Boeing Co. (NYSE: BA) reported fourth-quarter and full-year 2015 results before markets opened Wednesday. For the quarter, the aerospace company posted adjusted diluted earnings per share (EPS) of $1.60 on revenues of $23.57 billion. In the same period a year ago, the company reported EPS of $2.31 on revenues of $24.47 billion. Fourth-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $1.27 and $23.55 billion in revenues.

For the full year, Boeing posted EPS of $7.72 on revenues of $96.11 billion, compared with 2014 EPS of $8.60 and revenues of $90.76 billion. Analysts had estimated EPS at $7.40 and revenues of $96.09 billion.

Boeing delivered 182 new commercial jets in the fourth quarter, down 7% year over year. Revenues were down 4% and earnings were down 64%. Operating margin for the quarter fell by 5.8 percentage points to 3.5%.

For the full year, revenues rose 10%, but operating income fell 20%, and operating margin was down 2.9 percentage points to 7.8%. Full-year deliveries of 762 commercial jets was a record.

One inference we can draw from all that is that Boeing was discounting their commercial planes more heavily than usual. To some degree we can see that in the company’s operating cash flow of $9.42 billion for the year before pension contributions, down about 2.3% compared with 2014.

Boeing announced last week that the company would take a pretax charge of $885 million ($0.84 per share) in the fourth quarter related to the 747 program and a further production rate cut from one plane per month to one-half plane per month. The drop to one plane a month is set to begin in March, and the cut to one-half per month takes effect in September.

What Boeing did not announce last week, but waited to release Wednesday, is a weak forecast for 2016. Deliveries are forecast in a range of 740 to 745, down from 762 deliveries in 2015. The decline is not all due to the 747 production change, and the company is not going to deliver fewer 737s or 787s. The decrease is almost certainly due to lower production of the 777.
This is bad news for Boeing, which currently builds 100 777s a year (8.33 per month). The company had 218 orders for the 777-300ER and 777F at the end of December, enough to last until sometime in 2018 at the current production rate. The new 777X won’t enter service until 2020 and Boeing faces a huge cash flow issue here. If Boeing wants to stretch its 777 production, it needs to take more orders or slow the build rate. New orders are hard to come by, so a rate cut is almost certainly in the cards.

The company’s deferred production costs on the 787 rose again in the quarter, from $28.31 billion in the third quarter to $28.51 billion. But the increase was the smallest in year and was about half the size of the increase between the second and third quarters of 2015. With some luck, deferred costs on the 787 will stop growing in the first quarter. Whether Boeing will every show a profit on the 787 remains to be seen, but the company has a big hole to dig itself out of.

During the quarter, Boeing repurchased 5 million shares for $800 million and paid $600 million in dividends. For the full year, the company repurchased 47 million shares for $6.8 billion and paid $2.5 billion in dividends. Boeing raised its quarterly dividend to $1.09 (20%) in December.

The commercial aircraft backlog totals nearly 5,800 airplanes with a value of $432 billion. Total backlog at the end of December was valued at $489 billion, up from $485 billion in the prior quarter.

Boeing’s troubles show up in the company’s outlook. Full-year revenue is forecast in a range of $93 billion to $95 billion and operating cash flow is forecast at $10 billion. The company forecast adjusted EPS in a range of $8.15 to $8.35. The consensus forecasts from analysts called for EPS of $9.43 and revenues of $97.17 billion.

Boeing wants investors to focus on cash flow and it’s not hard to see why — it’s the only metric that the company projects higher for 2016. The reason for that is that margin is projected to rise to 9% from 7.8% in 2015, and that is likely due to the 787 finally turning a (small) profit.

Should Boeing have communicated to investors that its 2016 forecast would be considerably weaker than either 2015 performance or analysts’ estimates? Boeing is almost certain to announce a rate cut to 777 production, and that could happen on Wednesday’s conference call. Boeing could have announced a cut last week when it announced the 747 cut, but it chose not to. Investors deserve better treatment than that.

Investors had taken the stock down by about 8% just after Wednesday’s opening bell, at $117.65 in a 52-week range of $115.14 to $158.83. The consensus target price for the shares was $163.78 before the report.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.