Boeing Co. (BA) — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Financial statements are unaudited; the independent accountant performed an interim review, not an audit.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $19.75B | $16.68B | $37.67B | $30.67B |
| GAAP operating income/(loss) | ($99M) | $780M | ($248M) | ($382M) |
| GAAP operating margin | (0.5)% | 4.7% | (0.7)% | (1.2)% |
| Net income/(loss) attributable to Boeing shareholders | ($149M) | $193M | ($563M) | ($1.03B) |
| Diluted EPS | ($0.25) | $0.32 | ($0.93) | ($1.73) |
| Operating cash flow | Not separately presented for the quarter | $2.56B | ($3.14B) |
Q2 revenue increased about 18% year over year, but Boeing swung from operating profit to a loss and from net income to a net loss. For the first half, revenue grew about 23% and the net loss narrowed. First-half non-GAAP core operating loss was $830M versus $949M; Q2 core operating loss was $390M versus core operating earnings of $496M. These non-GAAP measures exclude specified pension and postretirement costs.
Segments and material changes
- Commercial Airplanes (BCA): Q2 revenue was $8.84B versus $6.26B, while operating loss widened to $383M from $219M. First-half revenue rose to $15.54B from $10.45B and loss narrowed to $998M from $1.12B. Higher 737 and 787 deliveries supported first-half results; R&D, abnormal production costs and delivery timing weighed on profitability.
- Defense, Space & Security (BDS): Q2 revenue was $6.17B, approximately flat year over year, but the segment posted a $527M operating loss versus $71M of earnings. First-half revenue increased to $12.71B from $11.67B and loss narrowed to $739M from $858M. Fixed-price development program charges and operational disruption remained significant.
- Global Services (BGS): Q2 revenue rose to $4.75B from $4.30B and operating earnings to $856M from $728M. First-half revenue increased to $9.47B from $8.61B and earnings to $1.70B from $1.36B, led by commercial-services recovery.
- Net cumulative contract catch-up adjustments reduced first-half revenue by $782M and operating earnings by $1.35B; Q2 effects were $470M and $830M, respectively.
Cash, debt and liquidity
- Cash and cash equivalents were $7.25B at June 30, down from $14.61B at year-end. Short-term and other investments were $6.51B, up from $2.61B.
- First-half operating cash flow was positive $2.56B, compared with cash used of $3.14B a year earlier. The improvement primarily reflected advances and progress billings, inventory and accounts payable.
- Investing activities used $4.84B, mainly reflecting net investment purchases; financing activities used $5.09B, including $5.12B of debt repayments. Cash and restricted cash declined $7.37B in the half-year.
- Total debt was approximately $52.3B, down from $57.0B at December 31, 2022; $4.6B was classified as short-term. Boeing reported $12.0B of unused revolving credit capacity and said facilities were expected to remain undrawn as backup liquidity.
- Total shareholders’ deficit was $15.5B. The company said it was in compliance with debt and credit-facility covenants.
Outlook, risks and unusual items
- Management cited supply-chain disruption, labor instability and inflation as constraints on productivity, deliveries, financial results and cash flow. It expects 2023 capital expenditures to exceed 2022 levels.
- Boeing was transitioning 737 production from 31 to 38 aircraft per month. It expected to deliver most 737 inventory by end-2024; timing of China deliveries remained uncertain. The company expected 737-7 certification in 2023 and first deliveries of the 737-7 and 737-10 in 2024, subject to certification.
- The 787 was producing at four aircraft per month, with a return to five per month expected in 2023. Boeing expected to deliver most 787 inventory by end-2024. Cumulative abnormal 787 production costs were $2.4B; the company expected costs to reach up to $2.8B, with most incurred by end-2023.
- The 777X-9 first delivery was expected in 2025; the 777X-8 freighter first delivery was expected in 2027. The production pause was expected to result in about $1.0B of abnormal costs; $587M had been recorded through June 30.
- BDS fixed-price program risks include cost overruns, technical challenges and schedule delays. First-half 2023 development-program losses included $288M on Commercial Crew, $245M on KC-46A and $189M on T-7A. Boeing recorded a further $257M Commercial Crew reach-forward loss in Q2 after delaying the crewed flight test; it expected readiness later in 2023 or early 2024, with a new launch window to be determined with NASA.
- Backlog was $439.6B, up from $404.4B at year-end. Boeing expected about 26% to convert to revenue through 2024 and 77% through 2027, while warning that conversion timing depends on deliveries and program entry into service.
- Environmental remediation liabilities were $800M; the high end of the estimated reasonably possible range exceeded recorded liabilities by $1.05B. Other exposures include 737 MAX-related litigation and oversight, customer concessions, financing commitments, and potential additional losses on fixed-price contracts. Boeing said it could not reasonably estimate possible losses for certain legal matters.
Important facts for investors to verify
- Whether 737 and 787 production, certification and delivery plans are achieved, particularly deliveries to China and inventory reduction.
- Whether supply-chain and labor constraints ease enough to support planned production-rate increases and cash generation.
- Further cost growth or reach-forward losses on BDS development programs, the 777X and 787, and progress on the delayed Commercial Crew test.
- Cash-flow sustainability, debt reduction and liquidity needs as aircraft deliveries and customer advances change.
- Developments in 737 MAX litigation and oversight, environmental remediation estimates, and the conversion of backlog into firm deliveries and revenue.