We already know that the Boeing Co. (NYSE: BA) second-quarter deliveries were more than a third less than in the prior quarter and that the company has created a $4.9 billion reserve to compensate airlines for non-delivery of Boeing’s 737 Max single-aisle passenger jets. Since the company announced the reserve last week, the stock has gained about $12 (about 3.3%).
There’s not much the company can do about its results except take its medicine and work to get those 737 Maxes back in the air as soon as possible. Right now, that looks like sometime in the fourth quarter, at best.
The current analysts’ consensus estimate for second-quarter earnings per share (EPS) is $1.87 on $18.55 billion in revenue. At the end of the first quarter, estimates called for EPS of $2.55 and revenue of around $22.9 billion. In the second quarter of last year, Boeing posted EPS of $3.33 and revenue of $24.26 billion.
When the company announced that it would take a $4.9 billion after-tax charge ($5.6 billion pretax), Boeing said it would discuss guidance for the rest of the year when it reports results Wednesday. Unless there is a surprise waiting to jump out of the woodwork, analyst estimates already have taken account of the hobbled deliveries and compensation costs to date while generating estimates of future damage based on at least one more quarter of no deliveries.
In last week’s announcement, Boeing said its costs to produce the 737 Max rose by $1.7 billion in the quarter, largely due to the production cut from 52 to 42 planes a month. Added to an estimated $1 billion cost increase in the first quarter, the $2.7 billion cost increase will be spread across the 3,100 undelivered planes remaining in the company’s accounting block for the 737 Max.
One event that could give Boeing a real boost Wednesday morning would be an announcement that airlines holding company International Airlines Group (IAG) has converted its letter of intent signed at the Paris Air Show last month to a firm order. The letter of intent called for 200 MAX family jets valued at a list price of around $24 billion. Even better from Boeing’s point of view is that a firm order would break the Airbus monopoly at IAG airlines British Airways, Iberia, Aer Lingus, Vueling and Level.
When analysts and investors look at Boeing’s results Wednesday, they are going to see a large increase in inventory, which in turn counts as outbound cash flow until the products are delivered to their buyers. The cash flow is there; what we don’t know is how soon and to what degree that river will begin to flow again.
Boeing stock traded down about 0.5% in the noon hour Tuesday, at $371.48 in a 52-week range of $292.47 to $446.01. The stock’s 12-month consensus price target is $413.57, and the current dividend yield is 2.2%.