It is now time for the TenderAlpha team to look again at a company we covered previously in the Top Government Contractors series in our blog. Boeing recently reported its Q2 2024 results and below we will provide a brief analysis of the company’s recent performance.
Key points:
* Boeing recorded a 15% Y/Y revenue slump in Q2 2024, driven by the Commercial Airplanes and Defense, Space and Security segments.
* Margin performance was also bleak, affected by low airplane deliveries and fixed-price contract charges in the Defense, Space and Security segment.
* Global Services remains the only growing and profitable segment, albeit growth there also decelerated sequentially to only 3% Y/Y.
* Backlog declined 2% Q/Q with weakness across all three segments.
* The US government accounted for 40% of Boeing’s Q2 2024 revenue.
Boeing Q2 2024 Results Overview
We previously covered Boeing's Q1 2024 results in part 62 of our Top Government Contractors series here. Below we will highlight the progress achieved by the company in Q2 of 2024.
We will start with a Boeing revenue breakdown. The company reports results in three main segments, namely “Commercial Airplanes” (BCA) at 35% of Q2 2024 revenues, “Defense, Space & Security” (BDS) at 36%, and “Global Services” (BGS) at 29% of Q2 2024 revenues:
Figure 1: Boeing segment results
Source: Boeing Form 10-Q for Q2 2024
Operational Overview
Commercial Airplanes was the worst-performing segment in Q2, with revenues sliding 32% Y/Y (2023: +30%) due to a 32% Y/Y decline in aircraft deliveries.
On a brighter note, the company gradually increased production during the quarter after submitting a comprehensive safety and quality plan to the Federal Aviation Administration. The operating margin was understandably negative at -11.9% (2023:-4.8%). As a result, the division recorded an operating loss of $0.7 billion, 87% greater than the prior-year period.
70 airplanes were delivered under the 737 program in Q2 2024, with 35 of them happening in June. The June pace of deliveries is expected to continue going into Q3 2024 as Boeing builds confidence with regulators to increase delivery speed.
Defense, Space & Security also recorded a 2% Y/Y revenue drop in Q2 (2023: +8%). Significant losses on fixed-price contracts to the tune of $1 billion resulted in an operating margin of negative -15.2% (2023: -7.1%) which increased the segment’s operating loss by 73% Y/Y.
Key Boeing defense contracts awarded during the quarter include a contract for seven MH-139A helicopters from the U.S. Air Force and a performance-based logistics contract for Apache helicopters from the U.S. Army. Boeing also delivered the first CH-47F lock II Chinook to the U.S. Army.
Global Services was the best-performing segment in Q2 2024, increasing its topline by 3% Y/Y on strength in commercial customers (2023: +9%). Margin performance was marginally weaker Y/Y at 17.8% but was still above the 17.4% 2023 average. As a result, operating earnings grew 2% in Q2 (2023: +22%).
On a consolidated level, Q2 sales were 15% lower Y/Y (2023 +17%), Core loss per share was $2.90/share in Q2 (2023: $5.81/share), and free cash flow was negative $4.3 billion in the quarter (2023: positive $4.4 billion). The core operating margin was also negative at -8.3% (2023: -2.4%). Overall, we can say Q2 2024 marked a significant operating deterioration relative to the first quarter of the year. As a result, we think Q2 2024 will be the low point in Boeing’s 2024 quarterly performance, given the gradually normalizing outlook for Commercial Airplanes.
Boeing also announced the acquisition of major supplier Spirit AeroSystems for $8.3 billion, the closing of which is expected in the middle of 2025, with the ultimate aim of improving the safety, quality, and stability of Boeing operations. Effective August 8, a new CEO - Kelly Ortberg - will take the reins from CEO Dave Calhoun.
