare for a prolonged period of weakness brought on by the pandemic by cutting costs and downsizing their fleets.
We know that Boeing’s second quarter results, which are expected to be released before markets open on July 29, are going to be lousy. But there’s a lot we don’t know about how the company is weathering the pandemic and how management is preparing for the future. These are questions of great interest to investors.
Here are four questions I’ll listen to the answers to when Boeing releases its results and talks to analysts.
When will the commercial segment recover?
Boeing delivered just 10 planes in June and 20 planes in the second quarter. For comparison, the company delivered 90 aircraft in the second quarter of 2019, even with the 737 MAX on the ground.
The backlog continues to be under assault, with Boeing recording 182 net cancellations in June and 477 for the quarter. The 737 backlog lost 179 aircraft in June and Boeing’s company-wide order backlog stood at 4,552 at the end of the quarter.
Airbus, by comparison, has an order book of over 7,500.
It seems all the news from Boeing’s commercial aircraft segment lately has been about delays and slowdowns in production. The company would have push debut 777X until 2022, partly because of flickering customer demand, and reduced production of widebody and smaller 737 MAX jets.
Boeing hopes to recertify 737 MAX for flight from here beginning of October, which would allow the company to resume deliveries and could slow cancellations, but broader macroeconomic conditions will weigh on the order book for some time.
At one point, Boeing had hoped to produce at least 55 737 MAX jets per month, but now hopes to manufacture 72 in 2020. Forget 2021. I’m increasingly worried that business issues will bleed in 2022, if not later, and look forward to any comments on when management sees deliveries bounce back.
When will the cash bleeding stop?
Boeing spent $ 4.7 billion in the first quarter, and cash should also be the center of the earnings call this time around. The company’s delivery issues are largely to blame for its cash flow issues, with a lot of money flowing out to support the supply chain and keep the hundreds of jets built but not yet delivered on its lots, but not much. money from customers.
Boeing raised $ 25 billion new debt earlier this year, while making sure he doesn’t run out of money no matter how badly things go. But he added more than $ 1 billion in new annual interest payments.
Wall Street expects a loss of $ 2.30 per share in the second quarter, including indemnities paid to clients for delays, severance and termination benefits related to restructuring and issues related to the pandemic. I wouldn’t be surprised if the consensus estimate of $ 6.6 billion of cash outflows in the quarter proved to be conservative.
At some point, even with the extra cash, Boeing has to stop spending the money. This won’t happen in the second quarter, but investors should be tuned in when management expects current trends to reverse.
Can the defense sector save the day?
Boeing’s defense business has been largely an afterthought, as commercial sales have skyrocketed, but with declining commercial revenues, defense and space are expected to account for nearly a third of total revenues this year. year.
Defense activity had its share of mistakes, but over the past two years the company has won a series of high profile competitions which is expected to generate billions in revenue in the years to come. Most of these programs are in their infancy and will not save the day this quarter. Still, defense is more important to Boeing’s bullish record than it has been in a decade.
We know the publicity will be bad. It will be interesting to hear what management thinks about the company’s space and defense arms, and how these units will contribute to the bottom line in 2021.
Should Investors Worry About China?
Much of Boeing’s growth in recent years has been driven by sales of new aircraft in emerging markets, and China has been one of the company’s best customers. China accounted for nearly 30% of the 737 deliveries in 2018, and it has been a significant part of the overall delivery book in recent years.
Tensions are high between the United States and China, and Boeing’s order book could be under fire if a trade war escalates again. Boeing is no stranger to international conflicts, having obtained caught up in tariff battles two years ago and pushing for an international fight with Canada on the desired fares on a competitor of small jets.
If China is seeking to make a statement in the United States, slowing the national recertification of the 737 MAX would be a powerful way to do so. As Chinese company Comac tries to break the Boeing-Airbus duopoly over commercial jets by the middle of the decade, the country has every reason to back down on Boeing sales.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.