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Will Higher Defense Deliveries Aid Boeing's (BA) Q3 Earnings?

Zacks Equity Research

The Boeing Company’s BA Defense, Space & Security (BDS) segment is expected to have generated robust revenues in third-quarter 2019, courtesy of solid deliveries from the company’s varied defense products. Improved margins must also have played the role of a catalyst.

However, poor commercial deliveries might have outweighed the gains of the BDS unit and hurt the company’s overall performance.

Scheduled for release on Oct 23, Boeing’s third-quarter 2019 results are likely to reflect these factors.

Steady Order Flow to Aid the Top Line

With the current U.S. administration spending significantly on the nation’s defense for the past couple of years, Boeing’s defense and space unit has been witnessing solid order flow for its varied products from the Pentagon, NASA and Congress. This, in turn, has been boosting BDS unit’s earnings.
In particular, the BDS segment has been witnessing strong procurement of F-15EX and F-18 fighter jets, Apache and V-22 Osprey rotorcraft, JDAM weapons, satellite programs, the Space Launch System, along with key derivative programs like KC-46 Tanker and P-8. We expect the upcoming quarterly results to reflect the solid demand for these product lines, which, in turn, must have contributed to BDS segment’s growth.

The Zacks Consensus Estimate for revenues at Boeing’s defense unit is pegged at $6,977 million, indicating 21.8% growth from the year-ago reported figure.

The Boeing Company Price and EPS Surprise

The Boeing Company Price and EPS Surprise

The Boeing Company price-eps-surprise | The Boeing Company Quote

Impressive Deliveries & Bottom-Line View

Boeing’s third-quarter 2019 delivery figures reflected a huge surge of 208% in defense shipments from the year-ago period. In the quarter, its defense deliveries totaled 77, up from 25 in the year-ago period. Such impressive delivery figures are expected to have significantly boosted the defense segment’s top line as well as bottom line.

Meanwhile, the costs associated with the certification and subsequent launch of Boeing’s KC-46 Tanker program have started phasing out since the beginning of the first quarter, following active delivery of these tankers. This, in turn, has been contributing to BDS margins for a while now and the trend is expected to have prevailed in the soon-to-be-reported quarter.  

The Zacks Consensus Estimate for the BDS unit’s earnings is pegged at $803 million, indicating notable improvement from loss of $245 million in the year-ago quarter.

Will the Overall Result Reflect Growth?

While Boeing’s commercial aircraft business contributes almost 60% to its total revenues, the defense and global services units together account for 39%. Lower 737 deliveries must have impacted the company’s top line as well as bottom line under pressure in the quarter to be reported. Click here to know how the company’s overall Q3 performance is expected to be.

The Zacks Consensus Estimate for the company’s total revenues in the third quarter is pegged at $19.34 billion, suggesting a 23.1% decline from the prior-year reported number. The consensus estimate for Boeing’s Q3 earnings is pegged at $2.04 per share, indicating 43% decline from the year-ago quarter reported figure.

What the Zacks Model Unveils

According to the Zacks model, a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise.

Boeing has an Earnings ESP of -0.31% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some defense companies you may want to consider, which have the right combination of elements to post an earnings beat in the to-be-reported quarter:

Huntington Ingalls Industries, Inc. HII is scheduled to report third-quarter 2019 results on Nov 7. The company has an Earnings ESP of +2.09% and a Zacks Rank #3.

Leidos Holdings, Inc. LDOS is set to report third-quarter 2019 results on Oct 29. The company has an Earnings ESP of +1.52% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Northrop Grumman Corp. NOC is scheduled to report third-quarter 2019 results on Oct 24. The company has an Earnings ESP of +2.26% and a Zacks Rank #3.

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The Boeing Company (BA) : Free Stock Analysis Report
 
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