Boeing [BA] on Wednesday reported a third quarter loss primarily due to declines in its commercial aircraft and services businesses stemming from the ongoing pandemic, but the bleeding also seeped into its defense business where operating profits also dropped.
The net loss in the quarter was $466 million, 79 cents per share (EPS), versus net income of $1.2 billion ($2.05 EPS) a year ago. Excluding pension adjustments, the core earnings loss was $1.39 EPS, still 55 cents better than analysts’ estimates.
Sales tumbled 29 percent in the quarter to $14.1 billion from $20 billion a year ago.
At the operating level, all three of Boeing’s segments posted top and bottom-line declines. Sales at the Defense, Space & Security dipped 2 percent to $6.8 billion related to timing on derivative aircraft awards and operating income at the segment fell 17 percent to $628 million, in part due to a $67 million charge on the KC-46A aerial refueling tanker program for the Air Force.
The KC-46 charge stemmed from COVID-19 disruptions and productivity inefficiencies, Greg Smith, Boeing’s chief financial officer, said on the company’s earnings call.
Operating margin in the defense business was down 160 basis points to 9.2 percent. Impacts from COVID have been “disruptive,” Smith said, adding that margin will expand as a number of key development programs transition to production.
Backlog in the defense business declined 2 percent to $62.4 billion at the end of the quarter from $63.7 billion at the end of 2019. International business makes up 30 percent of the current backlog. The segment booked $5 billion in orders in the quarter.
Dave Calhoun, Boeing’s president and CEO, said on the call that the “defense and space market remains significant and relatively stable and we continue to see solid global demand for our major programs.” However, he added, “the scale of government spending on COVID-19 response has the potential to add pressure on global defense spending in the future.”
Boeing’s Commercial Aircraft segment had sales tumble 56 percent to $3.6 billion on fewer aircraft deliveries and quality issues related to its 787 wide-body passenger planes. The operating loss in the segment widened from $40 million a year ago to $1.4 billion in the quarter on the lower sales and higher production costs in the 737 plane program.
Boeing is still forecasting a resumption of deliveries to customers of the 737 MAX airliner during the fourth quarter, Calhoun said. The plane has been grounded since March 2019.
Boeing’s third operating segment, Global Services, also felt the sting of COVID, with sales down 21 percent to $3.7 billion and operating income off 60 percent to $271 million. The declines were driven by a drop in commercial work and severance costs, partially offset by an increase in government services business.
A majority of the services business is government work, Calhoun said.
Overall backlog at the end of the quarter stood at $393.1 billion, down 15 percent from $463.4 billion at the end of 2019, with most of the decline in Commercial Airplanes.
Free cash in the quarter was a $5.1 billion outflow and Smith said that cash flow will improve in 2021 as commercial airplane deliveries pick up. The company is still aiming to be cash flow positive in 2021 but challenges from the commercial recovery and COVID-19 make it more likely positive cash flow will return in 2022, he said.
To help the company continue combatting COVID-related impacts on its commercial businesses, Boeing announced further job reductions amounting to 11,000 positions by the end of 2021. The company, like others, is also reviewing significant facility consolidations as it expects more of its employees that can work from home and remain productive to continue doing so in a post-COVID environment.
Boeing is examining an “enterprise footprint optimization effort utilizing flexible and virtual workplace planning” that includes some pilot efforts, Smith said. The company expects about a 30 percent reduction in office space needs from current capacity, he said.
Every building, site, warehouse and lease is under review for improved efficiencies, he said.