Boeing
supplier
Spirit AeroSystems
had a pretty good quarter all things considered. There is no financial guidance, though, leaving investors to guess what’s ahead this year.
On Tuesday, Spirit Aero reported fourth-quarter earnings per share of 48 cents from sales of $1.8 billion. Free cash flow came in at $42 million.
Wall Street was looking for a per-share loss of 35 cents from sales of $1.7 billion. Free cash flow was expected to be $113 million. A year ago, Spirit Aero reported a $1.46 per-share loss from $1.3 billion in sales and a free cash flow of negative $66 million.
Shares were up 1.8% in midday trading while the
S&P 500
was flat and the
Nasdaq Composite
was off about 0.2%.
The lack of a reaction is quite a surprise. Options markets implied the stock would move 8%, up or down, after earnings. Shares have moved an average of 15%, up or down, after the past four quarterly reports. Shares have risen two times and fallen two times over that time.
All that volatility comes down to the 737 MAX. Spirit Aero has been making several versions of the 737 for years and has delivered more than 10,000 ”ship sets” to Boeing, according to the company. A ship set is the parts for one plane.
Today, Spirit Aero makes 70% of the structure of a 737 MAX, inserting some 400,000 fasteners in the process.
The company has had difficulties lately. On Jan. 5, an emergency door plug blew out of 737 MAX 9 jet operated by Alaska Air. The blowout led to more oversight and production uncertainty at Boeing, and at Spirit Aero.
Spirit Aero also notified Boeing on Thursday about improperly drilled holes. Boeing plans to rework some 50 jets as a result.
How Spirit Aero plans to fix the issue and improve quality and production was a key topic of discussion on management’s 11 a.m. conference call. CEO Patrick Shanahan detailed steps including more training, more automation, and more inspection, among other things.
On the company’s third-quarter earnings call in November, Shanahan said a top priority was to return the company to generating positive free cash flow. That happened in the fourth quarter.
Shanahan, who took over at the end of September, also said investors could expect guidance on the company’s fourth-quarter earnings call. He made that comment before the door plug blew out of the
Alaska Air
jet, however.
That makes some sense. “Like Boeing, Spirit’s world changed on Jan. 5 when the Alaska door blew off a 737 MAX,” wrote Vertical Research Partners analyst Rob Stallard in a Tuesday report. ”At least Spirit had secured a new agreement with Boeing before these fresh [MAX] problems.”
Boeing and Spirit reworked supply agreements to help provide Spirit with more cash and financial flexibility. Spirit is talking with
Airbus
to adjust other agreements, too.
For a 2024 outlook, investors will have to rely on analysts. Wall Street expects earnings of 41 cents a share from sales of $7.6 billion for 2024. Free cash flow is expected to be positive after four consecutive years of using cash.
Growing sales and cash flow aren’t guaranteed, though. Morgan Stanley analyst Kristine Liwag wrote that Spirit Aero could see pressure from lower 737 production rates.
Boeing is making 38 MAX jets a month right now. The Federal Aviation Administration, however, has said it won’t allow any production expansion until it is satisfied with Boeing’s manufacturing and quality management processes.
Liwag rates Spirit Aero shares Hold and has a $35 price target. The average analyst price target is about $33. About 43% of analysts covering Spirit Aero shares rate them Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.
Coming into Tuesday, Spirit Aero shares were down about 22% over the past 12 months. The S&P 500 and Nasdaq Composite were up about 20% and 31%, respectively.
Write to Al Root at allen.root@dowjones.com
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