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Margaret Moran
Margaret Moran
Articles (448) 

Boeing Misses on Earnings, Downsizing to Continue Through 2021

The aircraft producer's 2nd-quarter earnings fall short, but future supports are appearing

July 29, 2020 | About:

Before the opening bell on July 29, Boeing Co. (NYSE:BA) reported its earnings results for the second quarter of 2020, which ended on June 30.

Revenue for the quarter came in at $11.81 billion, down 25% from the year-ago quarter. The loss per share was $4.79, which is an improvement over the loss per share of $5.82 from the prior-year quarter that resulted from $5 billion in charges related to the 737 Max issues. According to analysts surveyed by Refinitiv, Wall Street had been expecting revenue of $13.16 billion and loss per share of $2.54.

Following the steep earnings miss, the stock was down approximately 5% to $164.11 in midday trading. Year to date, shares have lost 50.61%.

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The downsizing continues

Amid continuing headwinds, the operating margin has dropped to -25.1% compared to -21.5% in the prior-year quarter and represents the third consecutive quarter of operating losses.

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The issues surrounding the deadly 737 Max continued to impact results during the quarter, as did the drop in commercial aircraft demand resulting from the ongoing pandemic.

After temporary pauses in production at the onset of the pandemic-related lockdowns, Boeing resumed production, which included continuing the process of returning the 737 planes to service. The company plans to ramp up production of the 737 Max to 31 per month by 2022, which is later than it originally projected, while 787 production will be cut to six per month next year. Boeing also said it would end production of the 747, an iconic model that has been in production for five decades, by 2022.

In the Commercial Airplanes segment, Boeing delivered 20 airplanes during the quarter, with backlog reaching $326 billion. Segment revenue plunged to $1.6 billion from $4.7 billion a year ago.

In addition to cutting down on production, the company also mentioned on the earnings report that it will continue downsizing its workforce:

“To align to the sharp reduction in commercial market demand in light of COVID-19, the company is taking several actions including further adjusting commercial airplane production rates and reducing employment levels.”

Even though most of the company’s 470 grounded planes are 737 Max’s that would have been grounded regardless of the pandemic, each excess plane that the company produces is a constant drain on its finances, which is why cutting production is critical until demand returns.

Positive signs

Although Boeing is downsizing in its commercial aircraft and related segments, the defense side of its business is seeing a boost. President and CEO Dave Calhoun commented on this topic:

"The diversity of our balanced portfolio and our government services, defense and space programs provide some critical stability for us in the near-term as we take tough but necessary steps to adapt for new market realities. We are taking the right action to ensure we're well positioned for the future by strengthening our culture, improving transparency, rebuilding trust and transforming our business to become a better, more sustainable Boeing. Air travel has always proven to be resilient - and so has Boeing."

Revenue for the company’s Defense, Space & Security segment came in at $6.58 billion for the quarter, up slightly from $6.57 billion in the prior-year quarter, though the operating margin declined to 9.1%. Backlog for the segment reached $64 billion, with 31% coming from customers outside the U.S.

In addition, Boeing received another defense boost in early July, when it secured a new $1.2 billion contract with the U.S. Air Force to supply the next evolution of the F-15 military fighter jet, called the F-15EX. The Air Force’s 2020 budget has already been approved with eight of the aircraft, and 12 additional F-15EX planes are expected to be included in the 2021 budget. Over the next five years, the Air Force plans to purchase 76 F-15EX aircraft.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

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