Boeing today announced its third quarter earnings. With the 747-8 program both being delayed and falling into a forward loss position earlier this month, the numbers were always going to make grim reading.
The key numbers from the third quarter earnings are as follows:
• Third-quarter revenue was $16.7 billion, 9 percent higher than last year’s strike-affected quarter
• Loss of $2.23 per share reflects $3.59 per share of expenses related to previously announced 787 cost reclassification and 747 charge, partially offset by solid performance in other commercial programs and the defense business
• Operating cash flow increased to $1.2 billion
• Backlog at $320 billion – nearly five times current annual revenues
• 2009 guidance updated for 787 cost reclassification and 747 charge
With the 747-8F planned first flight slipping into early next year, earnings were saddled with the 787 reclassification that pushed EPS to between $1.35 and $1.55, despite third quarter revenue being higher year-on-year by around 9%.
Importantly, Boeing’s cash balance increased from $5bn to $6.6bn, despite the purchase of the Vought Aircraft facilities in South Carolina.
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“The 787 cost reclassification and the 747 charge for increased costs and difficult market conditions clearly overshadowed what continues to be otherwise solid performance across our commercial production programs and defense business,” said Boeing Chairman, President and Chief Executive Officer Jim McNerney.
Below were the key highlights discuss in the earnings call:
Jim McNerney – CEO
• Earnings dominated by 787 charges
• Double digit margins
• Strong despite market pressure
• $2.6bn expense on R&D for 787
• Rework & disruption on 747-8
• Engineering resources limited
• Very challenging cargo market
• Action plan in place to recover 747-8
• EIS of 747-8F planned for Q4 FY10
• Better discipline on 747-8 Intercontinental
• 75% engineering design released on 747-8 Intercontinental
• Significant progress on 787
• Validated stringer modification
• Pleased with progress
• Repeat of 787 gauntlet tests
• EIS of 787-8 Q4 FY10
• Modest churn of orders, backlog remains strong
• Can & must do better on development programs
• Jim Albaugh fully engaged in BCA activity
• Deliveries on track for this year (480-485)
• IDS delivered 34 airplanes, 2 satellites, first flight of 3rd P8-A Poseidon
• 7200 jobs cut vs 2008 baseline
• Environment challenging
• Rate increases on hold
• 777 rate down to 5/month from June 2010
• 85 deferrals in Q3 2009
• 130 deferrals in first half of 2009
• Deferrals same as last quarter
• Evaluating 737 production rate
• Boeing Capital Corp (BCC) expects to finance $800m this year, down from $1bn
• 6 flight test 787s – one will fly each month after first flight of ZA001
• Taking a hard look at KC-X tanker competition
• WTO ruling – playing field is not level
• All share responsibility for 787 delays – “We’re a team”
• Evaluating 787 second line between Everett, WA and Charleston, SC
• Decision due in a couple of weeks
• Will work to minimise work duplication
• Gotta figure out how to reduce risk
• Balance sheet would be stronger had we not had strike last year
James Bell – CFO
• Revenue up 9% YoY
• Loss of $2.23 per share
• BCA revenue up 13%
• $592m for Vought Aircraft facility in South Carolina
• $6bn for work in progress, non-recurring costs on 787
• $1bn 747-8 charge: $643m on higher production costs, $352m on market conditions and maintaining production rate at 1.5 month
• 17 cancellations, 96 orders during Q3 2009
• $254bn BCA backlog, 7 times current annual revenue
• $66bn IDS backlog
• BCC evaluating debt issue
• No shares bought during Q3
• $300m paid in dividends
• $6.6bn in cash
• EPS fall on revenue of $68-69bn
• Cash flow to improve in 2011 on higher deliveries
• Expenses down from $1.4bn to $1.3bn
• Oversold 737 slots driving production rate
I’m mystified – B announces a loss for the quarter but their cash position improved?
Cash v. Accrual Accounting Ikkeman. They’re “expensing” previous cash expenditures that were being accounted for as assets.
Excellent detail as always, thank you.
I found it odd that neither Jim or James did not mention anything about the compensation as a result of the 787 schedule sliding.
That has to be burning a big hole somewhere.
McNerney’s first bullet-point:
“Earnings dominated by 787 charfes” what is a “charfes”? (couldn’t find in my dictionary)…
The rest is just corporate gobbly-gook to me.
Personally, I sure hope 787 flies before years end… I also firmly believe that 747-8F (LN1420) WAS about to win the “first to fly” race, but the Execs could not allow that to happen.
—-
Sorry, should be “charges” – all fixed.
- Saj
Next year will be a blood bath for BCC.
They may have estimated 20% lower financing this year, but in 2010 when 777 rates are going down, revenues will be down – financing will go up.
