Key Takeaways
- Q2 revenue of $16.9 billion missed analysts' expectations.
- Boeing's adjusted loss of $2.90 per share was significantly worse than the predicted loss of $1.90 per share.
- Commercial airplane deliveries fell by 32%.
The Boeing Company (BA 0.19%), a leading aerospace manufacturer, released its earnings for the second quarter on July 31, and came up short of market expectations. Total revenues for the quarter came in at $16.9 billion, 2.6% lower than the $17.35 billion analysts had anticipated. The company reported an adjusted loss of $2.90 per share, significantly below the consensus estimate of $1.90 per share. Overall, the report reflected Boeing's ongoing operational difficulties, with pronounced underperformance in key segments.
| Metric | Q2 2024 Result | Q2 2024 Analyst Estimate | Q2 2023 Result | % Change (YoY) |
|---|---|---|---|---|
| Revenue | $16.9 billion | $17.35 billion | $19.75 billion | (15%) |
| Adjusted core EPS | ($2.90) | ($1.90) | ($0.82) | N/A |
| Operating cash flow | ($3.9 billion) | N/A | $2.9 billion | N/A |
| Free cash flow | ($4.3 billion) | N/A | $2.6 billion | N/A |
| Source: Analyst estimates for the quarter provided by FactSet. |
Company Overview
Aerospace giant Boeing manufactures commercial jetliners, defense aircraft, and space and security systems. Its extensive portfolio includes renowned aircraft models like the 737, 777, and 787. Boeing’s operations are divided into three primary segments: commercial airplanes; defense, space & security; and global services.
Recently, Boeing has focused heavily on ensuring regulatory compliance and improving production quality. Key factors that will influence the company's health will be its ability to ramp up production rates, manage supply chain constraints, and meet Federal Aviation Administration (FAA) standards.
Quarterly Performance
Revenues declined in two of Boeing's three segments in Q2. The biggest impact came from commercial airplanes, where revenues fell 32% to $6.0 billion from $8.84 billion in Q2 2023. Deliveries similarly fell by 32%, from 136 units to 92 units, resulting in a loss from operations of $715 million, wider than its $383 million loss the previous year. This decline was driven by ongoing production and regulatory challenges that forced the company to slow down its commercial output.
The defense, space & security segment reported revenue of $6.0 billion, slightly down from $6.17 billion the previous year. However, its operating performance deteriorated sharply, with a loss from operations increasing to $913 million from the prior-year period's loss of $527 million. A large portion of those losses were due to cost escalations in fixed-price development programs, including a notable $391 million loss in the KC-46A program caused by supply chain constraints.
In contrast, the global services segment demonstrated resilience with a 3% increase in revenue to $4.9 billion and an 8% rise in earnings from operations to $870 million. This robust performance was driven by new service contracts, including logistics agreements with the U.S. Army and airlines like Hainan Airlines and Ryanair.
Significant Quarterly Developments
Throughout the quarter, Boeing made substantial strides in its product development and production efforts. The company focused on ramping up production rates for its 737 and 787 models. However, geopolitical issues and Boeing's decision to halt titanium purchases from Russia disrupted its supply chains, straining production schedules and increasing costs. Boeing has also been working on better regulatory compliance, submitting a comprehensive safety and quality plan to the FAA. Despite its efforts, the compliance processes hampered its ability to rapidly boost its production rates.
Additionally, competition from entities like Airbus in the commercial airplane segment and Lockheed Martin in the defense sector remains intense. Boeing's ability to innovate and manage costs effectively will be vital for its efforts to maintain its market position. Operational disruptions have dulled its competitive edge. However, as of the end of the quarter, the company's backlog was $516 billion, of which $437 billion was attributed to commercial airplanes, indicating sustained demand.
From a financial perspective, Boeing experienced elevated costs and operational hindrances. Operating cash flow was negative $3.9 billion, and free cash flow deteriorated to negative $4.3 billion. These metrics indicated severe constraints in cash generation capabilities due to disruptions in production and lower deliveries in commercial airplanes.
Looking Ahead
Boeing's management outlined a targeted financial outlook based on its plans to stabilize operations and achieve higher production rates. The company plans to increase monthly production rates of the 737 model to 38 by year's end, contingent on meeting FAA approval standards. It also began FAA certification flight testing on the long-awaited 777X program.
Overall, the company is focused on producing higher output rates and stabilizing existing programs. Investors should watch how Boeing manages production ramp-ups, regulatory compliance, and supply chain challenges. Key metrics such as delivery numbers and free cash flow will be crucial indicators of how Boeing's operational recovery is faring.
