Boeing released stellar financial results, admitted continued delays in the supply of engines for its 737 MAX and addressed worries about trade tensions with China.
With Boeing’s production hitting a record 800 jet deliveries last year and aiming to build no less than 900 jets this year, the aerospace giant’s business continues its eight-yearlong boom.
It’s true the unsteady state of world politics, including trade tension between the U.S. and China, Boeing’s biggest market, casts a shadow of uncertainty. And supply-chain problems persist from last year, including a delay in delivering engines that is causing 737 MAX jets to once again stack up around the Renton assembly plant this month.
Yet Boeing’s steady production hikes and the massive amount of cash they generate are still wowing Wall Street. Boeing on Wednesday delivered record annual financial results that well exceeded Wall Street expectations and sparked a 6.3 percent jump in its stock. Revenues topped $100 billion for the first time.
Offering guidance on what to expect in the year ahead, Chairman and Chief Executive Dennis Muilenburg gave reassurances both on China and on the MAX engine supply, and signaled all systems go.
“As we look to the long term, the market fundamentals are very strong,” he said in a teleconference with analysts. “We just see fundamental aerospace growth and air-traffic growth as a long-term, sustainable trend.”
The 787 Dreamliner production rate is set to jump up from 12 to 14 per month in the second quarter. The new 777X is set for flight tests by the summer and on track for delivery next year. The Air Force plans to take delivery of its first 36 KC-46 tankers this year. And despite the MAX engine issues, Boeing still expects this year to increase 737 production from 52 a month to 57 a month.
Muilenburg even seemed to strongly hint at the expected launch of a new 797 airplane this year when he said that the company’s profit and cash generation leave it in a strong position to take on big new investments, including “new growth businesses, innovation and future franchise programs.”
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LEAP engine delays
To address the shortage of the new LEAP engines from supplier CFM International that is still hobbling 737 MAX production in Renton, Muilenburg said management has sent teams of engineers into CFM’s factories and its supply chain to help it resolve the snags.
By late last year, Boeing had begun to recover from delays in the supply of 737 MAX engines and fuselages. in December it managed to deliver 69 of the single-aisle 737 jets, suggesting that the issues were largely overcome.
But this month, otherwise-completed 737 MAXs with heavy metal blocks hanging from the wings in place of engines have begun to line up again around the edges of the Renton assembly plant and the adjacent airfield.
Last weekend, 14 jets sat on the factory ramps, including 13 MAXs, 12 of them without engines. Out on the airfield, 30 more jets were parked, of which 27 were MAXs, 25 of them without engines.
Muilenburg said Boeing still expects to increase 737 production this year.
“We still have work to go to get CFM to be supporting 52 per month and even more work to get up to 57,” Muilenburg said. “We are not going to make that full transition to 57 a month until we are very confident we are ready.”
Muilenburg said he’s keeping a close eye on “geopolitical and macroeconomic factors” that could affect Boeing. But,the fundamentals of the global airline business, especially worldwide passenger traffic growth, continue to be so strong that he’s very confident of good results in the long term, he said.
In the short term, clearly U.S.-China trade tensions are the main worry because Chinese airlines take a quarter of all Boeing deliveries.
“I can tell you, having been intimately involved in the discussions and engagement with the governments both in the U.S. and China, we see progress on that front. We see convergence,” Muilenburg said.
He reiterated previous remarks about the “mutual benefit” that airplane manufacturing brings to the two global economic giants.
“China needs the airplanes for growth,” he said. “And here in the U.S., our aerospace business is a tremendous U.S. jobs generator.”
Backing up the jobs claim, Muilenburg said Boeing hired 34,000 people in 2018.
That’s not the net job growth; it doesn’t take account of retirements and attrition. Boeing will announce its full employment figures Thursday and is expected to show the first net gain of jobs in five years. Since the fall of 2012, the company shed more than 34,000 jobs.
While it’s clear China will likely hold off making any Boeing orders until the trade negotiations are concluded to its satisfaction, Muilenburg expressed confidence that this is a temporary lull in Chinese demand for Boeing jets.
Decision coming on 797 launch
Muilenburg confirmed that Boeing will announce this year a decision on whether it will go ahead and offer to airlines an all-new 797 sized between the 737 narrowbody jets and the 787 widebodies, with a formal launch then expected in 2020 for entry into service in 2025.
That decision is expected as early as this quarter.
Greg Smith, Boeing’s chief financial officer and executive vice president, said the company expects to spend $4.1 billion on research and development this year.
He said R&D spending will include a focus on “automation and prototyping,” which could be particularly applicable to development of a new airplane, as well as “autonomy and mobility solutions,” pointing to further-out development of concepts like pilotless air taxis.
Strong results send the stock soaring
The key metric that the stock market currently watches to judge Boeing’s performance is cash flow — a measure of how much cash is generated by regular operations — which came in at $2.95 billion for the quarter and $15.3 billion for the full year. Management projected cash flow in 2019 will hit $17 billion.
In the fourth quarter, Boeing made a net profit of $3.4 billion, or $5.93 per share, on revenue of $28.3 billion, compared with the previous year’s $3.3 billion profit, or $5.49 per share, on revenue of $24.8 billion.
For the first time, Boeing’s revenue for the full year surpassed $100 billion, coming in at $101.1 billion, compared with $94 billion in 2017.
For the full year, Boeing made a net profit of $10.5 billion or $17.85 per share, compared with the year-ago figures of $8.5 billion or $13.9 per share.
That means Boeing’s profit margin rose to 14.7 percent, brushing against the “midteen” target management had set for itself over the past two years.
Boeing shares gained $22.81 for the day, or 6.3 percent, to close at $387.72