Boeing surprised Wall Street this morning when it reported an unexpected profit for the second quarter - it first since 2019 - hinting at a potential turnaround after one of the worst financial crises in the planemaker’s century-long history. Boeing shares surged more than 5%.
The company reported revenues of $17 billion, handily beating estimates of $16.54BN, which translated into an adjusted profit of 40 cents which according to the company was driven by "higher commercial volume and lower period costs" while consensus expected a loss of 81c per share.
That wasn't the only sign of progress in the company’s second-quarter earnings report, released Wednesday. The manufacturer burned through just $705 million during the period, far better than the $2.76 billion outflow that analysts had predicted.
And in a third indication that its recent spate of bad luck is ending, Boeing said that its commercial airplanes backlog grew to USD 285bln and added 180 net orders, although Boeing caveated that commercial airplanes were produced at an abnormally low rate in 2020, and expects this to continue in 2021. Meanwhile, the backlog at Defense, Space & Security was $59 billion, of which 32 percent represents orders from customers outside the U.S.
Here is a breakdown of the company's revenues:
- Commercial Airplanes revenue $6.02 billion vs. $1.63 billion y/y, estimate $6.10 billion
- Defense, Space & Security revenue $6.88 billion, +4.4% y/y, estimate $6.82 billion
- Global Services revenue $4.07 billion, +17% y/y, estimate $3.74 billion
- Boeing Capital revenue $78 million, Exp. $69.25 million
As Bloomberg notes, the results suggest that Boeing is starting to emerge from a deep slump caused by the Covid-19 outbreak and the company’s own quality lapses, which were tied to two deadly crashes of its best-selling 737 Max plane. With its business stabilizing, Boeing has halted large-scale job cuts well short of earlier plans to eliminate nearly 20% of its workforce, said Chief Executive Officer Dave Calhoun.
“You will see our efforts gaining traction and our recovery accelerating, as reflected in improved revenue, earnings and cash flow, as well as stabilizing workforce levels,” Calhoun told employees in a message that was released with quarterly results. Boeing now plans to hold employment steady at 140,000 jobs, representing a 13% reduction from pre-Covid levels; it had previously planned to cut the workforce to about 130,000.
Some additional commentary on the company's 737 program:
- Boeing has delivered more than 130 737 MAX aircraft and airlines have returned more than 190 previously grounded airplanes to service
- The 737 program is currently producing at a rate of approximately 16 per month and continues to expect to gradually increase production to 31 per month in early 2022 with further gradual increases to correspond with market demand
- Since the FAA's approval to return the 737 MAX to operations in November 2020, Boeing has delivered more than 130 737 MAX aircraft and airlines have returned more than 190 previously grounded airplanes to service.
- 30 airlines are now operating the 737 MAX, safely flying nearly 95,000 revenue flights totaling more than 218,000 flight hours (as of July 25, 2021).
- The 737 program is currently producing at a rate of approximately 16 per month and continues to expect to gradually increase production to 31 per month in early 2022 with further gradual increases to correspond with market demand.
- The company will continue to assess the production rate plan as it monitors the market environment and engages in customer discussions.
Some more comments from Calhoun:
- "We will also continue hiring in some parts of our business to fill critical skill positions and meet customer commitments"
- " Going forward, the pace of the commercial market recovery, trade relations with China and our own performance will be key enablers to overall employment levels"
Boeing also said it was reprioritizing production resources for a few weeks to support the inspection and rework on 787; while the work is performed, production rate will temporarily be lower than five per month and will gradually return to that rate.
"As a leadership team, we’re increasing travel to meet with our customers, suppliers and teams, to get as close as possible to our manufacturing and engineering work, while supporting all of you who are delivering for our customers"
Despite the company's strong earnings, the Chicago-based company faces a long road to recovery, and an powerful rival in Airbus SE, which is looking to capitalize on its larger order backlog. Another obstacle for Boeing is frayed US-China relations, which have injected uncertainty into the company’s timetable for speeding production of the Max, which is meant to be a cash cow. The model, which was banned worldwide for 20 months, is still barred from flying in its largest overseas market. In the U.S., regulators lifted the grounding in November.
Furthermore, Boeing continues to wrestle with manufacturing flaws that have halted deliveries of its Dreamliner aircraft, another key source of cash. The company has temporarily slowed output of the marquee wide-bodies as it searches for and repairs structural imperfections that are about the width of a coat of paint.
Executives had warned earlier this year that cutting production below a pace of five jets a month could clip margins and force the 787 program into a reach-forward loss. However, the company didn’t take the steep accounting charges that some analysts had predicted, an outcome that is a “positive surprise,” said George Ferguson, an analyst with Bloomberg Intelligence.
And the biggest challenge of all: the massive debt buildup in the past year will remain a solid challenge as the company seeks to streamline its business. The company's cash declined by $600MM to $21.3BN sequentially in Q2, while debt was flat at just over $63.6BN.
Boeing jumped 5% to $235 in premarket trading. The shares have risen just 3.8% this year through Tuesday, trailing the 15% gain for the Dow Jones Industrial Average.
The company's investor presentation is below.