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When a company reports earnings, investors hope for good news. Often, we get bad news. But worst of all is the absence of news. Wednesday's Q2 earnings report from Boeing (NYSE: BA ) stands out for what it didn't tell us.
The "dids" for the quarter included:
- Revenue increased 1%, while profits grew 22% to $1.41 per share. (Which sounds like good news, but is mainly because of a large charge to earnings that Boeing took last year.)
- Free cash flow of $707 million put Boeing back in the black for the first half, with $458 million in cash profits. (Again, bad news painted as good -- this number is way down from last year's first half.)
- And looking further out, Boeing confirmed that it will earn about $4.85 per share on more than $68 billion in revenue this year, with free cash flow of $1.1 billion or more.
Boeing also confirmed that despite multiple problems encountered in recent weeks -- a canceled test flight of the 787 Dreamliner, significant cancellations by customers like Qantas, and anemic aircraft sales in general -- the company's order book remains largely intact. Backlog has declined 3% to $328 billion, but that's a pretty piddling drop in light of all the bad news.
But it's the no-news that's the real bad news
A few weeks ago, I mentioned that Boeing's decision to absorb a South Carolinian supplier worried me. Given Boeing's high hopes for outsourcing 787 work to suppliers like Honeywell (NYSE: HON ) , United Technologies (NYSE: UTX ) , and Spirit AeroSystems (NYSE: SPR ) , the sudden decision to bring Vought Aircraft's 787 operations in-house seemed to make little sense. I worried that this foreshadowed further delays in the Dreamliner program.
It seems I was right.
Boeing declined to give a new flight date for the 787, promising only to update us sometime this quarter. CEO Jim McNerney said: "The problem [that grounded the plane in June] is localized and doesn't require a complete redesign of the wing."
However, The Seattle Times is now quoting unidentified-but-presumed-to-be-knowledgeable engineers alleging that Boeing does need to redesign at least the area where the wing connects to the fuselage, and that installing the fix on existing planes could take anywhere from four to six months.
This confirms Morgan Stanley's fears, expressed in its downgrade last month. It confirms my own worries. And it leaves impatient customers like AMR (NYSE: AMR ) , Delta (NYSE: DAL ) , and Continental (NYSE: CAL ) still trapped in their Dreamliner nightmare.