Why Is Boeing (BA) Down 11% Since Last Earnings Report?

A month has gone by since the last earnings report for Boeing (BA). Shares have lost about 11% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Boeing due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Boeing Q4 Earnings, Revenues Miss on Lower 737 Deliveries

Boeing reported adjusted loss of $2.33 per share for fourth-quarter 2019, against the Zacks Consensus Estimate for earnings of $1.73. The bottom line deteriorated significantly from the year-ago quarter’s earnings of $5.48.

This year-over-year downside was primarily due to the 737 Max grounding, which resulted in lower commercial deliveries.

Excluding one-time items, the company incurred GAAP loss of $1.79 per share against earnings of $5.93 in the fourth quarter of 2018.

For 2019, the company reported adjusted loss of $3.47 per share in contrast to the Zacks Consensus Estimate for earnings of 58 cents. The full-year bottom line deteriorated from last year’s earnings of $16.01.

Revenues

In the quarter under review, Boeing’s revenues amounted to $17.91 billion, which missed the Zacks Consensus Estimate of $21.67 billion by 17.4%. The top line also plunged 37% from the year-ago quarter’s figure of $28.34 billion. This decline was primarily due to lower 737 deliveries.

For 2019, the company recorded revenues of $76.56 billion, which missed the Zacks Consensus Estimate of $80.32 billion by 4.7%. Full-year top line declined 24% from the year-ago figure of $101.13 billion.

Total Backlog

Backlog at the end of 2019 declined to $463.4 billion from $490.5 billion at the end of 2018.

Segmental Performances

Commercial Airplane: Revenues at this segment slumped 55% to $7.46 billion on account of lower 737 deliveries. The segment incurred operating loss of $2.84 billion against operating income of $2.60 billion in the year-ago quarter, owing to additional pre-tax charge of $2.6 billion related to estimated potential concessions and other considerations to customers related to the 737 MAX grounding.

Boeing delivered 79 commercial planes during the quarter under review, down 67%.

Backlog for this segment remains healthy with over 5,400 airplanes valued at $377 billion.

Boeing Defense, Space & Security (BDS): This segment witnessed a 13% year-over-year decline in revenues to $5.96 billion in the fourth quarter. The downside was on account of lower volume across the portfolio as well as the impact of a Commercial Crew charge. Meanwhile, the segment recorded operating earnings of $31 million compared with $771 million in the year-ago quarter. This downside was owing to a $410 million pre-tax Commercial Crew charge primarily due to provision for an additional uncrewed mission for the Commercial Crew program, performance and mix.

Backlog at BDS was $64 billion, 29% of which comprised orders from international clients.

Global Services: Revenues at this segment fell 5% to $4.65 billion due to lower commercial services volume. Moreover, operating earnings declined 10% year over year to $684 million due to a charge related to the retirement of the Aviall brand and mix of products and services.

Boeing Capital Corporation (BCC): This segment reported quarterly revenues of $37 million compared with $60 million registered in the year-ago quarter. Operating loss incurred by this unit totaled $58 million, while in the year-ago quarter it had registered earnings of $8 million.

At the end of fourth-quarter 2019, BCC's portfolio balance was $2.3 billion.

Financial Condition

Boeing exited 2019 with cash and cash equivalents of $9.49 billion and short-term and other investments of $0.55 billion. At the end of 2018, the company had $7.64 billion of cash and cash equivalents and $0.93 billion of short-term and other investments. Long-term debt amounted to $19.96 billion at the end of 2019, up from $10.66 billion at 2018 end.

Boeing generated $2.45 billion of operating cash outflow at the end of 2019 against cash inflow of $15.32 billion at the end of 2018. Free cash outflow totaled $4.28 billion at 2019 end against cash inflow with $13.60 billion at the end of 2018.

During 2019, the company paid out $4.63 billion of dividends, reflecting a 17.3% increase from 2018.

Guidance

Due to the uncertainty regarding the timing and conditions related to 737 MAX fleet’s return to service, Boeing once again refrained from issuing its guidance for now.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -153.32% due to these changes.

VGM Scores

Currently, Boeing has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Boeing has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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