As a parent of two school-aged children, I know that there’s almost nothing more disappointing than promising them something then not following through. That’s true of investors as well, who have been dumping shares of Boeing (BA) after the airplane manufacturer beat earnings forecasts but disappointing on a metric that it had said was one of the most important to watch.
Reuters/Andy Clark Boeing reported a core profit of $2.14 a share, easily topping forecasts for $1.97, on sales of $23.78 billion. Boeing also increased its earnings guidance for the year. So why have Boeing’s shares dropped 3.2% to $123.07 at 12:36 p.m. today? RBC Capital Markets’ Robert Stallard thinks it’s because of Boeing’s lackluster cash flow:
On the cash front, Boeing saw free cashflow of just $317m in the quarter. On the back of this, Boeing only modestly changed its full year free cash guidance from ~$3.75bn to >$3.77bn, with a $200m cut to capex versus the prior guidance (we are currently forecasting $5.2bn)…
Given that Boeing has been encouraging investors to look at cash versus EPS for the most significant growth over the next few years, the lack of cash in 3Q, and only a modest change to the operating cash guidance for the year are likely to disappoint. This could overshadow a good operating performance in the divisions, though we think investors had already considered Boeing’s 2014 guidance for BCA margins to be overly conservative, so the guidance increase here is unlikely to have that much resonance.
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Perhaps Boeing could learn a little from Dr. Spock?
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