Boeing Backlog
Poor operating performance is starting to show in Boeing’s backlog developments - the total backlog was down 2% Q/Q to $515.9 billion, with the weakness visible in all three divisions. Split across segments, BCA accounts for 85% of the total backlog. Boeing defense contracts backlog, booked in the BDS division, accounts for 11% of the total:
Figure 2: Boeing backlog evolution in H1 2024
Source: Boeing Results Press Release for Q2 2024
As noted on the conference call, the company received orders and commitments for over 150 airplanes on the Farnborough airshow post-quarter end, which will likely provide a boost for the backlog going into Q3 2024.
Looking at annual backlog developments, we observe that the Q2 2024 2% drop in BDS sales should prove temporary, given the 3% higher backlog for the BDS division:
Figure 3: Boeing government contracts: revenue and backlog evolution year-over-year
| Period/Indicator | Annual Sales Growth (BDS Division) | Annual Backlog Growth (BDS Division) |
|
Q2 2024 |
-2% | +3% |
| 2023 | +8% | +9% |
| 2022 | -13% | -9% |
| 2021 | +1% | -2% |
| 2020 | +1% | -4% |
| 2019 | +1% | +4% |
Source: Boeing Company filings
The table above also shows that the BDS backlog increase is significantly moderating from the 9% growth pace observed in 2023.
Capital Position
As of the end of Q2 2024 net debt accounts for 28% of the company’s enterprise value. As such, Boeing remains one of the most levered companies in our Top Government Contractors series. Nevertheless, the company is still able to raise debt at attractive terms, with $10 billion of issuance during the quarter. The terms of the new senior notes ranged from 6.259% for 2027 notes to 7.008% for notes due in 2064.
Boeing Government Contracts Exposure
Boeing defense contracts account for a substantial amount of Boeing government contracts. Government orders are booked primarily through the BDS division, as well as the BGS services business to a lesser extent.
Following the slump in BCA revenue in Q2 2024, the relative importance of government contracts for Boeing has increased, although it is below the levels observed in Q1 2024.
In Q2 2024, a combined 40% of Boeing's revenue came from the U.S. government alone. Quarterly company disclosures are not detailed enough to conclusively compute the exact government exposure to non-U.S. sources.
That said, our estimates show that an additional 3% to 6% of Q2 2024 revenue was derived from non-U.S. government sources. As a result, the cumulative government revenue exposure of Boeing was around 45% in Q2 2024.
Figure 4: Boeing U.S. government contracts evolution
| Period | Share of U.S. Government in Boeing Revenue |
| Q2 2024 | 40% |
| 2023 | 37% |
| 2022 | 40% |
| 2021 | 49% |
| 2020 | 51% |
| 2019 | 39% |
| 2018 | 31% |
Source: Boeing company filings
From the data above we see that government contracts provide a stable lifeline for Boeing in turbulent times, such as the ones during the COVID-19 pandemic or the recent quality control issues at BCA.
Conclusion
Boeing recorded very weak operating performance in Q2 2024, with revenues and margins at BCA and BDS both declining versus prior-year levels. While we believe Q2 2024 will mark a low point in the company’s annual performance, the declining backlog points to a slow recovery in the quarters ahead.
The services business represented by BGS remains the only segment to record revenue growth, and at the same time, the most profitable division of the company in Q2 2024. As the company works through BCA and BDS backlogs, the BGS division is set to continue expanding for the foreseeable future.
According to our estimates, some 45% of Boeing's revenue came from government orders in Q2 2024. As such, monitoring the company’s public procurement activity appears to be a smart move that can provide key insights into its financial health.
To get a free sample of the government contracts awarded to Boeing and other established government suppliers, get in touch now!
This article was written by members of TenderAlpha's team and does not serve as a recommendation to buy Boeing or any other stock. TenderAlpha is not receiving compensation for it and we have no business relationship with any company whose stock is mentioned in this article.
Check out our previous analyses of Boeing's quarterly results:
Part 4: Boeing: Improving Free Cash Flow Generation to Allow Debt Payback (Q4 2022)
Part 59: Boeing 2023 Q4 Report: Backlog Reaches a Record $520 Billion
Part 62: Boeing: Government Revenue Exposure Passes 50% Threshold