Boeing reported a drop in earnings and sales Wednesday, as the company acknowledged that concerns over the safety of its 737 Max airplanes are taking a toll on its business.
The aerospace giant said earnings fell 10 percent to $3.75 per share in the first quarter, Boeing’s biggest year-over-year decline since late 2017. Sales fell 2 percent to $22.9 billion.
Boeing said Wednesday it is accounting for $1 billion in extra costs associated with producing a smaller number of 737 Max planes than previously planned. Earlier this month, the company lowered production to 42 planes a month, from 52. Those costs do not include potential financial penalties associated with compensating airlines and families of crash victims, which analysts say could add up to billions of dollars.
Perhaps more troubling for investors, Boeing took the unusual step of withdrawing its estimates for future financial results, saying it could not predict sales while it is still working to update the software on the 737 Max and get the plane’s safety approved by regulators.
“Due to the uncertainty of the timing and conditions surrounding return to service of the 737 MAX fleet, new guidance will be issued at a future date,” the company said in a news release. “Boeing is making steady progress on the path to final certification for a software update for the 737 MAX, with over 135 test and production flights of the software update complete. The company continues to work closely with global regulators and our airline partners to comprehensively test the software and finalize a robust package of training and educational resources.”
The souring picture for Boeing’s business shows how quickly the company’s fortunes have reversed since two deadly crashes of the 737 jet in Indonesia and Ethiopia killed a combined 346 people. Until recently, Boeing was prized by investors as a cash-producing machine with huge growth potential; Boeing has outperformed Wall Street earnings estimates for 11 straight quarters.
Boeing CEO Dennis Muilenberg said on April 11 customers have tried out a software fix for a glitch linked to two plane crashes.(Reuters)
American Airlines has said it would cancel all flights involving its 737 Max aircraft until Aug. 19, affecting more than 100 flights per day for the carrier. Southwest Airlines, the other U.S. airline with 737 Max 8 jets, has canceled flights involving the aircraft through Aug. 5.
Though the company was slow to acknowledge the severity of issues with the 737 Max, CEO Dennis Muilenburg has previously apologized for the loss of life caused by the crashes.
In addition to the earnings decline announced Wednesday, the company also told investors it booked an accounting charge associated with the cost of updating and training pilots on the maneuvering characteristics augmentation system, or MCAS, an anti-stall system unique to the 737 Max that Muilenburg has said played a role in both crashes. Boeing didn’t specify how much that would cost.
Boeing had previously said in January it expects free cash flow — a measure of how much cash the company generates after taking out the cost of capital expenditures — between $17 billion and $17.5 billion this year.
The company now declines to say if it can still reach that goal. Analysts at Cowen predict around $12 billion in free cash flow this year.
In another potential impact of the 737 Max crisis, analysts expect Boeing to pause its plan to buy back $18 billion in stock. Boeing has been at the forefront of a recent wave of corporate buying of shares, purchasing about $24 billion in its stock during the past three years — nearly three-quarters of the company’s free cash flow over that period.
The company said it has purchased $2.3 billion in shares this year, but stopped buying its stock in mid-March, suggesting the program has been paused due to the 737 Max grounding.
Shares in Boeing have nearly tripled in value during the past three years, the most rapid rise in the company’s history and growth close to four times as fast as the Dow Jones industrial average during that period. But investor confidence in Boeing has wavered since the second crash of a 737 Max 8 last month in Ethiopia, shaving about 10 percent from its market value.
Boeing plans to discuss the results with analysts on a conference call Wednesday morning.
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