That cash balance may look pretty, but it wont last long.
5. boeing investor
“That cash balance may look pretty, but it wont last long.”
But then the 787 will start raking it back in. Glass half fill Bro?
These delays are hurting supplier ops. We’ll now have to layoff talented people ’cause the parent company can’t get it together!
thnx for the bullits!
I think the total additional costs for the 787 sofar have become so phased, spread out and moved around few know the total picture anymore.
When they start to deliver it will certainly ease the bleeding, but maybe not before first quarter 2011.
The biggest unknown is the level of delivery/performance penalties to come off the contract price, which I guess would vary between customers.
The other question is whether BCA have to shoulder the burden alone or is it shared between major suppliers?
2. Leelaw | October 21st, 2009 at 16:55
Thank you for your attempt to explain – unfortunately it still went over my head.
Does anyone know/ will anyone dare a guess at the total 787 programme cost so far?
When asked where the “buck stops” regarding the 787 program after six delays, Mr. McNerney couldn’t bring himself to say “the buck stops with me.” Quite telling indeed.
@ Ikkeman
The loss in the 3rd quarter was generated by cash that was actually expended/disbursed in earlier accounting periods.
hey ikkeman -
i think you need to repeat accounting 101
Quite telling indeed Leelaw, he is certainly no Harry Truman.
Paula K asked: “I found it odd that neither Jim or James did not mention anything about the compensation as a result of the 787 schedule sliding.
That has to be burning a big hole somewhere.”
James Bell did mention a compensation figure for 2009. They did not say how many frames were affected, but applying it to the entire 787 order book, it works out to about $750,000 per ordered frame.
1. ikkeman | October 21st, 2009 at 16:27
The 787 charge was non-cash.
A common theme in many of Mr. Vero Venia’s postings on the 787 is that of Boeing’s need to rush the initial part of the development, even though from historical markers, aircraft development typically takes around seven years – so some bloggers say (Although some Boeing’s have done considerably better than this.). Get the investors wet.
And a common thread amongst the posts of a very larger number of posters on blogs detailing bad news, delays, etc. at Boeing have pointed fingers, missiles, ICBM’s, etc. at Boeing management – more specifically, former MDC imported types.
While I’m in no state of mind to continue, here’s caution to the wind.
Something I read today – a letter to a local daily newspaper on the affairs of South African football (soccer). It goes like this:
A Japanese company (Toyota) and an American company (General Motors) decide to have a canoe race on the Missouri River. Both teams practised long and hard to reach their peak performance before the race. On the big day, the Japanese won by a mile. The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to look into the matter and recommend appropriate action.
Their conclusion was the Japanese team had 8 people rowing and 1 person steering, while the US team had 8 people steering and 1 person rowing.
So American management hired a consulting company and paid them a large amount of money for a second opinion. They advised that too many people were steering the boat, while not enough were rowing.
To prevent another loss to Japanese, the American rowing team’s management structure was totally reorganised to four steering supervisors, three area steering superintendents and one superintendent steering manager. They also implemented a new performance system that would give the one person rowing the boat greater incentive to work harder. It was called the ‘Rowing Team Quality First Program,’ with meetings, dinners and free pens for the rower.
The next year the Japanese won by two miles. Humiliated, the US management laid off the rower for poor performance , halted development of a new canoe, sold the paddles, and cancelled all capital investments for new equipment.
The money saved was distributed to the Senior Executives as bonuses and the next year’s racing team was outsourced to India!
Now, this leads further here to this – posted on flightglobal, the Q&A session with Jim McNerney, Boeing CEO & Chairman, on Boeing Q3 performance. Who does the buck stop with. Jim didn’t answer the question directly – as Jon was hoping – as each of us were hoping.
See, it’s become twisted. On one hand, would Boeing’s steering team have been able to launch the 787 if they had been less ambitious? Would they have been able to get investors to part with their unrealistic instant capital growth projections right away compared with a more realistic long term success (in aerospace)?
Are these steerers now just paying the price for indaquate industry-wide lack of planning so far as human capital is concerned? You know there’s a shortage of engineers from Rolls Royce right across Boeing?
I think they’re guilty of milking the publicity machine. That’s it. Luckily, the recession, and it’s a global one, serves as a nice cover.
On those exceptional right-downs. $2.5 billion for the all-new 787 – and an astonishing $1 billion for the highly-modified 747-8. Is the 747-8 that good? Wow. I can’t wait. Really. (Yes, I know that includes right-downs on market expectations.) (But even if the 747 is that good, it could never have flown before the 787. That would simply have been totally unacceptable to this management.)
The stock seems rather impervious to bad news, and here I am trying to buy at under $30!
Aurora…so am I…..ugh…..:-x