Boeing's BDS Portfolio Faces Financial Challenges: Can They Turn It Around?
2023-08-01
The Boeing Company held its second-quarter 2023 earnings conference call, providing insights into the company's financial performance, operational outlook, and progress in the recovery process. One of the key topics discussed was the underperformance and financial challenges faced by the Boeing Defense, Space & Security (BDS) portfolio.
During the meeting, analyst Cai Von Rumohr expressed concerns about the financial performance of BDS, stating that even after excluding loss programs, the portfolio still experienced marginal losses. Von Rumohr questioned the extent of these losses and suggested that if the programs were performing as expected, there would have been a $300 million profit instead of a 25% loss. He sought more information about the programs involved and what it would take to turn them profitable.
In response, Brian West, the Executive Vice President and CFO of Boeing, acknowledged the significant performance gap and explained that it would require executing on these programs to improve their financial position. He highlighted the complexity of the situations, with complicated products and factories that were almost shut down during the pandemic. Bringing them back to life and ensuring the right labor force with the necessary skills takes time. West expressed confidence in the company's ability to address these challenges and turn the programs profitable.
The market outlook for Boeing's BDS portfolio is challenging and uncertain. The portfolio is currently underperforming, resulting in significant financial losses. The company attributes these challenges to the complexity of the products and factories, which were impacted by the pandemic and require time to improve. They also mention the need for trained labor to handle the intricate work involved. In terms of contracts and pricing, the company will have to work within existing agreements with limited opportunities for improvements. Despite the frustrations, the company expresses confidence in making progress and returning to previous levels of performance.
The key drivers of Boeing's business, as discussed in the meeting, include executing programs, improving manufacturing processes, and overcoming challenges related to complex products and factories. The company plans to implement lean manufacturing techniques to make their businesses healthier and stronger. They are also focused on executing certain programs to improve the profitability of the BDS portfolio, which is currently not expected to contribute much in the near term. These programs involve addressing complicated situations with complicated products and factories that were affected by the pandemic. The company is determined to bring these programs back to life and train the labor force to handle the intricate work. They are also working within the existing pricing and contract framework and exploring new technologies such as the "transonic truss-braced wing."
Although specific key performance indicators (KPIs) were not explicitly mentioned in the meeting, it can be inferred that the financial performance and profitability of the BDS portfolio were key areas of concern. KPIs related to revenue, profit margins, and program improvement would likely be important in assessing the performance of the BDS portfolio.
Boeing's outlook for the quarter and year is positive. The company had a solid quarter and is making steady progress on its recovery. They feel confident about their operational and financial outlook, including their free cash flow and delivery ranges. In the second quarter, they generated $2.6 billion in free cash flow and are confident in their target of $3 billion to $5 billion for the year. Demand for commercial airplanes remains high, with 460 net orders booked in the quarter. The company is increasing its rates on each program and is on track to meet its delivery guidance for the year. Overall, Boeing is focused on execution and driving stability in production and the supply chain.
The participants of the earnings call included Dave Calhoun, President and CEO of Boeing; Brian West, Executive Vice President and CFO of Boeing; and Matt Welch, Vice President of Investor Relations for Boeing.
In summary, the earnings call highlighted the underperformance of Boeing's BDS portfolio and the challenges faced in improving its financial performance. The company remains confident in its ability to address these challenges and is focused on executing programs, improving manufacturing processes, and overcoming complexities related to products and factories. Despite the underperformance, Boeing had a solid quarter and is optimistic about its operational and financial outlook, driven by strong demand for commercial airplanes.