Boeing Earnings: New CEO Proclaims Changing the Culture Top Priority

Key Morningstar Metrics for Boeing

• Fair Value Estimate: $205.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Boeing’s Earnings

Prefacing Boeing’s BA third-quarter earnings announcement, newly appointed CEO Kelly Ortberg declared “fundamentally changing the culture” to be his top priority. The company shared the quarter’s bleak financial results, and it awaits the machinists’ vote on an improved union contract.

Why it matters: We’ve heard culture defined elegantly as “how we do things around here,” and Ortberg articulated a credible path to effecting change over time in how things get done at Boeing. It won’t be easy, but we think it is achievable. Ortberg seems to be staking a bolder leadership claim over Boeing at a crossroads.

• Most importantly, regarding restarting work after the International Association of Machinists and Aerospace Workers’ strike, he said, “It is so more important that we do this right than fast.” He removed management of the beleaguered defense unit and indicated openness to hiring from outside Boeing as he sets the new direction.
• Ortberg moved to Boeing’s historical headquarters in Seattle and emphasized that he wants company managers to be close to the products and the people making them in the engineering labs and on the shop floor, which represents a change in tone from recent regimes.

The bottom line: We raised our fair value estimate to $205 per share from $202, due to the $25 billion of liquidity the company’s shelf registration will provide (notwithstanding potential equity dilution) and assuming the latest IAM contract is ratified.

• We now forecast a negative free cash flow of $2.7 billion in 2025, compared with a use of at least $12 billion in a disastrous 2024, with momentum quickly building for positive cash flow in subsequent years.

Big picture: We think the firm will need to lay out a clear and bold product strategy and begin designing aircraft to meet that strategy in the next few years or risk calcifying a weakened position in the narrow-body market versus Airbus’ newer A320 platform.