Yahoo Finance The Boeing Company (NYSE:BA) Q1 2024 Earnings Call Transcript
The Boeing Company (NYSE:BA) Q1 2024 Earnings Call Transcript April 24, 2024
The Boeing Company beats earnings expectations. Reported EPS is $-0.55936, expectations were $-1.43. BA isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, everyone, and welcome to The Boeing Company's First Quarter 2024 Earnings Conference Call. Today's call is being recorded. The management discussion and the slide presentation plus the analyst question-and-answer session are being broadcast live over the Internet. [Operator Instructions] At this time, for opening remarks and introductions, I'm turning the call over to Mr. Matt Welch, Vice President of Investor Relations for The Boeing Company. Mr. Welch, please go ahead.
Matt Welch: Thank you, and good morning, everyone. Welcome to Boeing's quarterly earnings call. I am Matt Welch, and with me today are Dave Calhoun, Boeing's President and Chief Executive Officer; and Brian West, Boeing's Executive Vice President and Chief Financial Officer. As a reminder, you can follow today's broadcast and slide presentation at boeing.com. As always, detailed financial information is included in today's press release. Furthermore, projections, estimates and goals included in today's discussion involve risks, including those described in our SEC filings and in the forward-looking statement disclaimer at the beginning of the web presentation. In addition, we refer you to our earnings release and presentation for disclosures and reconciliation of certain non-GAAP measures. Now I will turn the call over to Dave Calhoun.
Dave Calhoun: Thanks, Matt. Good morning, and thanks for joining us. Although, we report first quarter financial results today, I will direct my comments toward the dramatic actions we've taken since the Alaska Airlines accident in January. First, we began with taking responsibility. We immediately and transparently began supporting the NTSB to identify the cause of the accident. We supported the FAA investigation of the 737-9 fleet in its entirety to do comprehensive airline inspections, and the aircraft were cleared to go back into service. We immediately acted, working alongside our supply chain, to ensure the door plug depressurization event doesn't ever happen again. We held quality standdowns across all of our production lines in BCA and sought the advice and counsel of more than 70,000 employees to improve our factory disciplines and adherence to our quality standards.
All in all, we collected over 30,000 ideas, and the list continues to grow. We have categorized and prioritized all. Employee engagement has been energizing for all. Actions are being taken across all of our factories, and areas of focus include: training, particularly on the job, taking advantage of our slowdown and adding hundreds of hours of training for each of our manufacturing employees; tooling, more of it and improve maintenance; work instructions, simplify, simplify, simplify; compliance checks, discipline; travel work controls, don't travel work; incentive structures; employee listening; and maybe above all, culture improvement. We transparently engaged with the FAA and immediately went to work on a 90-day plan of quality action, to drive improvements throughout our production system.
We completed our 30-day review, and we're regularly checking in with the FAA, as we complete our 90-day plan. We engaged a team of independent quality experts to systematically review our quality control process and bring forward long-term recommendation. They are roughly 60 days into their work beginning with Renton and Spirit. And we expect them to stay for several years. We have appointed several new leaders into critical BCA leadership roles in the last couple of months. All have jumped in with both feet, alongside our world-class workforce. They are seasoned operators and all with a critical eye. Effective March 1, we moved inspection and rework teams to Wichita. Since then, we have only allowed fully inspected fuselages to be shipped to Renton, which has dramatically reduced our nonconformances entering the Renton factory.
This started as a triple and has been slowly improving as time goes on. The visibility in Wichita will help the Spirit team prevent nonconformances from being created in the first place. We are already beginning to see signs of more predictable and reduced cycle times in our factory, as a result of these enhanced quality control standards. We expect this will continue to improve. We've extended our commitment to reduce traveled work across all of our assembly lines and deep into our supply chain. While near-term delivery shortfalls hurt and will affect our performance during our first half of the year, the long-term benefits from a synchronized supply chain will be substantial. We are absolutely committed to doing everything that we can to make certain our regulators, our customers and most importantly, our employees and the flying public are 100% confident in Boeing.
And while I have shared my plans to step down as CEO by the end of the year, I will be very focused every day on seeing that commitment through. As we move through this period, it is important that our people and our stakeholders understand how promising Boeing's future looks. Demand across our portfolio remains incredibly strong. Our people are world-class. There's a lot of work in front of us, but I'm proud of our team and remain fully confident in our future. While this effort will slow our recovery timing, we are now seeing these proof points that give us confidence that we'll begin to stabilize and improve performance moving forward. By the end of this year, we expect to have largely delivered our 737 and 787 inventory, effectively shutting down our 2 large shadow factories.
