Aerospace & Defense

Boeing Is Dow's Worst Performing Stock in 2016

For the first quarter of 2016, the worst performing stock in the Dow Jones Industrial Index is Boeing Co. (NYSE: BA), which is down 12.19%. Over the past five trading sessions, Boeing’s stock has dropped about 3.9%, with the biggest part of the dip coming since last Wednesday.

That was the day Boeing announced that it would cut 4,000 jobs in Washington state through attrition and voluntary retirements. Instead of lifting the share price — something layoffs nearly always do — Boeing saw its stock get pounded.

The main reason for that is that the company seems to be running scared of archrival Airbus. In an internal Boeing webcast to employees last month, Ray Conner, CEO of the commercial aircraft division, basically said that Airbus is eating Boeing’s lunch, having reduced Boeing’s share of the total backlog to 46% and a desire to push that target to 40%.

And Airbus is doing this by undercutting Boeing’s prices. Boeing plans to strike back by cutting billions from its costs by the end of the year. Squeezing suppliers and shedding ancillary costs helps, but if the company is serious about cutting billions from the operating budget to improve cash flow by the end of 2016, the only way to do that is to cut jobs.

Boeing has long claimed that deliveries, not backlog totals, are more important, and it leads Airbus by a substantial margin there. That’s important to Boeing because it is deliveries that generate cash flow and Boeing has been promising (and delivering) huge free cash flow to investors for years. That cash is then shared out with shareholders as higher dividends and more stock buybacks. Any threat to cash flow is very bad for Boeing.

The good news for Boeing is that it appears to be about six months ahead of schedule for deliveries of its new 737 MAX. The first plane could be delivered as soon as the first quarter of 2017.

The other good news is that the deferred production cost tab for the 787 Dreamliner is about to stop growing. Most likely that will happen in the second quarter of this year, and Boeing will begin to realize a profit on each 787 it sells. Unfortunately, the bill is around $30 billion and will take years to pay off.

Boeing will announce first-quarter results on April 27, and analysts are looking for earnings per share of $1.82 and revenues of $21.9 billion, compared with earnings per share of $1.97 and revenues of $22.15 billion in the first quarter of 2015.

Some analysts also think that Boeing will announce that it has stopped losing money on every 787 it sells. As mentioned, the company currently carries about $30 billion in deferred production and tooling costs on the 787 program, and turning a profit on the planes would represent a moral victory if nothing else.

Boeing stock closed up less than 0.1% on Friday, at $126.96 in a 52-week range of $102.10 to $155.50.