Spirit AeroSystems (NYSE: SPR) reported disappointing second-quarter results and provided little reason for investors to bet on a quick turnaround. The stock sold off accordingly, down about 30% as of Thursday afternoon, according to data provided by S&P Global Market Intelligence.
Spirit is a one-time wholly owned subsidiary of Boeing that remains an important supplier to both its former parent and commercial aerospace heavyweight Airbus, but investors to date have not enjoyed a windfall from the surge in demand for commercial aircraft.
Spirit lost $1.46 per share in the second quarter on revenue of $1.4 billion, a disappointment relative to the $0.86-per-share loss on $1.3 billion in sales expected by Wall Street. During the quarter the company endured a two-week strike at its Wichita, Kansas, facility, and the company has also been dealing with a vertical stabilizer issue on Boeing 737 jets.
All of those issues are costly, and Spirit said it does not expect to generate "significant" free cash flow into 2025 due in part to the higher labor rates it agreed to in the quarter. Spirit has about $1.2 billion worth of notes that mature in early 2025, and could face a refinancing challenge if free cash flow has not improved by late 2024.
The results led to a series of downgrades and price target cuts from Wall Street analysts.
Spirit has been an independent company for nearly two decades now, but the company is still highly reliant on Boeing to its own detriment. Squeezed between fixed income for work done and soaring labor and raw material costs, Spirit has found little room to maneuver.
Vertical Research Partners analyst Robert Stallard wrote after the earnings release that Spirit is "in virtual indentured servitude to Boeing," questioning how the company will ever be able to generate consistent free cash flow. The company has tried to find independence by acquiring Airbus-focused businesses, but selling into a duopoly limits its flexibility.
Spirit AeroSystems is a key part of Boeing's supply chain, but not a very profitable one. There's no easy way to fix that, and investors are understandably hesitant about jumping in.
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