Our commercial business will be more stable. Our defense unit will be progressing towards more historic levels of performance. And our services team will continue to deliver exceptional results. And most importantly, we will have embedded all of the important lessons we've learned in the last few months and over the last several years. During that time, I've had the opportunity to speak to many of our frontline team members, engineers and mechanics. I continue to be amazed by the pride they take in their work, their commitment to getting things done the right way, the safe way, their willingness to raise their hands and offer ideas for how to do things better. With that, I'll turn it over to Brian.
Brian West: Thanks, Dave, and good morning, everyone. Let's start with the total company financial performance for the quarter. Revenue was $16.6 billion, down 8% versus last year, primarily reflecting lower 737 delivery volume. The core loss per share was $1.13, a slight improvement versus last year, also reflecting lower 737 deliveries. Free cash flow was a usage of $3.9 billion in the quarter, a higher usage than last year and in line with the expectations shared last month. Cash was impacted by lower commercial deliveries and unfavorable timing of receipts and expenditures. Turning to next page, I'll cover Boeing Commercial Airplanes. BCA booked 125 net orders in the quarter, including 85, 737-10s for American Airlines and 28, 777Xs for customers, including Ethiopian Airlines.
The backlog grew to $448 billion and includes more than 5,600 airplanes. BCA delivered 83 airplanes in the quarter. Revenue was $4.7 billion, and operating margin was minus 24.6%. These results were significantly lower than last year primarily reflecting lower 737 deliveries and the 737-9 grounding impact for customer considerations of $443 million. Now I'll give more color on the key programs. On the 737, we delivered 67 airplanes in the first quarter as we deliberately slowed production below 38 per month to incorporate improvements to our quality and safety management systems, including reducing traveled work and addressing supplier non-conformances. These continued efforts will cause April deliveries to be more in line with February levels as we complete our work.
Production were below 38 per month for the first half of the year and will be higher in the second half as we move back to 38 per month. With the timing of rates beyond 38, predicated on the work we're doing with the FAA. We've recently made adjustments to the master schedule, and we'll continue to manage supplier by supplier based on inventory levels and rate ramp readiness. Our objective remains to keep the supply chain paced ahead of final assembly to support stability and minimize traveled work. The quarter ended with approximately 110, 737-8s built prior to 2023, the vast majority for customers in China and India. This is down 30 airplanes from last quarter and in line with our plans. We still expect to deliver most of these inventoried airplanes by year-end as we work towards shutting down the shadow factory.
There were -- 95 additional airplanes in inventory, about 35 of which were -7 and -10s, and the remaining are WIP airplanes impacted by factory and supply chain constraints. On the anti-icing, the timeline is unchanged, and we're making good progress towards resolution. As it pertains to the certification of the -7 and the -10, we coordinated with our customers and added more 8s and 9s into the skyline in the near-term to mitigate impacts to their fleet needs and stabilize our production plans. And the program margin has been updated to reflect these impacts as well as the slower production ramp. On the 787, we delivered 13 airplanes in the quarter. We're slowing near-term production and plan to return to five per month later this year. We expect to achieve rate increases, including 10 per month by 2026.
We ended the quarter with about 60 airplanes of inventory, about 40 of which require rework, which continues to progress steadily and in line with our expectations. We still expect to finish the reworked airplanes and shut down the shadow factory by year-end with most of these airplanes delivering in the year. Finally, on 777X, we continue to progress along the program timeline and still expect first delivery in 2025. We'll follow the lead of the FAA, as we progress through the process, including working to obtain approval from the FAA to begin certification flight testing. Moving on to the next page, we'll go to Boeing Defense & Space. BDS booked $9 billion in orders during the quarter, including awards for 17 P-8 aircraft for the Royal Canadian Air Force and the German Navy and securing final FAA team newbuild production contract from the US Navy.
The backlog grew to $61 billion. Revenue was $7 billion, up 6% on improved volume, and BDS delivered 14 aircraft in the quarter. Operating margin was 2.2%, another quarter of sequential improvement, but still more work to do. First quarter results were impacted by losses on two fixed price development programs totaling $222 million, $128 million on the Tanker and $94 million on the T-7A. Our game plan to get BDS back to high single-digit margins by the 2025, 2026 time frame remains intact. We've made important progress in 1Q. Our core business, representing about 60% of our revenue, is seeing solid consistent performance in the mid- to high single-digit margin range with strong demand across the board. On the 25% of the portfolio, primarily comprised of fighter and satellite programs, operational performance further stabilized in the quarter, which drove improved margin trends.
