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Friday, January 27, 2023

This is what Boeing blames for its big loss


Boeing reported a $650 million operating loss in the fourth quarter, surprising Wall Street analysts who had expected the aircraft giant to turn a profit.

The company blamed the unexpected loss on “abnormal production costs” as it tried to deliver the remaining backlog of 737 Max planes and increase deliveries of 787 Dreamliners. Company production of the 787 remains below normal rates.

“We continue to face too many stoppages on our lines…as we encounter supply chain deficiencies,” CEO Dave Calhoun told investors Wednesday. “So those stoppages, while they are coming down, are not where they need to be.”

In addition, Boeing had to pay an unspecified amount of compensation to 787 customers whose deliveries were delayed by about a year.

The company also warned on Wednesday that it will post losses in the current quarter, though it did not give a range. That’s a disappointment, as analysts have predicted that Boeing would report limited profit for the quarter.

Boeing (BA) shares fell more than 3% in morning trading after that guidance.

Boeing has reported just two profitable quarters in the nearly four years since the 737 Max grounded. After two fatal crashes that killed 346 people, the plane was grounded for 20 months starting in March 2019. Then, a year later, the pandemic almost completely halted demand for flights and new planes, prompting the cancellation of hundreds of aircraft orders and the accumulation of losses for Boeing.

Still, the industry has shown signs of recovery, and analysts polled by Refinitiv had forecast Boeing to earn 26 cents per share. Instead, it reported a loss of $1.75 per share. So while that’s an improvement from the $7.69 per share loss in Q4 2021, it’s also another huge disappointment.

Boeing’s fourth-quarter woes are tied to its difficult years since the 737 Max crisis.

For one, the company was saddled with excess inventory of hundreds of aircraft. Boeing typically does not hold inventory, as planes are delivered to customers shortly after completion.

But even though the 737 Max planes couldn’t be delivered during the grounding, Boeing kept making them, in part to keep its suppliers in business. It was then forced to find new buyers for some of those planes as customers canceled orders during the pandemic.

Beyond the Max, the FAA pointed to quality issues with the company’s 787 Dreamliners that prevented it from delivering that model. Although the Dreamliner wasn’t on the ground like the Max, it took a toll on the company: Much of Boeing’s abnormal production costs last quarter were the result of having to rework both the Max and the Dreamliner, the CEO said. Dave Calhoun in an interview on CNBC on Wednesday.

Supply chain problems are improving, Calhoun added, but they are not behind the company or the aerospace industry as a whole. He suggested more money-loss quarters may be ahead despite a rebound in demand, saying he expects Boeing to “rebound.” margins throughout the year as your Max and Dreamliner inventories are liquidated.

Boeing delivered 152 commercial jets in the quarter, up 54% from a year ago and better than its own target.

But digging into the financial results highlights a potential problem: It appears Boeing received lower prices on some of its planes than analysts had expected.

That’s because the company’s revenue missed forecasts, coming in at just under $20 billion. While it was Boeing’s highest revenue figure since the start of the pandemic, it was about $360 million less than the consensus estimate from analysts. The combination of better-than-expected deliveries but worse-than-expected revenue suggests weaker pricing.

Boeing tried to put the best possible spin on its disappointing results.

The company noted that this was the first full year of positive operating cash flow since the start of the 737 Max crisis. Boeing ultimately brought in $3.5 billion more cash than it spent, and the company reaffirmed its 2023 guidance for positive operating cash flow of between $4.5 and $6.5 billion.

“Demand across our portfolio is strong and we remain focused on driving stability across our operations and within the supply chain to meet our commitments in 2023 and beyond,” Calhoun said in the company statement. “While challenges remain, we are well positioned and on the right path to restore our operating and financial strength.”

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