Last week was not a fun time to be an investor in defense contractor and aerospace giant Boeing (BA 1.37%). Over the course of five days of depressing trading, shares of Boeing stock lost 16% of their value -- 11% of which happened after earnings were released on Wednesday.
And if that makes you suspect that earnings were part of the problem -- you're right!
Boeing by the numbers
My fellow Fool Lou Whiteman did yeoman's work laying out the bad news for Boeing earlier this week, so let's begin there. For fiscal Q1 2022, Boeing lost a total of $2.06 per share ($2.75 per share pro forma) on revenue of $14 billion, missing analyst expectations on both the top and bottom lines. Sales declined 8% year over year, and Boeing's net loss for the quarter doubled.
In the commercial airplanes segment, in particular, Boeing delivered 23% more airplanes in Q1 this year than it did last year (95 planes delivered total), helped by growing deliveries of its 737 MAX and a reviving air travel industry. Still, because the single-aisle 737 costs less than Boeing's twin-aisle jets, revenue in this division fell 3% year over year, and the company also suffered an $859 million operating loss.
And that wasn't even the worst news.
Boeing's worst business
That Boeing's commercial airplanes business remains a shambles was no great surprise. Two days before earnings were released, The Wall Street Journal reminded investors that in 2021, the commercial airplanes unit had lost $6.5 billion, and that "challenges persist with its 737 MAX and 787 Dreamliner commercial jet programs" in 2022.
For this reason, WSJ argued that the company would be depending on Boeing's defense, space, and security unit, commonly referred to as "BDS" to help keep its head above water in Q1. "Defense," opined the paper, "still provides the bulk of Boeing's profits and ... free cash." Analysts were optimistic that in the first quarter, BDS would contribute $6.7 billion to Boeing's total sales, and thus help offset some of the declines in commercial airplane revenue.
That didn't happen.
Instead, sales at BDS declined 24% year over year to just $5.5 billion, a much steeper decline than the commercial aircraft business suffered. Losses were bigger at BDS, too -- $929 million, reversing last year's $405 million Q1 operating profit.
Just three programs combined to wipe out all of Boeing's profits at BDS in the quarter. Supply chain problems, inflation in the cost of aircraft parts, and development delays at the company's VC-25B program (aka "Air Force One"), its T-7A Red Hawk training aircraft program, and its MQ-25 Stingray aerial refueling drone cost Boeing $1.3 billion in (hopefully) one-time charges, ensuring that BDS would end the quarter in the red.
And even then, the bad news wasn't over. In the company's post-earnings conference call, Boeing let slip that it's expecting "a modest decrease in revenue at BDS this year versus 2021," and that revenue won't stabilize before 2023. When you consider that there's a war on currently, that the U.S. president just asked Congress to approve $33 billion in spending to buy military hardware for Ukraine, and that Boeing is still the No. 3 biggest defense contractor in the United States, the fact that Boeing expects sales to decline this year certainly isn't what investors were expecting to hear.
Is Wall Street missing the story(ies)?
Final point: It's curious that Wall Street paid almost no attention to this huge surprise on Boeing's defense business. Out of eight analysts posing questions on Boeing's post-earnings conference call, only one asked about defense, and that question centered on the risk of future write-downs for too-aggressive fixed-price contract bids. No one asked why Boeing's defense sales were collapsing, or whether this put in peril Boeing's promise to "generate cash flow" in 2022.
It was also curious that, with Boeing expected to rerun its failed CST-100 Starliner flight test on May 19, more than two years after Boeing last attempted (and failed) to reach the International Space Station, neither Boeing management nor any of the analysts paid to keep track of Boeing's business mentioned Starliner, or indeed any of Boeing's space programs, even once. It was almost as if Boeing's once-vaunted space program has now become an afterthought -- or not even an afterthought.
And I have to say: For the company that once upon a time helped put American astronauts on the moon, and will lead the attempt to do so again a few years from now, that's kind of sad.