Boeing earnings and the 737 Max: The cash cow that is giving investors nothing right now

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Investors looking for answers from Boeing first-quarter earnings on Wednesday were left with one big question: When will 737 Max deliveries resume?

The first-quarter results on both the top and bottom line met Wall Street expectations, and the 15% decline in free cash flow was not a surprise, given the 737 Max delivery suspension in mid-March — the plane, Boeing’s best-selling plane ever — is estimated by Goldman Sachs to represent 33% of Boeing revenue in the next five years.

It’s the importance of the plane — whose software is suspected in two deadly crashes — to Boeing‘s outlook that will keep investors from being able to have full confidence.

The company’s presentation to shareholders noted the commercial airplane business had $1 billion in increased costs due to the 737 production line.

“The 737 Max is the cash-flow generator, spewing off billions in cash. … If [the company] is not sure when deliveries will resume, there is no way to have confidence Boeing will earn X amount of dollars in 2019,” said CNBC auto and airline industry reporter Phil LeBeau.

Boeing CEO Dennis Muilenburg said on Wednesday that he has full confidence in the 737 Max.

LeBeau said Boeing did the right thing on Wednesday: The aviation giant pulled its full-year guidance, which before the 737 Max issues had been at a consensus estimate of $16.13 for 2019.

But trying to figure out how much the guidance ultimately will be adjusted remains impossible.

The suspension of deliveries “may not be lifted until August or September. … Now analysts might be more cautious,” LeBeau said. Full-year earnings could come down to the $14–$15 range, “but it is all speculation, all contingent on when it resumes deliveries.”

Boeing does not receive the bulk of payment for a plane — two-thirds of the revenue — until it is delivered to an airline. The company has a $339 billion backlog of more than 5,600 orders.

Boeing said “new guidance will be issued at a future date” because of “the uncertainty of timing and conditions” for when the 737 Max planes will return to flight.

United Airlines CEO Oscar Munoz said on Wednesday he has no idea when the 737 Max will resume flying.

Boeing also announced Wednesday it will pause share buybacks while it works through issues surrounding its 737 Max aircraft.

While the commercial airplane business saw a 17% decline in earnings, the other two primary business lines for Boeing delivered solid performance.

“Defense and aerospace is doing very well,” LeBeau said. “We’re seeing increased defense spending around the world, and it bodes well for that part of the business.”

Its services business — the work Boeing does for airlines flying its planes — was up 1% in the first quarter, not a surprise given the questions surrounding the commercial airline business, LeBeau said.

“So while everyone is focused on the commercial business, their defense and service are doing fine. … Overall, [Boeing] is performing well. Even in the commercial business, it is increasing production on the 787 Dreamliner, and other production rates are not coming down,” LeBeau said.

Boeing shares edged up in trading on Wednesday. Even after falling from a 52-week high of $446 in early March to $375 on Wednesday, the company’s stock remains up by more than 16 percent year-to-date.

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