By Calvin Biesecker
Defense Daily
As expected, Boeing on Wednesday reported lower sales and earning stemming from a halt in deliveries and flights of its 737 MAX passenger aircraft but the pain from that issue was softened by gains in the defense and services segments.
“I want to be very clear, when it comes to resource questions and applications of resources, our top priority is the safe return to service of the 737 MAX,” Dennis Muilenburg, chairman, president and CEO of Boeing, told investors on the company’s analyst call.
Uncertainty around the timing of the return to deliveries and service of the 737 MAX led Boeing to suspend its financial outlook for the year. Once the uncertainty clears, Boeing plans to hold an analyst and media call to update guidance.
Regulatory authorities and airlines have grounded the 737 MAX following two crashes of the aircraft in the past six months that resulted in hundreds of fatalities. The crashes have been linked in part to a sensor aboard the aircraft that malfunctioned.
A cut in the production rate of the 737 caused Boeing to book an additional $1 billion in unexpected costs, reducing profit margins in the program and the commercial aircraft segment, Greg Smith, the company’s chief financial officer, said on the earnings call.
Net income in the quarter tumbled 13 percent to $2.1 billion, $3.75 earnings per share (EPS), from $2.5 billion ($4.15 EPS) a year ago. Excluding pension adjustments, core earnings fell 21 percent to $2 billion ($3.16 EPS), short of consensus estimates by three pennies a share.
Sales dipped 2 percent in the quarter to $22.9 billion from $23.4 billion a year ago.
Boeing Commercial Aircraft drove the financial results, with segment sales down 9 percent to $11.8 billion and operating income off 17 percent to $1.2 billion on a 19 percent decline in aircraft deliveries.
The defense segment saw operating income up 12 percent to $847 million, largely on a property sale, and program performance, Smith said. The sale of excess property is part of ongoing efforts to rationalize the company’s footprint, he said. Segment margin increased 110 basis points to 12. 8 percent.
Defense sales increased 2 percent to $6.6 billion on higher volume in satellites, weapons and surveillance aircraft. The defense segment booked $12 billion in orders in the quarter and backlog stood at $66.8 billion, up 9 percent from $61.3 billion at the end of 2018. International business made up 31 percent of backlog.
Free cash flow in the quarter was $2.3 billion and overall backlog stood at $486.9 billion, down a percent from $490.5 billion at the end of 2018.
Boeing built the Air Force’s fleet of nuclear-tipped Minuteman III intercontinental ballistic missiles and is competing with Northrop Grumman to design the next generation of ICBMs under the Pentagon’s Ground-Based Strategic Deterrent program.
Boeing and Northrop Grumman are nearing the end of a competition to design GBSD under three-year missile design contracts awarded in 2017 and respectively worth $350 million and $330 million. House Armed Services Committee Chairman Adam Smith (D-Wash.) has proposed freezing the GBSD program and instead upgrading the Minuteman III fleet for further service.
Under a five-year, $250 million Air Force contract, Boeing is also rigging out the B52-H bomber to carry the nuclear-tipped Long-Range Standoff Weapon: the planned successor to the aging Air-Launched Cruise Missile, which the Air Force plans to start deploying in the late 2020s.
Further, Boeing is designing and building the guided tail kit for the planned B61-12 nuclear gravity bomb, which the National Nuclear Security Administration will build.
The Air Force expects Boeing’s B61-12 guided tail-kit assembly program to cost a little under $3 billion to complete over roughly 20 years, according to a 2016 Pentagon audit. Boeing got its Air Force contract to build the tail kit in 2012.
This story first appeared in Nuclear Security & Deterrence Monitor affiliate publication Defense Daily. NS&D Monitor staff contributed to this report from Washington.
