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Defense Stocks' Q2 Earnings Due on Jul 25: BA, GD, NOC & FLIR

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The defense space kick-started the Q2 earnings season with Textron TXT releasing results on Jul 18. Earnings of this multi-industry conglomerate outpaced the Zacks Consensus Estimate.  Today, sector behemoth Lockheed Martin LMT is scheduled to report its quarterly numbers. In fact, majority of the defense giants are also expected to release financial numbers this week.

As of Jul 20, 87 S&P 500 index members, accounting for 25.7% of the index’s total market capitalization, reported their quarterly results. Earnings for these index members increased 20.9% year over year on 10.3% higher revenues. Notably, earnings for S&P 500 companies are expected to improve 21% on 8.3% revenue rise. Among the 16 Zacks sectors, two are expected to witness a year-over-year earnings decline in Q2.

We expect to have a clear picture of the space’s performance by the end of this week as 175 of the index members are scheduled to release their financial numbers.

Coming to projections for the Aerospace sector, which constitute defense stocks, total Q2 earnings are expected to increase 19.2% year over year on 5.5% higher revenues, as of Jul 20.  For more details on quarterly releases, you can go through our Earnings Preview.

Defense stocks, which have been on a growth trajectory for past couple of quarters, courtesy of President Trump’s favored stance toward increased spending on the nation’s defense, saw a bumpy Q2. While suspension of the Iran deal fueling chances of civil war in Syria bolstered defense stocks, the denuclearization agreement signed by North Korea hinting at a peace regime across the Korean peninsula checked the rally. Nevertheless, a steady flow of contracts from the Pentagon continues to provide impetus to the stocks. Defense contractors also received a string of key contracts from foreign allies of the United States, hinting at growing international market for weaponries.

Let’s take a look at four defense majors — The Boeing Company BA, General Dynamics Corp. GD, Northrop Grumman Corporation NOC and FLIR Systems, Inc. FLIR — all of which are scheduled to release Q2 results before the opening bell on Jul 25.

Boeing delivered a positive earnings surprise of 40.54% in the last reported quarter. Notably, the company outperformed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 29.51%.

Being the largest aircraft manufacturer and one of the major aerospace and defense contractors in the United States, Boeing continues to enjoy a steady inflow of contracts from both the Pentagon as well as its foreign allies in Q2.Therefore, itgoes without saying that such steady inflow of contract wins will surely boost Boeing’s quarterly sales. Evidently, the Zacks Consensus Estimate for the company’s second-quarter sales is pegged at $24 billion, reflecting a year-over-year increase of 5.5%.

Boeing’s Q2 deliveries reflected a year-over-year improvement in commercial shipments but a decline in defense shipments. However, higher volumes and lower tax rate are expected to boost its bottom-line performance in the to-be-reported quarter.

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chance of beating estimates if it also has a positive Earnings ESP. However, Boeing does not constitute that right combination. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company has an Earnings ESP of 0.00% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Please note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions (read more:Will Commercial Deliveries Drive Boeing's Q2 Earnings?).

The Boeing Company Price and EPS Surprise

 

The Boeing Company Price and EPS Surprise | The Boeing Company Quote

General Dynamics pulled off a positive earnings surprise of 7.29% in the last reported quarter. The company outperformed the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 4.12%.

We expect a consistent inflow of military contracts from the Pentagon in Q2, which should continue boosting the military shipbuilder’s revenues. Meanwhile, the Aerospace business segment has been delivering dismal performance. As the company continues to be engaged in production of new aircraft under this segment’s Gulfstream unit, cost of sales remains considerably high. This, in turn, is weighing on the segment’s bottom-line performance.

On the flip side, completion of the CSRA acquisition at the onset of the yet-to-be reported quarter is likely to drive the company’s operational results. Management anticipates the buyout to boost the company’s 2018 revenues by $3.6 billion. We expect this acquisition to be accretive to its second-quarter revenues, which in turn, should boost the company’s bottom-line growth.

The current Earnings ESP for General Dynamics is -2.16%, while it carries a Zacks Rank #4. Therefore, our model does not show that the company is likely to beat earnings estimates this quarter (read more: Will Order Growth Fuel General Dynamics' Q2 Earnings?).

General Dynamics Corporation Price and EPS Surprise

 

General Dynamics Corporation Price and EPS Surprise | General Dynamics Corporation Quote

Northrop Grumman delivered a positive earnings surprise of 15.98% in the last reported quarter. The company outperformed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 13.87%.

In Q2, the company witnessed solid growth in order flow from the Pentagon as well as foreign allies of the United States, thereby reflecting solid demand for its varied products. Such contract wins are likely to boost Northrop Grumman’s revenues in the quarter. In line with this, the Zacks Consensus Estimate for the company’s second-quarter revenues is pegged at $7 billion, reflecting annual growth of approximately 9.8%.

On the first quarter earnings call, Northrop Grumman raised its earnings guidance for 2018, with expectations to deliver strong margin rates and operating income growth at its segments. Considering this, we may expect the company’s Q2 results to reflect a solid bottom-line performance as well.

Northrop Grumman has an Earnings ESP of -1.18% and a Zacks Rank #1. Therefore, our model does not show that the company is likely to beat estimates this quarter (read more: Northrop Grumman Q2 Earnings: What's in the Cards?).

Northrop Grumman Corporation Price and EPS Surprise

 

Northrop Grumman Corporation Price and EPS Surprise | Northrop Grumman Corporation Quote

FLIR Systems came up with a positive earnings surprise of 11.63% in the last reported quarter. Moreover, the company has outperformed the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 6.49%.

In April 2018, FLIR Systems announced the completion of its strategic investment in DroneSense — a provider of comprehensive solutions in unmanned aircraft systems (UAS) space. Notably, the company’s Industrial business segment, which manufactures thermal imaging payloads for UAS, recorded a solid 10.3% revenue growth in first-quarter 2018. Considering the aforementioned investment, we may expect to witness increased demand for FLIR Systems’ advanced thermal imaging payloads for UAS platforms, which in turn should boost its Industrial units’ top line in the current reporting cycle.

However, divestment of SMB security business might continue hurting the Commercial business segment’s revenues, which in turn may weigh on the company’s overall quarterly revenues. In line with this, the Zacks Consensus Estimate for FLIR Systems’ second-quarter revenues is pegged at $426.5 million, reflecting a year-over-year decline of 2%.

The Earnings ESP for FLIR Systems is +1.03%, while the company carries a Zacks Rank #3. Per Zacks model, FLIR Systems is likely to beat on earnings this quarter (read more: Is FLIR Systems Poised to Beat Q2 Earnings Estimates?).

FLIR Systems, Inc. Price and EPS Surprise

 

FLIR Systems, Inc. Price and EPS Surprise | FLIR Systems, Inc. Quote

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Northrop Grumman Corporation (NOC) : Free Stock Analysis Report
 
The Boeing Company (BA) : Free Stock Analysis Report
 
General Dynamics Corporation (GD) : Free Stock Analysis Report
 
Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
 
Textron Inc. (TXT) : Free Stock Analysis Report
 
FLIR Systems, Inc. (FLIR) : Free Stock Analysis Report
 
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