Boeing share price declines as profits are hit by 737 Max crisis

​Boeing released their hotly anticipated second quarter (Q2) earnings before the bell today, with the manufacturer seeing metrics disappoint across the board. The severity of the hit Boeing suffered as a result of the recent global grounding of their 737 Max was always going to be difficult to gauge, with the firm insisting that previous guidance did not reflect this huge crisis that has hit them.

Boeing hit by multi-billion charges

Boeing had attempted to avoid markets receiving all of the bad news at once, with the firm announcing that they will be subject to a $5.6 billion pre-tax hit off the back of the recent 737 Max issue. That included an estimate of what the company will need to pay airlines for delayed deliveries and grounded existing planes. The company also laid out a $1.7 billion increase in the cost of production for the plane going forward, reducing their margins going forward.

Earnings underperform market estimates

The impact of this crisis has been stark, with the firm delivering 54% less aircrafts compared with Q2 2018. That highlights the importance of the 737 Max. The quarter has an adjusted loss per share of $5.82, well down on the $1.96 loss expected. This was also well below the $3.33 profit per share seen a year ago. Meanwhile, revenues dropped by 35%, hitting $15.8 billion compared with the $24.26 billion seen last year.

Outlook

The company chose to avoid the common practice of providing a forward looking outlook for the firm, with leadership instead spelling out plans to provide clarity in the near future. One of the key issues will be the question of quite how long it will take for the company to get the 737 Max off the ground, and they see that happening by early Q4. Whether that happens earlier or later, it will remain a key determinant of whether their true costs are over or not. Boeing also laid out plans to produce 57 new 737 Max planes per month in 2020, clearly backing the plane’s role in the future of the company.

One thing that could derail those plans would be a lack of demand, with passengers understandably weary about flying on a 737 Max. For all the talk of a rebrand, we have not seen that take shape yet, and a lack of demand for flights that involve that model of plane could spark a dramatic reduction in projected demand for the 737 Max.

Slump in profits stalls recovery

The Boeing share price had been on the rise of late, with the company gaining 15% over the two weeks that followed the 3 June low of $330.73. That ultimately took us into a position which saw an inverse head and shoulders formation completed with the temporary break through $379.22 this week. We are understandably seeing Boeing shares fall back today, yet the relatively muted response highlights the lack of surprise from traders. That points towards a possible upside breakout coming before long.