Boeing’s ‘Kitchen Sink’ Quarter, Explained

on Jan 29, 2020
  • Boeing reported fourth quarter results Wednesday morning.
  • The airplane maker reported an annual loss for the first time in two decades.
  • Experts and analysts aren't fully convinced the company will live up to bullish expectations.

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Airplane maker Boeing Co reported Wednesday morning fourth quarter results which were highlighted by its first annual core operating loss in two decades. 

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Boeing lost $636 million throughout 2019 which marks a dramatic reversal from 2018’s $10.46  billion profit. Of course, the company’s performance throughout 2019 was impacted by two deadly 737 Max crashes and the subsequent worldwide grounding of all Max planes. To date, the financial damage to Boeing rose to more than $18 billion. 

Boeing’s new CEO David Calhoun told CNBC in an interview following the earnings report he expects the 737 Max to return to the skies “midyear” 2020. He emphasized his belief that the plane is “safer than the safest airplane flying today.”

Irrelevant Results

Boeing’s fourth quarter report is “irrelevant” and what really matters most is commentary surrounding the return of the 737 Max, William O’Neil analyst Andrew Kessner told Bloomberg in an interview. Management has shown “solid progress” towards recertifying the plane but the company remains a potential victim of one of the many negative developments that would impact any timeline — no matter how conservative it seems to be.

A bigger unknown that has yet to be addressed is how consumers will react once the 737 Max returns to the sky, according to the analyst. Some surveys have shown more than 50% of customers won’t want to step foot in a 737 Max.

As a research analyst, it is wise to look at Boeing’s multi-year outlook as 2020 and 2021 will likely be transitory years, Kessner added. As it stands today the consensus estimate models Boeing to return to an EPS of $25 and a free cash flow of $30 per share in 2022.

Investors who believe this outlook would likely be buyers of the stock as it is “cheap” at current valuations. However, Kessner said he believes the Street’s expectations for 2022 are optimistic and may not fully appreciate that airplane buyers can easily switch to Airbus if they are not “comfortable” with purchasing Boeing planes.

‘Kitchen Sink Quarter’

Bloomberg Opinion columnist Brooke Sutherland added on Bloomberg TV that Boeing’s “kitchen sink quarter” was meant to “throw a lot of things” into the open. Calhoun wants to get all the bad news in the open to better navigate through a news flow that has been far from “flattering.”

However, investors are still left wondering if there are more surprises that have yet to be brought out into the open. Until concrete results are shown, it would be reasonable for investors to remain skeptical. 

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