By now you've heard the news:
Boeing (NYSE: BA) reported third-quarter
earnings yesterday, and "all systems" are far from "go."
Sales came in light at $16.7 billion, or about 3% below
expectations. Profits ... well,
no one expectedthere would
beany. Still, Boeing's larger-than-expected
$2.23-per-share loss came as a disappointment. And yet, it
wasn't all bad news.
Thunderclouds with a trim of silver
For one thing, Boeing confirmed its
787 Dreamlinerwill fly by year-end. With just two months
remaining in 2009, management's visibility on this should be
pretty good; I'd be surprised if Boeing misses this latest
self-imposed deadline.
As for management's promise to begin deliveries by Q4 2010
-- a promise nearly drowned out by the sound of toes tapping
at
Delta (NYSE: DAL),
Continental (NYSE: CAL), and
AMR (NYSE: AMR) -- I see more risk of that
one getting pushed back. Boeing has demonstrated over the
past several years that the more time that lies between
promise and delivery, the more time there is for
something to go wrong. Burned several times already,
aerospace analysts like
Broadpoint.Amtechare already voicing skepticism about the
2010 delivery date. (Which, if correct, would be bad news for
suppliers like
Honeywell (NYSE: HON),
Spirit AeroSystems (NYSE: SPR), and
United Technologies (NYSE: UTX).)
But let's not accentuate the negative today. Boeing gives
us
plenty of opportunity to lay blame; in contrast,
Wednesday's report provided a rare bit of good news.
The cash is back
While the mainstream media spent most of yesterday
lamenting the non-cash costs of gaffes in the 787 and 747-8
programs, the real news is that Boeing's
cash
flowreturned in Q3. Reversing last year's Q3
cash-burn, Boeing generated nearly $1 billion in free cash
flow last quarter.
Hallelujah! So is it safe to board?
Not necessarily. With $2.4 billion in operating cash
flow, and
capextracking at $1 billion, Boeing has generated
free cash
flowof $1.4 billion so far this year -- most of that in
Q3. But the tide hasn't turned entirely. Management projects
operating cash flow of "greater than $2.5 billion" for the
full fiscal year, just $100 million above the total through
last quarter. While the degree to which operating cash flow
exceeds that target is unknown, management also expects about
$300 million in capex next quarter. Meaning Boeing should
return to its cash burning ways.
Based on that Q4 projection, personally, I'd hold off on
buying into Boeing's turnaround story just yet. With Wall
Street projecting just 7% long-term growth at Boeing, I don't
think even $1.2 billion in free cash flow justifies Boeing's
current $36 billion market cap.
On the other hand, if 787 deliveries
dobegin in 2010, cash production could surge.
Management promises us an update on fiscal 2010 projections
in this year's Q4 report. I'd suggest waiting to see what
Boeing expects
itscash to look like,
before investing any of your own.
Is now the time to take a gamble and
buy Boeing? On Fool.com, we report, but at
Motley Fool CAPS
youdecide. Click on over and
tell us what
you think.
This article was originally published as
Boeing Crashes and Burns. Big Surprise.on
Fool.com
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