Spirit AeroSystems confirms Boeing talks but stock falls on 'horrendous' results

By Tomi Kilgore

Spirit's stock falls despite merger talks, after quarterly losses widen much more than expected

Spirit AeroSystems Holdings Inc. said Tuesday that it was "currently engaged in discussions" with Boeing Co., its largest customer, regarding a potential buyout of aircraft-components maker.

The company provided no other details on the talks. But its announcement confirms comments made by Boeing in March that it was in discussions on a merger, with an aim to improve aviation safety.

Spirit's market capitalization as of Monday's close was $3.84 billion, while Boeing's market cap was $109.49 billion.

Spirit's stock (SPR) slumped Tuesday despite the merger talks, as the company reported a much wider-than-expected first-quarter loss, due to delivery schedule changes made by Boeing amid increased scrutiny on safety in the wake the door-panel blowout in January of a Boeing aircraft.

The stock dropped 3.4% in premarket trading, while Boeing shares (BA) slipped 0.5%.

Net losses for the quarter to March 28 widened to $616.7 million, or $5.31 a share, from $281.2 million, or $2.68 a share, in the same period a year ago.

Excluding nonrecurring items, the per-share loss widened to $3.93 from $1.69, compared with the FactSet loss consensus of 59 cents.

The losses weren't all about Boeing, however, as Spirit said it had $495.4 million in net forward losses due primarily to the inability to reach a conclusion to pricing negotiations with its second largest customer, Airbus SE (EADSY) (FR:AIR)

Vertical Research Partners analyst Robert Stallard reiterated his hold rating on Spirit's stock, saying the company is on "life support."

"The death throes of Spirit are hard to watch, as these 1Q numbers are pretty horrendous," Stallard wrote in a note to clients. "Ultimately we don't expect Spirit to be a public company for that much longer, and the outlook for the share price is wholly dependent on the company reaching a disposal agreement with Boeing and Airbus."

Revenue rose 19% to $1.70 billion to beat the FactSet consensus of $1.62 billion, as commercial revenue increased 18.1% to $1.36 billion and defense and space revenue jumped 33.1% to $250.8 million.

For perspective, about 70% of 2023 commercial revenue came from contracts with Boeing.

In late 2023, Spirit said it had prepared for increases in production rates for Boeing, "which have now been delayed."

Free cash flow for the latest quarter was negative $444 million, compared with the FactSet consensus of negative $59 million, as cash flow was hurt by the schedule changes.

Spirit also noted that, as previously disclosed, the company reached agreement in mid-April with Boeing to provide a cash advance of $425 million, which Spirit expected to receive in the second quarter, based on Spirit maintaining a production rate that supports Boeing's production demand.

But since the end of the first quarter, "Spirit received indications that Boeing expects a slower increase in production and deliveries on the Boeing 787 program," the company said. And while it has not received a formal schedule change from Boeing, Spirit now expects to incur a forward loss of $50 million to $60 million in the second quarter due to lowered production volumes.

Spirit said it would not provide guidance until there is further clarity on the acquisition discussions with Boeing.

Vertical Research Partners analyst Robert Stallard reiterated his hold rating on Spirit's stock, saying the company is not on "life support."

"The death throes of Spirit are hard to watch, as these 1Q numbers are pretty horrendous," Stallard wrote in a note to clients. "Ultimately we don't expect Spirit to be a public company for that much longer, and the outlook for the share price is wholly dependent on the company reaching a disposal agreement with Boeing and Airbus."

Shares of Spirit have gained 3.9% year to date through Monday, while Boeing's stock has tumbled 31.6% and the S&P 500 index SPX has tacked on 8.6%.

-Tomi Kilgore

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05-07-24 0917ET

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