When Dennis Muilenburg talks about Boeing Co’s quarterly results on Wednesday, his first as chief executive and chairman, he likely will face questions about two tough issues: making profits on the 787 Dreamliner and the KC-46 tanker.Boeing is expected to hit consensus earnings per share estimates of $1.83, but its stock has fallen 9.6 percent this year while the S&P aerospace and defense index has climbed 3.8 percent.Short interest in the company has climbed to 27 million shares this year, the highest in more than a decade, amid news that the Securities and Exchange Commission is probing Boeing’s 787 accounting and a Pentagon warning that the tanker program remains at risk of falling behind schedule.The aerospace cycle also is turning, with orders tapering after several years of record sales to airlines.And Boeing’s commercial airplane unit has blamed price pressure from rival Airbus for its recent announcement that it may eliminate up to 8,000 jobs this year.
“It is likely a combination of known negatives that are driving the increased cost focus from Boeing,” said Rob Stallard, an analyst at RBC Capital Markets. “In some ways it is easier for management to point to external pressures, i.e. Airbus, when justifying painful belt tightening.”Most analysts say the 787 and tanker are their chief concerns. A few have warned Boeing may book a charge for the tanker this quarter. Last year, Boeing took after-tax charges on the 747 and tanker totaling more than $1.3 billion. It also has deferred nearly $30 billion in 787 costs, raising speculation that it may need a write down on that program, too.
In a report last week, Bank of America Merrill Lynch downgraded Boeing to an “underperform”, the equivalent of a “sell,” saying it was unlikely to recoup all of the 787 costs. Boeing says it expects to more than recover 787 deferred costs over the life of the program, and notes revenue is rising as it delivers larger variants of the 787 model. It said the fourth tanker test plane completed its first flight on Monday.But analysts and investors remain on guard for potential write-offs. “Tanker and 787 are the only issues that make sense as driving the panicky mood,” said Richard Aboulafia, analyst at the Teal Group in Fairfax, Virginia.
“I would expect Muilenburg would want to deal with this sooner rather than later.” (Reporting by Alwyn Scott; Editing by Tom Brown)Download