Boeing (NYSE:BA) delivered its first-quarter results on April 29. The numbers were ugly, as you might expect for a company largely reliant on selling airplanes at a time when the novel coronavirus pandemic is hammering airlines. In addition, Boeing stock continues to suffer fallout from the self-inflicted 737-MAX disaster.
Despite a big revenue drop, worse-than-expected losses, a big leap in debt levels, and the announcement of layoffs, Boeing stock actually gained ground on Wednesday.
If that sounds contradictory to what the company reported, it’s probably a case of the market expecting the news to be much worse than it was.
Boeing Delivers Q1 Earnings, BA Pops
Boeing delivered its earnings for the first quarter of 2020 on Wednesday, and the market reaction was somewhat surprising.
The company missed on revenue, reporting $16.9 billion versus the expected $17.1 billion. That’s a 26% year-over-year drop. The adjusted loses per share of $1.70 were also worse than analysts had been expecting. While burning through $4.3 billion in cash for the quarter, the company took on more than $10 billion in debt. That raises its total debts to $38.9 billion.
The company noted that share buybacks and dividends have been suspended. Adding to the bad news for the quarter was an announcement of layoffs, with the company targeting a 10% reduction in its workforce.
The results reflect a business being hit by a one-two punch of the 737 MAX situation and the novel coronavirus pandemic. Those factors combined for a delivery of just 50 planes in Q1, down 66%.
Boeing CEO David Calhoun tried to sound a positive note:
“While Covid-19 is adding unprecedented pressure to our business, we remain confident in our long-term future. We continue to support our defense customers in their critical national security missions. We are progressing toward the safe return to service of the 737 MAX, and we are driving safety, quality and operational excellence into all that we do every day. Air travel has always been resilient, our portfolio of products and technology is well-positioned, and we are confident we will emerge from the crisis and thrive again as a leader of our industry.”
The good news in Boeing’s Q1 earnings was a total backlog of over 5,000 commercial plans. Those orders represent $439 billion in revenue. However, there is a risk that order backlog could shrink. Airlines have continued to cancel 737 MAX orders. If the coronavirus pandemic continues to ground flights, even giants like American Airlines (NASDAQ:AAL) will be rethinking planned expenditures on new aircraft.
The Bottom Line on Boeing Stock
If things sound a little dire for Boeing’s long-term prospects, there is still optimism that the company can turn things around. In November, Northwestern University Kellogg School of Management professor Tim Calkin told NPR:
“If you take the right steps today, I think Boeing can come across as a brand that is still strong, is still trusted, and maybe is better for all of this. But if you don’t (take the right steps), it creates deep, long-term problems for the company.”
Most investment analysts continue to have Boeing stock rated as a hold at this point, while they wait to see what happens next. Its pop yesterday seems more like a “it could have been worse” reaction than the start of that hoped-for recovery. With BA down 60% since its February high close of $347.45, off by 63% over the past 12 months, and at its lowest level since 2016, now could be seen as a buying opportunity.
But only if you have confidence that the situation for the company isn’t going to worsen. And at the moment — with air travel at a virtual standstill, Boeing taking on $10 billion in debt, layoffs, and the 737 MAX still grounded — that’s a big leap of faith.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.