Aerospace & Defense

Boeing misses big on earnings but remains optimistic for 737 Max return

Key Points
  • In the earnings report, the aerospace giant says it expects regulatory approval of the 737 MAX return to service in the fourth quarter of 2019.
  • "No incremental negative news on MAX will be a relief for most," Credit Suisse says of the results.
  • No U.S. airline expects the jets to return to service before next year, making Boeing's timeline the most optimistic.
  • Boeing also says it expects to "gradually increase" the 737 Max production rate to 57 per month by the end of next year.
Boeing posts earnings miss, revenue beat for Q3
Boeing posts earnings miss, revenue beat for Q3

Boeing reported a more than 50% slide in third-quarter profit, worse than analysts expected, as the company struggles to recover from two fatal crashes of its top-selling 737 Max aircraft.

The aerospace giant's revenue, which slid 20%, wasn't as bad as feared on Wall Street and would have been significantly worse without the company's strong defense and space sales. Boeing also stuck to an optimistic forecast for when its 737 Max aircraft will begin flying again, saying that it assumes "regulatory approval of the 737 MAX return to service begins in the fourth quarter of 2019."

While some investors may have been expecting Boeing to cut production of the 737 Max further, the company maintained its production rate of 42 airplanes per month. Boeing also said it expects to "gradually increase" the 737 Max production rate to 57 per month by the end of next year.

"No incremental negative news on MAX will be a relief for most," Credit Suisse analyst Robert Spingarn wrote in a note to investors after the results.

Shares of Boeing, which rose as much as 4.1% in the morning, closed trading up 1% at $340.50 a share.

Expectations vs. results

  • EPS: $1.45 a share vs. $2.09 a share expected by analysts surveyed by Refinitiv.
  • Revenue: $19.98 billion vs. $19.67 billion expected by analysts surveyed by Refinitiv.

Boeing did not provide an update to its full year forecast, which it suspended earlier this year. Revenue dropped 21% from the same period last year, while Boeing's third-quarter operating cash flow was negative $2.4 billion.

The results for Boeing's business units

Boeing's commercial airplane unit brought in $8.3 billion in revenue for the third quarter. But the division's operating profit continued to fall, tallying a $40 million loss for the quarter — down from a $2 billion profit a year earlier. Boeing's business delivered a total 62 airplanes during the third quarter. Boeing said it will decrease its monthly production of 787 Dreamliner aircraft to 12 per month by the end of next year, saying "the current global trade environment" will keep the rate at that level through 2022.

While the overall results were "slightly positive," Credit Suisse's Spingarn said the cut to 787 production will likely result in a future cut to Wall Street's consensus financial forecast for Boeing.

Boeing's defense and space business saw quarterly revenue climb 2% year-over-year, logging $7 billion in the third-quarter compared to $6.9 billion for the same period last year. The unit's operating margin, a key measure of profit, rose to 10.7%, with no new charges during the quarter and improved performance, Boeing said. The business has a combined backlog of $62 billion, with 70% of those orders from U.S. customers. Boeing's KC-46A tanker aircraft and AH-64E Apache helicopter programs were standouts, with new orders for 15 of the former and nine of the latter.

"We continue to see broad support for our products from the Pentagon, NASA, and Congress," Boeing CEO Dennis Muilenburg said during the company's call with shareholders.

Boeing's services business continued to grow, as revenue increased 14% year-over-year, bringing in $4.7 billion – up from $4.1 billion in the third quarter last year. The expansion was "primarily driven" by Boeing's acquisition of KLX Aerospace Solution, the company said, as well as a higher volume of government servicing.

737 Max crisis continues

No U.S. airline expects the 737 Max planes to fly before 2020. Carriers have lost hundreds of millions of dollars in revenue and repeatedly pushed back when they expect the planes to return to their schedules. Federal Aviation Administration approval of the jets isn't the final step. Airlines have to train thousands of pilots, remove jets from storage, and install the new software, among other steps, which could take a month or more.

The company has been under scrutiny after two deadly Boeing 737 Max crashes killed a combined 346 people in the past year. Boeing took a $4.9 billion after-tax charge in the previous quarter for funds to compensate airlines for the FAA's grounding of the 737 Max planes in service.

Although Boeing has developed a software fix for the flight-control system that's blamed in both crashes, federal regulators have yet to set a timeline for the certifying the 737 Max for flight. In addition, reports surfaced last week that Boeing's former lead pilot had warned about problems with the flight-control systems in 2016, two years before the first crash. The pilot, Mark Forkner, said in an email to an FAA official that he was "jedi mind-tricking regulators into accepting training the training that I got accepted by FAA etc." The FAA last week said Boeing withheld these "concerning" messages for months from regulators.

Boeing CFO Greg Smith said during the company's investor call that "strong operating cash from other parts of the business" gives Boeing "adequate liquidity" to ride out setbacks from the 737 Max program.

"Our long-term goal and strategic objectives remain unchanged," Smith said.

The crisis has now seen two executive leadership changes in the past month, with the removal of the head of Boeing's commercial airplane division Kevin McAllister shortly after the board stripped Muilenburg of his chairman role.

Muilenburg is scheduled to testify before a congressional transportation panel on Oct. 30.

"I anticipate there will be tough questions, challenging questions, a lot of scrutiny. And, frankly, we support the scrutiny on the work that we're doing," Muilenburg said.

-- With reporting by CNBC's Leslie Josephs