Should Investors Consider Purchasing Boeing Shares Prior to January 28th?
Boeing, with a current stock dip of -1.37%, is set to release its Q4 2024 earnings on January 28. With new CEO Kelly Ortberg at the helm since August, the anticipation is high for his outlook and strategic plans for the company. Boeing has some serious room for improvement in 2025.
Boeing in 2025: A Turnaround Tale
Boeing's Commercial Airplanes (BCA) segment must first focus on consistently producing 38 737 MAX jets per month. This crucial event is not only essential in restoring confidence in Boeing's deliveries and keeping airlines satisfied but also crucial from a profitability and cash flow perspective. Increased output will undoubtedly ramp up profit margins in the BCA segment. Additionally, investors will be keeping their eyes on the progress of the 777X, with the first delivery penciled in for 2026.
Boeing Defense, Space & Security (BDS) faces some tough tasks as well. Management would like to hear that BDS has surmounted key milestones in reducing risk on costly fixed-price development projects, thereby staving off future losses. A more forward-looking outlook on the return to consistent profitability in BDS would be a welcome change.
Boeing's Upcoming Earnings Report
Although investor expectations are high, it's doubtful that management will share every detail they desire during the earnings call. Cultural transformation, as repeatedly emphasized by CEO Ortberg, is a marathon and not a sprint. Tiny deviations in quarterly earnings will not drastically impact the course.
Beyond offering operational objectives and leadership changes (such as the lack of a permanent BDS CEO, following the departure of former BDS president and CEO Ted Colbert in September), Ortberg will also need to address restoring investor faith in Boeing's guidance.
Mending Broken Promises
Historically, prominent industrial company leaders have been notorious for clinging to guidance that investors lacked confidence in. For instance, Jeff Immelt and John Flannery, former CEOs of General Electric (now GE Aerospace), exited their roles without retracting their unrealistic promises. Boeing's former CEO, Dave Calhoun, might also be accused of the same, in refusing to pull down the $10 billion in free cash flow goal for 2025/2026. As it stands, Wall Street analysts forecast an outflow of $2.8 billion in 2025, with $5.4 billion in free cash flow expected in 2026.
Ortberg now has the chance to reset investor expectations, starting with 2025 guidance.
BDS Corrections
Ortberg has been open about the fact that Boeing can't abandon its problematic fixed-price programs. However, he also acknowledged the necessity of working with customers to identify cost-saving opportunities. Striking a balance between upholding contractual obligations and minimizing financial exposure is the objective.
Should You Buy Boeing Stock Ahead of Earnings?
Boeing remains an intriguing investment opportunity. With a staggering $500 billion order backlog and continued success in securing new airline orders for the BCA segment, a turnaround within the BDS division is largely dependent on internal execution. Ortberg's ability to reset investor expectations and demonstrate progress in lifting the production cap for the 737 MAX and navigating risk in BDS fixed-price development projects will be crucial factors to consider before investing in Boeing.
Reference to enrichment data: In 2025, Boeing's operational goals include upping 737 MAX monthly production to 38 aircraft, improving quality within the Commercial Airplanes segment with a focus on issues like NoE, part shortages, and rework, and aiming for a consistent profitability return for Boeing Defense, Space & Security. Boeing also expects to turn cash-flow positive in Q2 2025, with a cash outflow of $2.8 billion projected for 2025 and $5.4 billion in free cash flow expected in 2026. Boeing plans to cut 10% of its workforce, approximately 17,000 employees, and remains committed to sustainability.
Investors will be keen to see Boeing's strategy for increasing the monthly production of 737 MAX jets to 38, as this is crucial for restoring confidence in deliveries and enhancing profitability. This focus on production is one of the key operational goals for 2025.
As Boeing prepares to release its Q4 2024 earnings, investors will be closely monitoring the company's financial performance and guidance for 2025. Ortberg's ability to reset investor expectations and demonstrate progress in reaching operational goals, such as lifting the production cap for the 737 MAX and improving profitability in Boeing Defense, Space & Security, will significantly impact the investment decision.
