- Boeing reported earnings results Wednesday morning.
- Expectations for a return to positive cash flow in 2021 may be unrealistic.
- The company could still face difficulties in 2022 and beyond.
Investors hoping that 2020 would mark the end of a rough patch for Boeing Co (NYSE: BA) could be disappointed as the company’s Wednesday earnings report makes the case for current woes to continue into 2021 and potentially beyond.
Boeing’s third quarter report was highlighted by a $466 million loss and a 29% drop in revenue. What’s more concerning about Boeing’s revenue loss is the fact that the company was up against an easier year-over-year comparison. Specifically, Boeing’s third quarter a year ago was severely impacted by the grounding of its new 737 MAX jet in reaction to two fatal crashes.
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Want a full recap of Boeing’s Wednesday’s earnings report? Check out this in-depth summary.
Yet despite the two concerning metrics, Boeing’s report still came in better than expected, according to The Wall Street Journal. In fact, Boeing’s stock was trading lower by around 3% which was roughly consistent with the broader market selloff.
Boeing is in a position where it must cut costs to address a several depressed air travel environment. The company is shutting down its 787 Dreamliner plant in Seattle and will shift all of the production to South Carolina that offers cheaper costs. In addition, the company confirmed 11,000 new job cuts by the end of 2021 and shed 30% of its office space.
However, multiple cost-cutting initiatives are unlikely to prove to be sufficient for a return to positive cash flow in 2021. According to WSJ, Street analysts are currently modeling Boeing’s cash flow to improve from negative $16.59 billion in 2020 to positive $5.63 billion next year.
The case for positive cash flow next year is based on the assumption that the nearly $87 billion worth of yet-to-be certified MAX planes in inventory would be sold, according to WSJ. But all of the unsold jets sitting idly across the world may not be bought by clients in the near-term.
As such, Boeing investors were cautioned on Wednesday the company may not show a positive cash flow until 2022.
Problems beyond 2021?
Boeing investors could make the case that buying the stock today offers longer-term value despite near-term uncertainty. In fact, Boeing remains committed to ramping production of its MAX plane to 31 units a month by early 2022.
As noted by the Journal, few airliners and plane lessors want to take the risk of buying aircraft — even two years after the start of the COVID-19 pandemic. A lot of the MAX planes sitting in storage will also need to undergo reconfiguration that isn’t cheap to do, that is if they find a buyer in the first place.