gave investors more of the same old bad news—things aren’t great in the aerospace and defense business, and a recovery of commercial air travel will take time—but investors still reacted negatively.
“As you think about the commercial aero business in the balance of the year…we could see both the [original equipment] and aftermarket revenues down about 50% or so,” CFO Anthony ‘Tony’ O’Brien told UBS analyst Myles Walton at an investor conference on Tuesday “The recovery here clearly looks more like a U.”
How quickly the economy will recover from the Covid-19 downturn is often debated. A V-shaped recovery is the best scenario, representing a sharp rise from the bottom. An L-shaped recovery, if it can be called that, is among the worst-case scenarios, with little to no bounce.
A U-shaped rebound would mean a prolonged stretch of pain, followed by a slow recovery.
Most aerospace companies withdrew their full-year financial forecasts when they reported their first-quarter earnings, or even before. The investment conferences that have followed the earnings reports offer another chance to hear how business is shaping up.
Down 50% isn’t great, but it can’t be a complete surprise. Few people are flying these days. More than half of the commercial jet fleet is parked and the number of people passing through security checkpoints at American airports was down more than 85% year over year on Monday.
“There’s a lot of unknowns still to play out,” said O’Brien. He also said he expects the second quarter to be the worst of the year and that Raytheon would burn about $1.5 billion in cash during the quarter.
That is more cash burn than Wall Street had modeled. It was the worst data point from Tuesday’s talk.
Still, the company has more than $15 billion in available liquidity and Wall Street expects cash flow to improve in the second half of 2020. For the full year, analysts predict Raytheon will generate more than $3 billion in free cash flow.
Raytheon shares were down about 1.9% in early Tuesday trading. The
for comparison, was up about 0.1%.
For the year, Raytheon stock is down about 27%, worse than comparable drops of the
Dow Jones Industrial Average.
But Raytheon’s drop is a little better than those of other aerospace supplier stocks Barron’s covers. The average decline within that group is about 35%.
The commercial aerospace sector, however, has rallied recently as the economy has started to reopen. Raytheon shares, for instance, are up more than 10% over the past two weeks, as investors focus on the rate of change. While the number of U.S. travelers was down 85% year on year on Monday, the decline was more than 90% about a month ago.
Barron’s recently wrote positively about Raytheon, arguing its defense business would provide ballast during this turbulent stretch for commercial aerospace. Since the article appeared, Raytheon is down about 4%, lagging behind the 7% and 8% respective gains of the S&P and Dow over that span.
Write to Al Root at firstname.lastname@example.org