We still expect to return to the strong historical performance levels as we roll into new contracts with tighter underwriting disciplines as we move into the 2025, 2026 time frame. Lastly, we have our fixed price development programs that represent the remaining 15% of revenue. Despite the relatively modest updates in the quarter, we continue to retire risks and remain focused on maturing these programs quarter in and quarter out. Importantly, on the MQ-25 program, the program was awarded a cost-type contract modification from the US Navy that included two additional test aircraft, demonstrating our progress and our commitment to stronger underwriting disciplines in the area of the development programs. The program also delivered the first static test article to the Navy, and the airframe is ready to begin stress testing.
And on the Starliner, the program continues to progress towards a May 6 crew flight test, as the spacecraft was recently integrated on top of its (inaudible) rocket, and prelaunch testing is underway. Lastly, the T-7A test aircraft completed climate lab testing in February, and the program continues to progress with Air Force flight testing. Overall, the defense portfolio is well positioned. As seen in the initial FY 2025 presidential budget, there's strong demand across the customer base. The products are performing in the field, and we're confident that our efforts to drive active stability will return this business to performance levels that our investors recognize. Moving on to the next page, Boeing Global Services. BGS had another strong quarter.
They received $5 billion in orders, and backlog is at $20 billion. Revenue was $5 billion, up 7% primarily on higher commercial volume and favorable mix. Operating margin was a strong 18.2%, an expansion of 30 basis points compared to last year. In the quarter, BGS opened a maintenance facility in Jacksonville, Florida, supporting our military customers. And the US Navy exercised options on a P-8 sustainment modification contract. Turning to the next page, I'll cover cash and debt. On cash and marketable securities, we ended the quarter at $7.5 billion, reflecting the debt repayment activity and use of free cash in the quarter. The debt balance decreased to $47.9 billion, as we paid down $4.4 billion of the $5 billion of maturities due this year.
We continue to maintain access to $10 billion of revolving credit facilities, all of which remain undrawn. While we're still not in a position to provide a more detailed 2024 outlook today, I want to provide some additional context on the path forward. The 2024 free cash flow outlook I shared last month is still expected to be a generation in the low single-digit billions. Cash flow should improve as we move through the year and be back-end loaded, driven by BCA deliveries and receipt timing, including an expected Lot 11 award on the Tanker. Second quarter free cash flow is expected to improve sequentially but be another sizable use of cash. We're committed to managing the balance sheet in a prudent manner with two main objectives: one, prioritize the investment-grade rating; and two, allow the factory and supply chain to stabilize for a stronger trajectory as we exit this year.
As we operate at these lower production rates, we're actively monitoring our liquidity levels and believe we have significant market access and are continuously monitoring and evaluating opportunities should we decide to supplement our liquidity position. Longer-term, we remain confident in our ability to achieve $10 billion of free cash flow. However, given our continued focus on safety, quality, stability, we continue to expect that this goal will take us longer than we originally planned and later in the 2025, 2026 window primarily tied to the 737 and 787 production delivery ramps of 50 per month and 10 per month, respectively. Moving on, discussions with Spirit are ongoing. As with any large and complex deal, there are a number of terms and issues we need to work through, including price, financing and other key items.
And the best approach to handling and potentially divesting certain work that Spirit does for other customers. We believe in the strategic logic of a deal, but we'll take the time needed to get this right before we decide to enter into agreement. In the meantime, the focus is on factory stability in Wichita and in Renton. And as you saw yesterday, we agreed to advance Spirit $425 million, virtually all of which will be repaid in the third quarter. This will be accounted for as investing cash. Looking forward to the balance of the year, we're taking the time now to ensure our BCA factories are stable and positioned to ramp production. We'll also continue to make progress on other important objectives, including shutting down the shadow factories, maturing and derisking the defense fixed-price development programs and building on the continued strong results in services.
Our backlog of nearly $530 billion speaks to the breadth of our portfolio, and this demand backdrop underpins our commitment to drive long-term results, all enabled by the everyday execution of 170,000 incredibly talented and dedicated team of Boeing employees. With that, why don't we turn it over to questions?
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