Boeing Lost $10 Per Share – And It Wasn’t All Due to the Strike

It’s finally over. On Monday, the International Association of Machinists (IAM) voted to accept a new four-year contract, with 59% voting in favor and 41% against. Boeing’s (B.A. 0.46%).

Under the terms of the new contract, IAM members’ wages will increase by 38% over the next four years and they will receive higher salaries. 401(k) matching funds (but no reinstatement company pension) and pay lower health premiums. Most importantly, after 54 days on the picket line, workers will begin returning to work on Wednesday. Boeing may return to producing aircraft (more precisely, the 737, 767 and 777 planes, the construction of which was stopped during the strike).

Investors are not so lucky. We still have some work to do to calculate the damage done to Boeing shares over the last 52 days of this strike, and we need to take that into account. future damage Boeing’s financial statements for the coming years.

Boeing’s 3rd quarter profit

We’ll start with what we know for sure. Boeing’s 3rd quarter earnings reportIt was released late last month.

The good news is that although Boeing’s labor strike slowed sales this quarter, the slowdown only affected the last 17 days, from September 13 to September 30. While commercial aircraft revenue fell 5% in terms of commercial aircraft delivered, Boeing actually delivered More Aircraft in the 3rd quarter of 2024 compared to the 3rd quarter of 2023 (116 versus 105). Boeing was also helped by posting small percentage increases in revenue at its global services unit (up 2%) and Boeing defense (up 1%).

Thus, while total Q3 revenue decreased compared to last year’s Q3, the decrease was only 1% to $17.8 billion.

The bad news is that Boeing’s profits didn’t grow that easily. Operating margins, which have been negative for years at the aerospace giant, worsened further in the third quarter, falling to negative 32.3%.

The blame here was shared unequally. Global services profits rose 6% year over year to $834 million. But Boeing, hurt by contracts for the T-7A training jet, MQ-25 seaplane and KC-46A refueling tanker, as well as accusations against its Starliner spacecraft, recorded an operating loss of $2.4 billion from its defense division (BDS). Meanwhile, commercial aircraft losses exceeded $4 billion.

As a result, Boeing lost $6.2 billion, or $9.97 per share.

How much damage did the attack cause?

As explained above, not all of this loss was due to the strike. Losses at BDS, for example, had little to do with the commercial airliner workers’ strike. Still, Boeing highlighted “the effects of the IAM business shutdown” as the No. 1 factor causing its massive loss. Boeing is bearing the cost of both a one-year delay in launching the new 777X, in addition to delayed sales due to the work stoppage. 767 Freighter line closure — measures taken both to reduce costs and to save cash due to the strike.

So what does this portend for Boeing’s future?

Boeing’s third quarter report, from July 1 to September 30, included results for the first 17 days (about the first third) of the strike. So, roughly speaking, investors can expect that whatever losses Boeing suffers from the strike in the third quarter, the losses from the strike in the fourth quarter will be roughly twice as large.

how big there was these losses? If we subtract the $3 billion charge on the 777X and 767 programs from the $4 billion total loss in its commercial airplanes division, that means the strike cost Boeing $1 billion in sales lost during the strike in the third quarter. This also means that losses from the strike will cost Boeing an additional $2 billion in Q4.

Looking further ahead, Boeing has burned $10.2 billion in negative free cash flow so far this year. The good news is that this puts the company on track to outperform analyst estimates (related to S&P Global Market Intelligence) generated $14.1 billion in negative free cash flow this year. The bad news is that these estimates probably don’t include the money burned in the last two-thirds of the strike.

Potentially Boeing could burn More cash is higher than expected this year. Boeing warned that it would continue to burn cash through 2025. Analysts estimate negative free cash flow will be $3.4 billion in 2025 and predict that free cash flow will only turn positive in 2026.

Will Boeing shares be purchased?

Let’s face it, analysts still think Boeing is reporting generally accepted accounting principles favorably (GAAP) snow next year. But as I warned before, Boeing’s debt costs and stock issuances, combined with wage increases for machinists (and probably others), will probably cutting those profits deeply. Depending on how much shares Boeing issues and how quickly, earnings per share could be as much as 27.5% less than analysts currently estimate; as little as $1.85 per share.

At a share price of about $148, this implies a forward price-to-earnings ratio of 80.

New CEO Kelly Ortberg warned that going forward, “it will take time to return Boeing to its legacy.” Beyond returning machinists to work, he says Boeing will “fundamentally change the culture, stabilize the business and improve program execution, while laying the foundation for Boeing’s future.”

Boeing should do all this and more before recommending the stock as “buy” at this price.