Boeing, a renowned aerospace company, is set to release its third-quarter earnings report on Wednesday morning. However, accurately predicting the company's financial performance has proven to be challenging in recent years. Therefore, investors should pay close attention to Boeing's cash flow figures.

Over the past 18 quarters, Boeing has failed to meet Wall Street's estimates on 14 occasions. This underperformance dates back to early 2019 when the company faced significant setbacks following the second fatal crash involving the 737 MAX aircraft. As a result, the plane was grounded worldwide from March 2019 to November 2020.

While it wouldn't be accurate to call this a record, it is quite uncommon for companies to miss estimates so frequently. Even Tesla, known for its volatility, has fallen short of Wall Street's earnings expectations only 13 times over the past decade.

Forecasting Boeing's third-quarter results is a challenging task. The company has encountered difficulties in scaling up production of its 737 MAX jets, largely due to supplier issues. However, Boeing is actively addressing these problems. Nonetheless, these setbacks have had a negative impact on Wall Street's short-term estimates for the company's performance.

According to J.P. Morgan analyst Seth Seifman, the third quarter of 2023 will see the lowest number of 737 deliveries since the third quarter of 2021. He attributes this reduction partially to a manufacturing error by Spirit AeroSystems, one of Boeing's major suppliers.

To rectify the situation and improve production stability, Boeing has recently renegotiated certain agreements with Spirit Aero. This strategic move aims to support the supplier in overcoming recent challenges, particularly with regard to manufacturing sections of the fuselage for various Boeing aircraft models.

The Spirit Aero Problem and Its Impact on Boeing's Third Quarter Numbers

As investors analyze Boeing's performance for the third quarter, the Spirit Aero problem is one factor that cannot be ignored. Analysts now predict a per-share loss of $3.18, a significant deviation from the previously estimated loss of about 50 cents. Boeing itself experienced a loss of 82 cents per share in the second quarter.

The inconsistency of Boeing's defense business performance further compounds the company's challenges. FactSet data reveals that it has reported operating losses in seven out of the past nine quarters. Unfortunately, analysts foresee another loss in the third quarter. Factors such as inflation and fixed-price contracts contribute to this ongoing struggle.

To regain investor confidence, Boeing needs to demonstrate progress in three key areas: improving defense profitability, optimizing commercial jet production, and generating positive free cash flow.

Speaking of free cash flow, it will undoubtedly be an essential metric for investors to monitor. Boeing's current projection for 2023 anticipates a free cash flow range between $3 billion and $4 billion. However, in the first half of 2023 alone, the company managed to generate approximately $1.8 billion in free cash flow.

In light of these developments, management will host a conference call at 10:30 a.m. ET to discuss the results. Given the gravity of the situation, there will undoubtedly be much ground to cover.

Boeing stock has performed admirably, with a 24% increase over the past 12 months. This positive growth significantly outpaces the S&P 500 (10%) and the Dow Jones Industrial Average (4%). It appears that investors' focus on an improving commercial aerospace outlook has overshadowed Boeing's internal challenges.

In conclusion, as Boeing braces for its third quarter, it must confront the Spirit Aero problem head-on while addressing the three critical areas of concern. Furthermore, demonstrating positive free cash flow is crucial for restoring confidence. The upcoming conference call will shed more light on these matters.

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