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Will Lower Commercial Deliveries Hurt Boeing (BA) Q4 Earnings?

Zacks Equity Research

Significantly lower delivery figures for The Boeing Company’s BA 737 product line is expected to have impacted the company’s commercial business line in the fourth quarter. Such lower delivery numbers also indicate higher expenses for the aerospace giant’s commercial unit, which, in turn, might have hit its bottom line.  

Scheduled for release on Jan 29, Boeing’s fourth-quarter and full-year 2019 results are likely to reflect these factors.

Click here to know how the company’s overall Q4 performance is expected to be.

737 Max Product Line: A Major Setback

Once considered a key growth catalyst for Boeing’s top line, the 737 Max has been weighing heavily on the company’s overall performance since this jet’s grounding last March. Since then, Boeing’s commercial business has been struggling and similar staggering results can be expected from this jet maker’s commercial unit, once it releases its fourth-quarter numbers.

In fact, 2019, barring the first couple of months, has been pretty damaging for Boeing, thanks to massive commercial aircraft order cancellations and dismal commercial deliveries. Per a report by CNBC, the aerospace giant lost orders for 87 aircraft at the end of 2019, which implies more cancellations than new orders. There was an approximate 90% drop in orders for 737 jets during the year, per CNN.

We expect Boeing’s soon-to-be-reported results to duly reflect these developments.

The Boeing Company Price and EPS Surprise

Poor Commercial Deliveries to Hurt

Boeing’s fourth-quarter deliveries reflected a huge 66.8% year-over-year plunge in commercial shipments. In particular, the aircraft giant delivered only nine of its flagship 737 jets, reflecting 94.8% decline from the prior-year quarter’s figure. This dragged down overall commercial delivery figures.

Along with such lower delivery volumes, production cuts adopted by the jet maker for this product line in April might have weighed on the performance of Boeing’s commercial business in the current reporting cycle. Moreover, steady cancellation of orders is expected to have hit this business segment’s top line.

The Zacks Consensus Estimate for the company’s commercial revenues in the fourth quarter is pegged at $8.76 billion, suggesting 49.4% decline from the prior-year reported number.

Rise in Costs to Impact Earnings

Since the majority of airlines have delayed their deliveries of the 737 product line, Boeing is incurring cost for storage of the completed aircraft. These additional costs, along with delays in the supply chain, delays in return to service as well as reductions in the production rate are likely to have pushed up the commercial segment’s overall expenses, thereby impacting its bottom line.

The consensus estimate for Boeing’s commercial unit stands at a loss of $922 million. In the year-ago period, it had generated earnings worth $2,704 million.  

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 -7.83% and a Zacks Rank #3, which makes surprise prediction difficult. 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 this quarter:

Aerojet Rocketdyne Holdings AJRD has an Earnings ESP of +2.17% and a Zacks Rank #3. The company is expected to announce fourth-quarter 2019 earnings soon.

General Dynamics GD has an Earnings ESP of +1.49% and a Zacks Rank #3. The company will announce fourth-quarter 2019 earnings results on Jan 29. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Heico Corp. HEI has an Earnings ESP of +8.94% and a Zacks Rank #1. The company is expected to announce first-quarter fiscal 2020 earnings soon.

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Click to get this free report The Boeing Company (BA) : Free Stock Analysis Report General Dynamics Corporation (GD) : Free Stock Analysis Report Heico Corporation (HEI) : Free Stock Analysis Report Aerojet Rocketdyne Holdings, Inc. (AJRD) : Free Stock Analysis Report To read this article on Zacks.com click here.