Boeing in Q3: EPS Falls, 737 MAX Return Reaffirmed

Boeing reported its third-quarter earnings results on October 23. At $20 billion, Boeing’s third-quarter revenue met analysts’ expectations. However, its EPS from core operations dropped to $1.45 compared to $3.58 in the third quarter of 2018. Its EPS were also substantially lower than analysts’ expectation of $2.05.

At -$2.4 billion, the company’s operating cash flows came in negative for the second quarter in a row as it continued to incur penalties related to the grounding of its 737 MAX 8 aircraft.

Boeing’s Commercial Aircraft segment hampered its earnings

The standout from Boeing’s third-quarter earnings results was the continued grounding of its 737 MAX 8 planes after the fatal crash of Ethiopian Airlines Flight 302 on March 10. Boeing’s earnings presentation highlighted that the revenue from its Commercial Airplanes segment dropped to $8.2 billion in the third quarter compared to $14.1 billion in the same quarter in 2018. The segment’s operating margin contracted to -0.5% compared to a healthy 14.1% in the third quarter of 2018.

The company delivered just 62 planes in the third quarter compared to 190 in the third quarter of 2018. The drop was primarily driven by the 737 MAX grounding, as Boeing’s 737 deliveries dropped to just five during the quarter compared to 138 in the same quarter of the previous year.

Defense comes to Boeing’s aid

Boeing’s Defense, Space, and Security segment came to the rescue. Its revenue increased marginally, supported by higher deliveries of Apache aircraft. The segment’s operating profit margin also increased to 10.7% in the third quarter from -3.6% in the third quarter of 2018. The revenue from the Global Services segment rose to $4.7 billion, with a one-percentage-point increase in its operating margin.

Debt on the rise, equity in the negative

Boeing’s earnings also showed that its debt continued to rise. Boeing’s total debt came in at $24.7 billion as of September 30, up from $19.2 billion at the end of the second quarter. Boeing’s equity remained in the negative zone.

Will 737 MAX return to the skies this quarter?

Despite Boeing’s earnings miss, the stock was up 0.9% in premarket trading at 8:32 AM ET as it reaffirmed that it expected the 737 MAX 8 to be back in service in the fourth quarter. Boeing is losing $1 billion per month due to the 737 MAX 8’s grounding. There are fears that the grounding may continue into 2020. Thus, the market took the company’s reaffirmation as a positive sign.

The Boeing 737 MAX crisis has hurt airlines too. Airline operators in the US don’t expect the plane to return to the skies in 2019. Southwest Airlines (LUV) has pushed back the Boeing 737 MAX 8’s return to February. United Airlines (UAL) expects the aircraft to be back in service in early January. By then, United Airlines will have recorded over 10,000 cancellations. United Airlines owns 14 of those planes.

American Airlines (AAL) has also extended the grounding until January 16. It has 24 Boeing 737 MAX 8s in its fleet. The airline cancels 115 flights per day due to the grounding.