Boeing Stock Is Jumping After a Surprise Profit. Here’s What’s Behind Its ‘Shocking Beat. ‘


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A Boeing 737 MAX 10 airliner.


Ellen Banner-Pool/Getty Images

Commercial aerospace giant

Boeing

reported a surprise profit for the second quarter of 2021. Shares, for now, are moving higher.

Boeing (ticker: BA) reported a profit of 40 cents a share from $17 billion in sales. Wall Street was looking for an 83 cent loss from $16.6 billion in sales. Not a single analyst was predicting a quarterly profit, according to FactSet. It’s a stunning result. It’s Boeing’s first positive per-share earnings since the third quarter of 2019.

Shares are up 4.8% with about an hour left in trading Wednesday, while the

S&P 500

is up 0.2% and the

Dow Jones Industrial Average

has declined 0.1%.

Baird analyst Peter Arment called it a “shocking beat” in a Wednesday report. For him, the report is good news for the stock, and Arment believes investors will focus on the improving free cash flow outlook. Boeing burned through about $700 million in cash during the quarter, far less than the $2.8 billion Wall Street projected. What’s more, second-quarter cash burn was about $3 billion better than the first quarter of 2021.

Arment is a Boeing bull, rating shares Buy with a $306 target price.

Vertical Research Partners analyst Rob Stallard, however, isn’t as bullish. He rates shares Hold and has a $242 price target for Boeing stock. Stallard called the quarter a “tactical victory for Boeing, but strategic challenges remain.” He pointed out in a Wednesday report that the commercial aircraft division is still losing money and Boeing has many decisions to make in the upcoming quarter. Boeing, for instance, needs to decide whether or not to develop a new single-aisle jet to compete with

Airbus

‘s A220, replace the 737 MAX, or replace the 757 program. There are a few directions the company could go. A new plane could cost the company up to $15 billion over 10 years.

On the company’s conference call which began at 10:30 a.m. Eastern time, CEO Dave Calhoun didn’t address a new aircraft directly, but did cover some of the requirements needed in a new jet. The next airplane is “not going to be dramatically different with one exception, and that is everything sustainability,” said Calhoun. “[It] will have to meet some serious sustainability tests.”

The entire industry including engine makers such as

General Electric

(GE) and

Safran

(SAF.France) as well as Boeing are focused on lowering the carbon footprint of commercial aviation. That can include hybrid engine technologies as well as sustainable jet fuel made from renewable resources.

Despite any looming strategic decisions which might weigh on investor sentiment, the quarter is a good result considering the problems Boeing has been dealing with including Covid-19, the 737 MAX grounding and recertification as well as 787 quality problems which have stopped deliveries of those jets.

“We continued to make important progress in the second quarter as we focus on driving stability across our operations and transforming our business for the future,” said Calhoun in the company’s news release. “While our commercial market environment is improving, we’re closely monitoring COVID-19 case rates, vaccine distribution and global trade as key indicators for our industry’s stability.”

Profit margins improved compared with the first quarter. In commercial aerospace, Boeing delivered 79 planes in the second quarter compared with 77 in the first quarter. Just two more. The operating loss, however, was cut from $856 million in the first quarter to $472 million in the second.

Defense division profit margins went to 13.9% from 5.6%. Service division margins went to 13.1% from 11.9%.

It all amounts to progress for Boeing in turning around recent results.

Write to Al Root at allen.root@dowjones.com

Harry Byrne

Harry Byrne

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