It’s all about expectations and negative surprise.
Its stock was off nearly 10% in the first hour of trading, before the 10:30 a.m. (ET) earnings call. Even that didn’t go right for Boeing.
A technical glitch that blocked the webcast couldn’t be fixed, forcing a suspension of the earnings call just as the Q&A was about to begin. After some re-work, a re-do began several hours later--by phone call-in only.
Despite solid performance in 2015, with increased revenues, profits and earnings per share (before one-time charges on the 747-8 program), and record deliveries, Wall Street was surprised and disappointed with the 2016 outlook.
The company forecast lower financial results on lower deliveries. Boeing delivered 762 airplanes to customers last year. This has been lowered to 740-745 this year. As a result, revenue is forecast to drop from $96 billion last year to between $93 billion to $95 billion. Cash flow is forecast to rise slightly from $9.4 billion to about $10 billion, largely on the improving position of the 787 program, which turns from negative to positive.
None of this downside was expected by analysts, and nothing disappoints more than failing to meet expectations and being negatively surprised.
“The surprise in Boeing’s Q4 results was EPS guidance for $8.25 at the midpoint, or ~$1.15 below consensus,” Seth Seifman at JP Morgan (Overweight) wrote in his initial note after the press release was issued today. “Our estimate is $9.55, and there is apparently downside in both Commercial and Defense, but BCA margin is the biggest source of the delta, with delivery mix playing a far greater role than expected. Cash from [operations] guidance was modestly below our forecast but 6% higher than 2015 and about what we expected for an initial take. Overall, management is typically conservative, but that does not seem to account for all of the shortfall here, and expectations will likely come down.”
Seifman’s sentiment was reflected by analysts at Buckingham Research, Credit Suisse and
Cutting 777 production rate
Boeing made it official: the 777 production rate will be trimmed from 8.3 per month to seven per month, in 2017. This had been telegraphed last year during the pre-Paris Air Show media briefings, so this came as no surprise to analysts. Many believe Boeing will have to take another rate cut, to six or even five per month, before the successor 777X enters service in 2020, but Boeing claims not. But Boeing has a history of rosy claims right up until the time things are so rosy after all. This will continue to bear watching.
Boosting 737 production
Boeing also announced that it is boosting the production rate of the 737 to 57 per month in 2019. This comes on top of previously announced rate hikes to 47 and 52 per month in 2017 and 2018 respectively. The new figure shouldn’t be a surprise, either. It was public knowledge Boeing was considering the 57 rate, and it is studying an even higher rate of 60-63 per month in 2020 and beyond.
Rival Airbus announced it’s taking the competing A320 production rate to 60 per month in 2019. Look for Boeing to play catch up.
Declining deliveries in 2016
Boeing said there will be about 12 fewer 737 deliveries this year as the MAX program expands with test planes and the production of the 8 MAX for 2017 delivery, after certification. There will also be 10 instead of 16 767F deliveries this year as the KC-46A tanker program ramps up.
This means deliveries in 2017 will be slightly more than actual production.
Scott Hamilton is editor of Leeham News. He does not own stock in any company mentioned above.
