Boeing Plans Production Cuts, Posts Quarterly Loss; Shares Slip 3%

Boeing Co. (BA) announced on Wednesday that it will cut production of its 787 and 777/777X aircraft as the ailing planemaker posted a larger loss than estimated.

Shares dropped 3% to $165.64 in early afternoon trading. Boeing said that the sharp drop in demand in the commercial aviation industry due to the coronavirus pandemic and the fallout of the 737 MAX aircraft are forcing the company to take several steps including further adjusting commercial airplane production rates and cutting jobs.

As part of the measures, the production rate of Boeing’s 787 will be reduced to 6 aircraft per month in 2021. In addition, the 777/777X combined production rate will be gradually cut to 2 per month in 2021, with 777X first delivery targeted for 2022. For now, production rates have not changed on the 767 and 747 programs. Commercial airplanes delivered 20 airplanes during the second quarter, and backlog included over 4,500 airplanes.

“The diversity of our balanced portfolio and our government services, defense and space programs provide some critical stability for us in the near-term as we take tough but necessary steps to adapt for new market realities,” said Boeing CEO Dave Calhoun. “We are taking the right action to ensure we’re well positioned for the future by rebuilding trust and transforming our business to become a better, more sustainable Boeing. Air travel has always proven to be resilient – and so has Boeing.”

In the second quarter, the US aerospace giant posted an adjusted $4.79 loss per share, which is far larger than analysts’ estimates for a loss of $2.54. Total sales plunged 25% to $11.81 billion in the quarter, below analyst consensus of $13.16 billion.

Debt was $61.4 billion, up from $38.9 billion at the beginning of the quarter due to the issuance of new debt, partially offset by repayment of maturing debt.

Boeing updated investors that it now expects to resume 737 MAX deliveries to customers more towards the end of the year in the US, a delay from an earlier estimate for the end of September. This could mean that the plane’s resumption to service could move to next year. The 737 MAX aircraft have been grounded since March 2019 following a second crash.

Boeing shares have tanked 49% this year as the coronavirus travel restrictions resulted in a deep cut in the number of commercial jets and services its customers need over the next few years. As such, global airlines suffering billions of dollars in losses have been seeking to cancel or delay some of the orders they have with the planemaker.

Following the financial results, Cowen & Co analyst Cai Rumohr reiterated a Hold rating on the stock with a $150 price target, saying that investor focus will likely be on “BA’s ability to get customers to accept its sizable inventory of completed MAX and  manage its destock while sustaining the supply base.”

In line with Rumohr, the rest of the Street is sidelined on the stock. Seven Holds, 3 Sells, and 7 Buy ratings give Boeing a Hold analyst consensus. Meanwhile the $186.69 average analyst price target implies 12% upside potential in the shares over the coming year. (See Boeing stock analysis on TipRanks).

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