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The Ratings Game

Oct. 28, 2020, 1:17 p.m. EDT

For Boeing, ‘it could be worse’ is as good as it gets in the third quarter

By Claudia Assis

Boeing Co.’s mixed third-quarter results on Wednesday drew faint praise for not being as bad as Wall Street feared.

Boeing (NYS:BA) stock fell more than 3% after the results, bringing its monthly loss to nearly 9%. The stock is down 54% this year, compared with losses of around 6% for the Dow Jones Industrial Average. (DOW:DJIA) Boeing is a Dow component.

Boeing earlier Wednesday reported a narrower-than-expected adjusted loss for the quarter, but total revenue, down 29%, missed the forecast. Revenue from commercial airplanes dropped 56%.

The company also announced more job cuts, saying it was aligning itself “to market realities.” Its business units “are carefully making staffing decisions to prioritize natural attrition and stability in order to limit the impact on our people and our company,” and Boeing would end 2021 with about 130,000 employees, it said. Boeing and subsidiaries had more than 143,000 employees in December 2019.

Analysts highlighted that Boeing didn’t burn through cash as fast as feared, kept its production rates the same, and continued to hope that demand for air travel, and by extension for its commercial planes, will return to pre-pandemic levels in about three years.

Results continued “to reflect the disruptions of the (737 Max) grounding and pandemic,” analyst Noah Poponak with Goldman Sachs said in a note Wednesday.

Boeing’s free cash burn improved from the second quarter and came in slightly better than consensus and the company reiterated production rates, kindling hope that the previous quarter was the worst this year.

“Every segment top-line improved sequentially from 2Q, which we continue to believe will be the trough for most operating metrics,” Poponak said.

Boeing used up $5.1 billion in the third quarter, compared with a free cash flow burn consensus of around $5.4 billion and cash burn of $5.6 billion in the second quarter.

“No bad news was good news” for Boeing, analyst Sheila Kahyaoglu with Jefferies said in a note. She said she expected Boeing to get through about $18.3 billion of fresh cash flow in 2020, but generate $4.3 billion in 2021 “as inventories unwind.”

For many companies, burning through more than $5 billion of free cash flow in quarter “would be a disaster,” Jonathan Raviv with Citi Research said.

Not for Boeing, which more importantly showed the slight improvement quarter-on-quarter “which is good to see as the company tries to pull itself out of a historically bad market where there’s a lot beyond its control.

“The outlook is still murky with an inconsistent and in some cases stagnating travel recovery,” Raviv said.

Boeing is still assuming that passenger air traffic will return to 2019 levels in about 3 years, which looks” aggressive” as most industry observers are seeing it slip to 2024.

“The ‘good news’ is that BA’s reiterating production rate plans whereas there continues to be worries of incremental cuts,” Raviv said.

With several countries returning to lockdowns due to spikes in COVID-19 cases and U.S. hospitalizations ticking higher, however, the third-quarter report doesn’t do much to “retire worries that there’s still another shoe to drop.”

Still, it was a low bar to clear, he said.

“On first review of the release and slides, the report itself certainly could have been worse.”

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