Boeing Co. (BA, Financial), a major commercial airplane manufacturer, said on Wednesday that net losses for the second quarter significantly increased on the heels of the company’s 737 Max charges.
The Chicago-based company reported a net loss of $2.942 billion, or $5.21 in loss per share, compared to net income of $2.196 billion, or $3.73 in earnings per share, during the prior-year quarter.
Company updates on its 737 Max issues
Boeing CEO Dennis Muilenburg and Chief Financial Officer Greg Smith both said during the earnings call that the 737 Max troubles “continue to weigh heavily on the company”: Revenues declined $8.5 million and earnings declined $9.15 per share from the prior-year quarter, including a $5.6 million revenue charge and an $8.74 earnings per share charge directly related to the 737 Max. Muilenburg warned that while the company expects to return the 737 Max to service during the fourth quarter, regulators like the Federal Aviation Administration have the final say on the timing and considerations regarding the aircraft.
Smith detailed several key factors regarding the Max, including the return to service timeline, the delivery ramp up and the ability of Boeing’s customers to access the aircraft. Management underscored during the question and answer section of the earnings call that the process to return the Max to service is “iterative and complex,” i.e., Boeing is working with the regulators daily regarding on software updates to the microchips and other components of the aircraft.
Due to the uncertainties regarding the Max, management said it is “not able to provide full-year guidance” until a later date. Despite this, management warned that depending on when the aircraft can return to service, Boeing might have to record additional charges to revenue and earnings in upcoming quarters. Top Boeing customers, which include major Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) airline holdings American Airlines Inc. (AAL, Financial) and Southwest Airlines Co. (LUV, Financial), have removed the 737 Max from their schedules through Nov. 2 according to company press releases.
Stock sends Dow lower
Shares of Boeing traded at an intraday low of $362.98 Wednesday morning, down approximately 2.7% from Tuesday’s close of $372.99. Meanwhile, the Dow Jones Industrial Average traded at an intraday low of 27,213.81, down 158.07 points from Tuesday’s close of 27,348.82, driven by poor earnings results from Boeing and fellow Dow component Caterpillar Inc. (CAT, Financial).
GuruFocus ranks Boeing’s profitability 8 out of 10: Despite the short-term declines in revenue, Boeing’s business predictability ranks 4.5 stars on strong and consistent earnings growth over the past 10 years. Additionally, profit margins are near 10-year highs and outperform over 62% of global competitors.
Gurus with large holdings in Boeing include Spiros Segalas (Trades, Portfolio), PRIMECAP Management (Trades, Portfolio) and the T Rowe Price Equity Income Fund (Trades, Portfolio).
Disclosure: Author is long Southwest.
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