Why Boeing Missed Q2 Earnings Estimates


Jul. 24 2019, Published 2:51 p.m. ET

Dismal second-quarter results

Boeing (BA) reported dismal second-quarter results with the top and bottom lines both missing Wall Street analysts’ estimates. Moreover, the company recorded a massive YoY decline on both counts. The company reported a huge adjusted loss of $5.82 per share compared with analysts’ expectations of earnings of $1.87.

Quarterly earnings also compared unfavorably with the year-ago quarter. In the second quarter of 2018, the aircraft manufacturer had reported adjusted earnings per share of $3.33. The company’s dismal bottom-line performance was mainly due to a massive decline in revenues and increased costs associated with its troubled 737 MAX jets.

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Boeing’s second-quarter revenue of $15.75 billion came in significantly lower than analysts’ estimate of $18.55 billion and was down 35% YoY. The company’s dismal top-line performance reflected the ongoing troubles with its fast-selling 737 MAX planes. Airlines around the world have denied taking delivery of the plane following the two deadly accidents within five months.

MAX planes account for about 70% of Boeing’s overall commercial aircraft deliveries and contribute 30% to its operating profit. Due to frozen shipments of MAX planes, Boeing’s total deliveries for 737 series jets fell 82.5% YoY to 24 units in the second quarter. As a result, the company’s overall commercial airplane deliveries fell 54% YoY to 90 units in the quarter.

How much did the MAX grounding cost Boeing?

The 737 MAX fiasco severely hurt Boeing’s second-quarter financial results. As previously announced on July 18, the company recorded a $4.9 billion after-tax charge in Q2 in connection with its MAX planes problems. The cost is related to estimated concessions to MAX customers who have lost revenues and operating profit due to grounding.

The company revealed that after-tax charges reduced its second-quarter revenue and pre-tax earnings by $5.6 billion. Moreover, Boeing saw a $1.7 billion increase in 737 production costs due to lowered monthly output. Notably, in April, the company had reduced monthly production of MAX planes to 42 units from 52 units.

Boeing reported an adjusted operating loss of $3.75 billion in the second quarter. In the second quarter of 2018, the company had recorded an adjusted operating profit of $2.39 billion.

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Peers’ performance

Other than Boeing, major aerospace and defense stocks have recently reported impressive Q2 results. On July 23, United Technologies (UTX) and Lockheed Martin (LMT) came up with their second-quarter numbers. United Technologies’ top- and bottom-line grew 17.6% and 11.7%, respectively. Lockheed Martin’s revenues and earnings increased by 7.7% and 16%, respectively.

Northrop Grumman (NOC) released its second-quarter results today. The company’s revenues grew 18.8% YoY while earnings jumped 28.8% in the quarter.

Boeing stock has been under tremendous pressure due to its troubled MAX jets. The stock, which was the Dow 30 component’s top performer until March 8, has now fallen to the 19th place. Currently, its YTD gain is 14.6%, way lower than 31% as of March 8. The stock’s return is lower than the gains of the Dow Jones and the S&P 500, which have risen 16.9% and 19.9%, respectively.

Boeing stock’s YTD gain is also lower than the returns of the iShares U.S. Aerospace & Defense ETF (ITA), which is up 26.2%. The ETF has exposure to companies that manufacture, assemble, and distribute aerospace and defense equipment.


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