Aircraft Ramp-Up Plans, Earnings Targets Pushed Back... Boeing Shares Stumble [Click eStock]

Samsung Securities: "Credibility of production ramp-up plans key to stock recovery"

Boeing, the U.S. aircraft manufacturer that makes commercial and military aircraft, saw its stock plunge after reporting third-quarter operating profit below market expectations and pushing back its schedule for ramping up production of its flagship models. The company also delayed its cash-generation target to 2029.

In a recently published report, Samsung Securities researcher Park Junkyu said on Oct. 29, "For the stock to be re-rated, the top priority will likely be establishing the credibility of management's production ramp-up schedule, rather than focusing on the company's valuation."

Boeing 737 aircraft model

Boeing's third-quarter revenue rose 3.9% from a year earlier to $24.19 billion, in line with market expectations (consensus). However, operating profit was $354 million, 29.5% below the estimate of $501.9 million. Adjusted earnings per share came to a loss of $0.34, greater than the market's expected loss of $0.25.

The company delivered 161 aircraft, unchanged from a year earlier, but the mix was unfavorable. Park noted, "Although deliveries of the 737 improved somewhat, deliveries of the higher-margin 787 and 777 widebody models declined, causing commercial airplane revenue to contract year on year."

Quarterly free cash flow (cash remaining after deducting investment spending from cash generated by operations) improved to $460 million. However, this figure included a $700 million payment under an agreement with the U.S. Department of Justice; excluding that payment, the underlying figure was $1.16 billion.

Boeing announced that it would not meet its targets of stabilizing production of its flagship 737 at 47 aircraft per month and delivering 500 aircraft this year. Stabilizing the 737 production line has been pushed back to early next year, while the next target of producing 52 aircraft per month has been delayed until the second half of next year.

The production ramp-up for the 787, from eight to 10 aircraft per month, has also been postponed to December this year. Management set 2029 as the target year for achieving annual free cash flow of $10 billion.

Boeing shares, which plunged immediately after the earnings announcement, are now at $168.20, just above their 52-week low of $167.40. They have fallen 27.1% over the past six months. The stock is trading at 15.8 times projected 2028 free cash flow.

"In addition to stabilizing 737 production, visibility on when production will reach 52 aircraft per month is important," Park said. "After that, market reaction may depend on whether the 787 production ramp-up takes place by the end of this year and when the 777X is certified next year."

This content was produced with the assistance of AI translation services.