Boeing Co. said it plans to accelerate output of its cash-cow 737 jets later this year and reassured investors that a recently uncovered manufacturing defect wouldn’t dent its delivery and cash targets.
(Bloomberg) — Boeing Co. said it plans to accelerate output of its cash-cow 737 jets later this year and reassured investors that a recently uncovered manufacturing defect wouldn’t dent its delivery and cash targets.
The manufacturer stood by its full-year forecasts as it reported an improvement in free cash flow in the first quarter. Boeing burned through $786 million in the period, according to a statement Wednesday detailing earnings results, about $1 billion better than analysts had predicted. Revenue of $17.9 billion also beat estimates.
Still, Boeing notched its seventh straight money-losing quarter. An adjusted loss of $1.27 a share was worse than analysts’ average projection of a 97-cent loss, according to estimates compiled by Bloomberg.
The mixed results underscore the fitful progress Boeing is making in turning around its finances and addressing quality lapses after years of crisis. A recent rush of commercial jet deliveries propelled the US planemaker past rival Airbus SE on a quarterly basis for the first time in almost five years.
“This is an important year for us,” Chief Executive Officer Dave Calhoun told employees in a message Wednesday. “As demand surges across our markets, we must focus together on execution and meeting our customer commitments.”
The shares climbed 3.6% at 9:37 a.m. in New York, the second largest gain among the 30-member Dow Jones Industrial Average. Through the close of Tuesday’s session, Boeing’s stock had risen 6.1% this year.
Continuing its recent momentum will be challenging as Boeing grapples with the 737 Max manufacturing flaw that Calhoun said will slow deliveries “over the next several months.” Bloomberg previously reported that Boeing would hike production rates this year, and Calhoun said last week that the latest snag wouldn’t alter its master schedule for suppliers.
Boeing executives are expected to detail their plans to manage the latest 737 setback on an earnings conference call Wednesday morning. The company affirmed its target of handing over between 400 and 450 of the narrowbody jets this year, delivering 70 to 80 of its 787 Dreamliners and generating free cash flow ranging between $3 billion and $5 billion.
“I think you’re going to see a bit of a relief rally in the stock,” Ken Herbert, analyst with RBC Capital Markets, said of Boeing’s plan to stay the course in 2023. Affirming the full-year guide implies that Boeing expects 737 deliveries to pick up later in the year as the latest disruption is resolved.
“They view the issue on the Max as near term and not something that’s going to require that much time – weeks and not months — to resolve,” Herbert said in an interview.
Defense Charge
The manufacturer’s defense business continues to face execution problems, with the KC-46 tanker recording a $245 million pretax accounting charge. The potential costs of the 737 issue and defense overruns pose a “considerable risk” to its 2023 results, said Nick Cunningham, an analyst with Agency Partners.
“Boeing’s runaway train of calamities may have slowed down, but it is still trundling on despite the brakeman’s best efforts,” Cunningham said in a report before first-quarter results were announced.
Investors will look for a more information on the scope of repairs needed to address faulty workmanship at Spirit AeroSystems Holdings Inc. affecting potentially hundreds of 737 Max and P-8 maritime patrol planes manufactured since 2019. The flawed parts, which were disclosed by Boeing and the supplier earlier this month, involve fittings that help attach the jets’ vertical stabilizer to the rear of its aluminum fuselage.
Boeing didn’t say when it plans to hike 737 output to a 38-jet monthly pace this year. Its goal is to reach a 50-jet monthly pace by 2025 or 2026. The company said it has increased production of the 787, another key source of cash, to a 3-jet monthly build rate. That’s a step to its goal of building five Dreamliners a month by year-end.
Returning the 737 Max to pre-crisis production levels is crucial if Boeing is to resume being the prodigious cash generator that made it a darling of Wall Street last decade.
Boeing’s operating margins improved across all three business units, a sign that it’s making progress to Calhoun’s goal of stabilizing work in its factories and across its supplier base. The company had a core operating margin of negative 2.5% in the first quarter, an improvement from negative 10.3% a year earlier.
While the company’s cash burn was significantly better than Wall Street expected, the unchanged full-year target suggests there might have been a shift in when some customer payments came in, said Rob Spingarn of Melius Research.
“Cash flow looked pretty good, but it could have a timing element to it,” he said in an interview. “It’s not like they changed the guide, and there’s a pretty wide range on the annual guide.”
(Updates with analyst quote, shares beginning in sixth paragraph)
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