On Wednesday morning, Boeing (BA, Financial) reported earnings for the first quarter of 2019. Although analysts had widely expected the aircraft manufacturer to report poor numbers, the actual results were even worse than expected, with both revenue and earnings per share missing expectations significantly, as the worldwide grounding of the 737-MAX weighed heavily on the company.
Weak revenues and earnings
First quarter revenue came in at $22.9 billion, which was a 2% decline year-on-year and missed the consensus of $23.1 billion. First quarter earnigns per share were $3.16, down 13% year-on-year and missing consensus expectations of $3.25. As mentioned, these disappointing results came primarily from commercial aircraft, with the division of the company dedicated to producing the 737-MAX posting revenues that were 9% lower than than in the first quarter of 2018. Operating profit declined as well, coming in at 9%, down from 11.1% year-on-year. Commercial aircraft earnings decreased by 17%.
Management has also decided to not provide annual guidance for 2019, citing an inability to accurately determine when the 737-MAX will return to service. This is undoubtedly a serious issue for Boeing, as the 737 is expected to account for 33% of the company’s total revenue in the next five years.
737-MAX future unknown
It is important to note that since the 737-MAX was grounded only in mid-March, the fallout from the groundings will continue to be felt in the second quarter and potentially beyond that date, depending on whether Boeing is able to convince regulators and airlines that they have been able to fix the problem with the MCAS anti-stall software that caused both the Ethiopian Airlines and Lion Air flights to crash. CEO Dennis Muilenburg addressed these concerns on the earnings call:
“Ever since the Lion Air accident, our top technical experts, engineers and test pilots have been working with regulators from all over the world on a software update that will make the 737 MAX one of the safest airplanes ever to fly. Our test pilots now completed over 135 flights, totaling more than 230 hours of airtime with the software update. We are taking a disciplined approach, completed our technical flight testing last week and look forward to completing near-term milestones leading to final certification.
As part of our continued collaboration with hundreds of stakeholders, nearly 90% of our 50-plus MAX operators around the world have participated in simulator sessions that include the software update. We're committed to ensuring all who operate the MAX are fully prepared when the grounding is lifted and the fleet returns to service. This includes a comprehensive package in -- of training and educational resources that we're developing and deploying.”
Shareholders should hope that these measures go some way towards convincing airlines and passengers that Boeing has taken concrete steps towards fixing the reasons why the crashes happened in the first place.
Summary
Overall, this was definitely a quarter that management will want to put behind them. Unfortunately for Boeing, the full impact of the 737-MAX groundings has yet to be assessed. So far, the market does not seem overly worried about this round of results, with the stock being virtually unaffected. But if the groundings drag on, investors may lose patience.
Disclosure: The author owns no stocks mentioned.
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