30/09/2020

By blaming its first loss in decades on the 737 Max narrow-body jet, Boeing is masking deeper problems at its other segments.

  • Boeings Q4 2019 results demonstrate that segments beyond the commercial planes segment are performing poorly.
  • While the US defense budget hits an eye-popping $738 billion, the planemaker registered declines in the Defense, Space and Security division.
  • Rivals such as Lockheed Martin and General Dynamics have recorded revenue increases as well.

Boeing (NYSE:BA) is building a narrative that deceptively suggests that when the 737 Max is ungrounded, all its problems will magically disappear.
That couldnt be further from the truth. As its commercial airplanes division was taking a hit following the twin 737 Max accidents which claimed over 300 lives, other segments have been struggling as well when rivals are reporting impressive growth.
As a defense contractor, Boeing saw revenue declines while competitors that have already released their financial results registered an uptick in sales in the most recent quarter.
Boeings Defense, Space and Security division under threat
In its Defense, Space and Security segment, Boeing saw a 13% drop in revenues during the fourth quarter of 2019 relative to a similar period in 2018.
Boeings revenues from the defense segment fell in Q4 2019 | Source: Boeing
This is in sharp contrast to the 16% growth in revenues that Boeing had registered from 2017s Q4 to 2018s Q4 (PDF).
The drop in revenues for Boeings defense division is especially unforgivable given that it comes at a time when the US defense budget has ballooned to a record high. Last year President Donald Trump signed a military budget of approximately $738 billion.
Source: Twitter
It would be understandable if Boeings rivals that have so far released their 2019 Q4 results have recorded negative growth. That hasnt been the case though and their results have shone a spotlight on the fact that Boeings problems extend beyond its commercial aircraft.
Lockheed Martin and General Dynamics exceed expectations
Lockheed Martins (NYSE:LMT) four divisions, which are basically the equivalent of Boeings Defense, Space and Security segment all recorded a growth of 10.2% over a similar period. Year-over-year, the defense giant recorded nearly the same rate of growth 11% [Lokheed Martin].
Lockheed Martin is a major U.S. defense contractor, with planes in production like the iconic C-130. | Source: Shutterstock.com
Over at General Dynamics (NYSE:GD), revenues rose by nearly 4% [gd.com] from 2018s Q4 to a similar period in 2019. Year-over-year revenues grew by 9%.
Both Lockheed Martin and General Dynamics exceeded analysts estimates.
What about Raytheon and Northrop Grumman?
Other defense contractors such as Raytheon (NYSE:RTN) and Northrop Grumman Corporation (NYSE:NOC) are expected to do just as well [investors.com] when they release their Q4 2019 results. Raytheons revenues are projected to increase by nearly 10%. Northrop Grumman is expected to register a revenue growth of 8%.
With Boeing falling behind rivals in a segment that was supposed to be immune from the troubles affecting its commercial airplanes division, this is a clear demonstration that the rot at the Dow bellwether goes deeper than the problems with the 737 Max jet.
Investors hopes now lie with the new CEO Dave Calhoun who has been described as a turnaround specialist [Straits Times]. Boeing also enjoys a healthy backlog of orders. In the commercial airplanes segment, for instance, the backlog of 5,400 jets is valued at nearly $380 billion. Thats a good number. If customers stick with the planemaker in spite of its battered reputation.
This article was edited by Samburaj Das.
Last modified: February 1, 2020 12:21 PM UTC