Boeing Shares Climb Despite Biggest Profit Drop in 20 Years

Boeing posts surprise loss, 737 MAX costs climb to $19 billion
January 29, 2020 Updated: January 29, 2020

Shares of Boeing Co. rallied by around 3 percent in premarket trading Wednesday despite the industrial giant posting its first annual loss in over 20 years as the 737 MAX crisis drags on and pulls down the bottom line.

The planemaker was forced to ground its best-selling aircraft in March last year after two deadly crashes that killed 346 people. Boeing said it expects the financial toll from the grounding to hit nearly $19 billion.

The company’s fourth-quarter earnings report, released on Jan. 29, shows Boeing suffered a year-over-year fourth-quarter net loss of $1.01 billion (based on GAAP accounting standards) or $2.53 billion (based on non-GAAP standards).

The loss of $1.79 per share (GAAP) or $2.33 (non-GAAP) was based on revenues of $17.9 billion, which fell 37 percent between 4Q2018 and 4Q2019. Analysts cited by MarketWatch expected revenues to come in at $21.7 billion.

Boeing said the poor numbers were “primarily reflecting the impacts of the 737 MAX grounding.”

Epoch Times Photo
A Boeing 737 MAX aircraft is seen parked in a storage area at the company’s production facility in Renton, Washington, on Jan. 10, 2020. (Lindsey Wasson/Reuters)

“We recognize we have a lot of work to do,” said Boeing President and CEO David Calhoun. “We are focused on returning the 737 MAX to service safely and restoring the long-standing trust that the Boeing brand represents with the flying public. We are committed to transparency and excellence in everything we do. Safety will underwrite every decision, every action, and every step we take as we move forward.”

Boeing’s stock has fallen by over 9 percent over the past three months, while the Dow Jones Industrial Average climbed by over 6 percent in the same time frame.

Some say Wednesday’s share price rally—despite the disappointing earnings numbers—can be explained by the forward-looking nature of markets and confidence in Boeing’s newly-appointed CEO.

“I think that the bounce is possibly more a reflection of the new CEO and how he is addressing the issue and perhaps presenting a more favorable picture of how Boeing will be addressing issues in the future,” said Morris Armstrong, Founder of Morris Armstrong EA LLC, a tax consultancy, in a statement to The Epoch Times. “Markets are forward-looking and the loss must have been priced in, and possibly less than expected,” Armstrong said.

Mark Pacitti, Founder of Woozle Research, an investment research firm, said Boeing’s transparent communications took the surprise out of the earnings announcement.

“The reason why the stock is trading up is largely because Boeing has given investors much more clarity around the total bill and this has removed a major cloud of uncertainty that was overhanging the stock price,” Pacitti told The Epoch Times in a statement. “Management have earmarked around 19 billion dollars to cover the cost of the crisis and they’ve essentially put all the bad news out there in one go and it’s being taken well by the market as investors were fearing much worse.”

Adding to Boeing’s pain, demand for its bigger and more profitable jet—the 787 Dreamliner—has waned in the face of the U.S.-China trade war, prompting the company to cut production, hurting cash flow at a time when its debt is mounting.

Boeing, which is producing the 787 Dreamliner at 14 aircraft per month, said in October it expects to lower the production in late 2020 to 12 per month, amid a drought of orders from China.

The company now expects to further lower 787 Dreamliner production to 10 per month in early 2021.

Net Loss of Orders

Other headwinds for Boeing include a recent announcement its commercial airplane operations lost orders in 2019, marking the first time in decades that the planemaker has taken this type of hit to its business.

Boeing released figures on Jan. 14 that showed a net loss of 87 plane orders—meaning that more orders were cancelled than were placed. The company also posted the lowest numbers for plane deliveries in 11 years, losing the top spot to European rival Airbus for the first time in eight years.

Still, Boeing ended 2019 with a commercial airplane backlog of 5,406 planes, representing years of future production.

Epoch Times Photo
Airplane fuselages bound for Boeing’s 737 MAX production facility sit in storage at their top supplier, Spirit AeroSystems Holdings Inc, in Wichita, Kansas, on Dec. 17, 2019. (Nick Oxford/File Photo/Reuters)

Analysts estimate that Boeing has been losing around $1 billion a month because of the 737 MAX grounding.

Credit Rating Agency Moody’s said it had placed Boeing’s A3 senior unsecured credit rating under review for a possible downgrade.

Reuters contributed to this report.

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