Boeing (BA) Lost $4.7 Billion In 9 Months

Back In July I wrote two separate articles telling you to avoid Boeing stock to keep your portfolio safe…

Today, I want to give you and update on Boeing after it released its latest earnings 

Below is a brief recap of what I said in July about avoiding its stock.  If you want to read the previous articles in full use the links above.

***

From Article #1 Linked Above

  1. It’s Got An Enormous Amount of Debt

Boeing has an enormous amount of debt…

As of the most recent quarter its balance sheet is made up of 106.8% in total liabilities. That means the company has more debt than assets.

In other words, after subtracting total liabilities from total assets there’s a negative number.  This means after subtracting debt from assets that the stocks equity – the shares you buy on the market – are worth less than $0.

This also means I can’t measure its debt/equity ratio for you… There’s nothing left over to measure after subtracting total liabilities.

This is rare when you see this at an operating company.  But it’s horrible.

Boeing’s dealt with major issues for years now going back to the two deadly 737 Max air crashes.  And then airlines stopping the flying of that model of Boeing produced planes.

Its estimated these two crashes and the fallout from them cost Boeing $18.6 billion…  And then once it looked as if it was getting back on track the coronavirus hit and crushed the sales of planes.

The amount the coronavirus will cost Boeing is still too be determined as of this writing… But it this will harm the company for years to come in terms of lower revenues, profits, and cash flows.

This due to far lower amount of air travel and fewer airline operators needing to buy new planes from Boeing.

Because of these issues, Boeing’s already had to take out a massive $25 billion in new loans since the coronavirus pandemic first began… Just to keep operating

These loans were necessary.  But they also put the company in even more danger because they increased its already large debt even more.

2. It’s Not Producing Enough Profits and Cash Flow

In the most recent quarterly data Boeing was unprofitable on both a net income and free cash flow basis.

Its net income profitability margin in the trailing twelve months (TTM) period was negative 4.8%.  And its free cash flow to sales (FCF/Sales) margin in this same time was negative 16.2%.

Generally, you want these numbers to be as high as possible on the positive side because that means the company is generating profits and cash flow from its operations.

But both are negative in the last 12 months.

3. Uncertainty Related To The Coronavirus

This all circles back to the beginning and the entire hospitality industry getting hammered by the coronavirus.

Air travel, hotels, and restaurants are still getting hammered.

This is a large problem for all airline and airline related companies… Including airplane manufacturers like Boeing.

Both due to fewer people wanting to get on planes now.  And due to whatever limitations, the government puts on them to continue operating during this pandemic.

Airline traffic is down 96% in April 2020 compared to April 2019 as of the most recently available airline traffic data in the US.

An estimated half of all airplanes are parked at airports and not flying.

And 1/3rd of all seats on most domestic flights remains unfilled due to social distancing restrictions.

The airline business at full capacity has razor thin margins.  So thin that over the entire history of airlines the industry combined is unprofitable.

Combining this with the still ongoing and exploding coronavirus crisis leading to far lower air travel and Boeing’s enormous debt and negative profitability and cash flow and its in major trouble going forward.

I recommend you stay far away from this entire industry for the time being for the reasons above.  But especially stay away from Boeing.

***

From Article #2 Linked Above

Here are some of the lowlights of its 2nd quarter 2020 report…

Revenue dropped 25% from $15.8 billion in the 2nd quarter of 2019 to $11.8 billion in the 2nd quarter of 2020.

It lost $2.4 billion in net income in the quarter.

It announced a 40% reduction future reduction in the manufacturing of 787 planes.  From 10 to 6.

It announced a 40% cut to 777/777X planes – from 5 to 2.

It announced that beginning at the end of 2019 its orders for new planes are falling for the first time on record.

It stopped its share repurchasing program.

Boeing estimates that it will take as many as 3 years for air passenger travel to reach pre coronavirus levels.

It announced that its further cutting its employees.

And that its debt levels exploded from $38.9 billion at the end of the 1st quarter of 2020 to $$61.4 billion at the end of the 2nd quarter.

Or that debt levels increased by 57.8% in only 3 months.

I could keep going because the report was almost nothing but bad news for the company, but I’ll stop here.

***

This thesis to avoid Boeing continued playing out on October 29th, 2020 when it released its most up to date quarterly earnings.

  • Revenues fell 29% in the year to year quarterly period to $14.1 billion.
  • So far this year Boeing revenues are down 27%.
  • In the first 9 months of 2020 it lost $4.7 billion in operating profit.
  • It lost $3.5 billion in the first 9 months of 2020 in net profit.
  • In the 90-day period between its second quarter and third quarter its cash levels fell by $10 billion – while its debt remained at $61 billion.
  • And because of all this it also announced its laying off another 7,000 employees.

This is all still horrific for Boeing more than 7 months into this crisis.

Throw in that new cases of the coronavirus are exploding to all time highs in both the United States and Europe – and parts of Europe on lock down again – and this is horrible for Boeing.

Far lower business levels due to the coronavirus, combined with losing a ton of money and huge debt levels was a potentially disastrous combination for Boeing in July.

Three months later and Boeing’s in worse shape now.

Avoid its stock at all costs.

Click here to see some of the other stocks we recommend to Depression Proof Your Portfolio.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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