Boeing earnings are coming Wednesday morning, before the market open. Investors have to pay attention to, well, everything.
There is the obvious topic of production quality: Boeing stock has lost more than 30% since an emergency door plug blew off a 737 MAX 9 jet operated by Alaska Air on Jan. 5. The incident resulted in slower production, millions paid in compensation to airline customers, and more oversight by the Federal Aviation Administration.
There is also the issue of management succession. In March, current CEO Dave Calhoun announced he would step down at the end of the year, without naming a successor.
Jefferies analyst Sheila Kahyaoglu recently wrote about what she would do as a new Boeing CEO. One thing, she says, is to walk away from Boeing’s $10 billion annual free cash flow target by 2026. It creates unnecessary expectations, she wrote in an April 21 note: “External pressures from the financial community (including ourselves) are not helpful when safety is paramount.”
She would also commit to a new medium-size single-aisle aircraft — one likely a little larger than the current 737 MAX. A new plane is something Calhoun hasn’t committed to doing since taking over in early 2020.
Beyond the 737 MAX, 787 Dreamliner production rates are slowing amid supply-chain problems. The production quality of Boeing’s popular twin-aisle jet is also in focus after a whistle-blower said in testimony to Congress that he had witnessed questionable manufacturing practices. Boeing defended the plane’s safety record and said it takes anything affecting safety seriously.
All of Boeing’s issues have earnings and free cash flow estimates falling. For the first quarter, Wall Street expects a per-share loss of $1.73 and sales of $16.3 billion, according to Bloomberg. Free cash flow is expected to be negative $4.4 billion.
At the start of the year, Wall Street expected positive first-quarter earnings per share of 35 cents from sales of $21 billion. Free cash flow was expected to be positive $1 billion in the quarter.
A year ago, Boeing reported a per-share loss of $1.27 from sales of $17.9 billion. Free cash flow was negative $800 million.
Whether or not Boeing hits Wall Street’s lowered numbers is anyone’s guess. Boeing has missed earnings estimates 14 out of the past 19 quarters, dating back to the second quarter of 2019, just after the 737 MAX was grounded worldwide following two deadly crashes within five months.
The median miss versus Wall Street estimates is almost 200%. That happens when, for instance, Wall Street projects a 10-cent per share loss and the company reports a 30-cent loss.
(Some Boeing misses have been so large that the median is a better statistical measure than the average miss.)
That level of earnings volatility is very high. Boeing peer Airbus has missed earnings 5 times out of the past 19 quarters. Its median miss is 8%. That’s like earning $1 a share when analysts projected $1.09.
Investors should brace for some stock volatility following earnings. Options markets imply Boeing shares will move about 5%, up or down. Shares have moved an average of about 4%, up or down, following the past four quarterly reports. Shares have risen three times and fallen once over that span.
Given how things have gone for the company lately, investors might be surprised to learn Boeing stock has risen more times than it’s fallen after the past four quarters’ results. Shares of any stock can rise amid difficult times when expectations are low, and Boeing investors don’t appear to expect much. Coming into Wednesday trading, Boeing stock is off about 35% year to date, making it the third worst performer in the S&P 500, behind only Tesla and Globe Life shares.