Boeing Reports Third Quarter Earnings

Boeing reported its third quarter earnings today, much of which was not a great surprised given the IAM union strike that has hit the company hard.

The key points outlined in the results were as follows:

• Third-quarter revenues declined to $15.3 billion from $16.5 billion as labor strike and supplier production problems pushed airplane deliveries out of the quarter

• EPS declined to $0.96 per share, reduced by an estimated $0.60 on the lower deliveries and by $0.08 due to tax adjustments

• Backlog grew to a record $349 billion as near-term demand remains strong

• Updated financial guidance to be provided after strike concludes

Image courtesy of Boeing

“While the suspension of commercial airplane deliveries had a major impact on the quarter, we effectively executed the remainder of our business and kept our focus on the strong balance sheet we have built over the past few years,“said CEO Jim McNerney.

In its financial presentation ahead of scheduled talks with the IAM with mediation, it is clear that Boeing may not be willing to relent on union demands on outsourcing. The key point of which states:

“Committed to resolving strike while protecting our ability to compete“

As the strike approaches the end of its second month, Boeing estimates that the dispute has cost around $2.1bn for the quarter. Cost increases on the 747-8 have also been noted, just a few weeks after production of the first 747-8F had commenced, although this was offset by decreased spending on research/development.

Boeing stated that upon conclusion of the strike, it would provide new guidance of its EPS.

EPS for 2008 prior to the strike came in at $5.70-$.85. Analyst Robert Stallard recently suggested that EPS could drop to just $4.99 a share, however, much of this will be dependant on the duration of the industrial action, which for the time being has no end in sight.

“Although we have trimmed 2009 estimates from $6.98 to $6.80, the real change is to 2010, which goes from $7.58 to $6.00,” says Stallard.

Most consensus now focuses on the 787 service entry being primed for early 2010 given the longer than expected strike, potentially meaning that all possibilities for a 2008 first flight are now all but extinguished.

Points raised by CEO Jim McNerney (JM) and CFO James Bell (JB):

JM

• “Worked hard” to avoid strike
• Goal remains the same vis a vis job security/market changing dynamics
• Disappointed that company cannot meet customer requirements
• Galley supply issue will meet revised schedule once strike ends
• 10% of current backlog with US airlines
• 2 cancelled orders, 80 deferrals – some carriers seeking earlier delivery positions
• Highlighted 787 milestones, gear tests and pressure tests
• American Airlines 787 order “vote of confidence”
• Day-for-day impact on strike
• On Boeing Capital Corp (BCC): lending tight, available on selective basis
• 80% of backlog has Ex-Im Bank financing option
• Lower oil costs allowing carriers to recapitalise
• Confidence high through diversity of current backlog
• Boeing faces “challenging times”
• 747-8I will be produced
• Focus on competitiveness
• Outlook remains strong
• Steady increased production to meet demand in lieu of current economic climate
• No whitetails
• First flight of 787 remains uncertain
• Impact of IAM strike not yet fully evaluated
• Supply chain for all programs catching up during strike

JB

• 16% lower yr/yr deliveries
• $70m increase on R&D
• 625 orders to Sept 30, 2008
• 149 orders in Q3
• Backlog up 7% to $349bn
• BCC to arrange “some financing” in 2009
• $519m spent on buyback of 7.9m shares
• $295m on dividends
• Cash drop from Q2 to Q3 down to $4.2bn
• May send staff home to lower costs if strike goes on

(Prior articles on the Boeing/IAM strike can be found by clicking these links here, here, here, here, here, here, here,  here, here,  here, here, here, here, here and here.)

12 comments October 22nd, 2008