Morgan Stanley Research / Boeing Co.: BA Free Cash Flow Trending in the Right Direction

28 Jul 2021 | Kristine T Liwag | Matthew Sharpe
Boeing Co.: BA Free Cash Flow Trending in the Right Direction

BA Reports Adj. EPS of $0.40, above Consensus by 148.2% and above MSe by 188.5%.

BA reported Adj. EPS of $0.40, above consensus of -$0.83 by 148.2% and above MSe of -$0.45 by 188.5%. Free cash flow is trending in the right direction at -$0.7bn driven by better than expected operating cash flow, above both MSe of -$2bn and Consensus of -$1.4bn. We view it favorably that free cash flow is trending in the right direction as 1Q21 was -$3.7bn and 2Q20 was -$5.6bn. We maintain our Overweight rating given the pickup in domestic travel and recent demand for aircraft shown through recent 737 MAX orders. We continue to watch for a China recertification of the MAX which would be a strong positive catalyst for the stock.

BA Above Estimates on Net Income, Operating Cash Flow, Operating Margin; Below on Revenue

BA reported total revenues of $17bn, above consensus of $16.54bn by 2.8% and below MSe of $17.3bn by -1.8%. Net income for the quarter was $0.23bn vs. consensus of -$0.45bn and MSe of -$0.27bn. Operating margin was 6% vs. consensus of 3.1% and MSe of 3.1%. BA reported operating cash flow of -$0.48bn, below consensus of $0.47bn by -202.2% and above MSe of -$1.69bn by 71.4%.

Segment Revenues

The Defense, Space & Security (BDS) segment had the highest total revenue, generating $6.88bn in revenue vs. consensus of $6.8bn and MSe of $6.95bn. Commercial Airplanes (BCA) generated $6.02bn in revenue vs. consensus of $6.69bn and MSe of $6.46bn. Global Services (BGS) generated $4.07bn in revenue vs. consensus of $3.72bn and MSe of $3.84bn. Boeing Capital (BCC) generated $78mn in revenue vs. consensus of $69mn and MSe of $69mn.

Total Operating Margins of 6%

Total operating margins for BA were 6% with segment operating margins of 6.2%. Defense, Space & Security (BDS) had a segment operating margin of 13.9% vs. consensus of 9.7% and MSe of 6.1%. Commercial Airplanes (BCA) generated segment margins of -7.8% vs. consensus of -9% and MSe of -6.2%. Boeing Capital (BCC) generated margins of 46.2% vs. consensus of 25.3% and MSe of 12%.Global Services (BGS) generated margins of 13.1% vs. consensus of 9.6% and MSe of 11.9%.

Interest Expense in line with MSe; Tax Expense, Capex Below Estimates

BA had Q1 interest expenses of $673mn, in line with MSe of $679mn and below consensus of $686mn. Tax expenses were -$18mn, representing a -3.3% tax rate, which was below MSe of $17mn (19% tax rate) and below consensus of $7mn (-4.3% tax rate). BA reported capex of $222mn, below MSe of $346mn by -35.8% and below consensus of $355mn by -37.5%. The company also announced 0mn in share repurchases, totaling $0mn.