By blaming its first loss in decades on the 737 Max narrowbody jet, Boeing is masking deeper problems at its other segments.
Boeing (NYSE:BA) is building a narrative that deceptively suggests that when the 737 Max is ungrounded, all its problems will magically disappear.
That couldn’t be further from the truth. As its commercial airplanes division was taking a hit following the twin 737 Max accidents which claimed over 300 lives, other segments have been struggling as well when rivals are reporting impressive growth.
As a defense contractor, Boeing saw revenue declines while competitors that have already released their financial results registered an uptick in sales in the most recent quarter.
In its Defense, Space and Security segment, Boeing saw a 13% drop in revenues during the fourth quarter of 2019 relative to a similar period in 2018.
This is in sharp contrast to the 16% growth in revenues that Boeing had registered from 2017’s Q4 to 2018’s Q4 (PDF).
The drop in revenues for Boeing’s defense division is especially unforgivable given that it comes at a time when the US defense budget has ballooned to a record high. Last year President Donald Trump signed a military budget of approximately $738 billion.
It would be understandable if Boeing’s rivals that have so far released their 2019 Q4 results have recorded negative growth. That hasn’t been the case though and their results have shone a spotlight on the fact that Boeing’s problems extend beyond its commercial aircraft.
Lockheed Martin’s (NYSE:LMT) four divisions, which are basically the equivalent of Boeing’s Defense, Space and Security segment all recorded a growth of 10.2% over a similar period. Year-over-year, the defense giant recorded nearly the same rate of growth – 11% [Lokheed Martin].
Over at General Dynamics (NYSE:GD), revenues rose by nearly 4% [gd.com] from 2018’s Q4 to a similar period in 2019. Year-over-year revenues grew by 9%.
Both Lockheed Martin and General Dynamics exceeded analysts’ estimates.
Other defense contractors such as Raytheon (NYSE:RTN) and Northrop Grumman Corporation (NYSE:NOC) are expected to do just as well [investors.com] when they release their Q4 2019 results. Raytheon’s revenues are projected to increase by nearly 10%. Northrop Grumman is expected to register a revenue growth of 8%.
With Boeing falling behind rivals in a segment that was supposed to be immune from the troubles affecting its commercial airplanes division, this is a clear demonstration that the rot at the Dow bellwether goes deeper than the problems with the 737 Max jet.
Investors’ hopes now lie with the new CEO Dave Calhoun who has been described as a “turnaround specialist” [Straits Times]. Boeing also enjoys a healthy backlog of orders. In the commercial airplanes segment, for instance, the backlog of 5,400 jets is valued at nearly $380 billion. That’s a good number. If customers stick with the planemaker in spite of its battered reputation.
Last modified: September 23, 2020 1:33 PM