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Poor Segmental Performance to Hurt Boeing's (BA) Q4 Earnings

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Zacks Equity Research
·4 min read
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The Boeing Company BA is set to release fourth-quarter 2020 results on Jan 27, before the opening bell.

The company’s four-quarter average negative earnings surprise is 60.29%. Lower deliveries across segments are expected to have hurt Boeing’s performance in the fourth quarter.

Poor Deliveries Indicate Weak Earnings

Boeing’s fourth-quarter deliveries reflected a noticeable 25.3% decline in commercial shipments from the year-ago reported figure. Defense shipments plunged 40.4%.

For manufacturing companies like Boeing, successful deliveries of finished products play a crucial role in boosting revenue growth. Now. considering the fact that the jet maker’s commercial and defense segments together constitute almost 75% of its total revenues, such dismal delivery performance makes us skeptical about Boeing’s fourth-quarter results.  Boeing’s revenues as well as earnings are expected to have declined this time around.

The Boeing Company Price and EPS Surprise

The Boeing Company Price and EPS Surprise
The Boeing Company Price and EPS Surprise

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

Dismal Segmental Performance

Poor delivery figures for Boeing’s commercial and defense segments are expected to have hurt the operational performance of these business units. Unfortunately, we are not much hopeful about Boeing Global Services (BGS) unit’s performance in the fourth quarter as well.

In spite of a gradual recovery observed in global air travel during the soon-to-reported quarter, it’s no way near to pre-COVID levels. Consequently, commercial aerospace continued to suffer from restricted air travel, which, in turn, must have hampered aftermarket commercial jet services, when compared to 2019’s fourth-quarter levels. Hence, low commercial service volume is expected to have weighed on BGS unit’s revenues in the yet-to-be-reported quarter.

The Zacks Consensus Estimate for BGS unit’s revenues, pegged at $3,645 million, indicates year-over-year decline of 21.6%.

So, cumulatively, the majority of Boeing’s business segments are likely to have performed dismally in the fourth quarter, in terms of both top and bottom-line performance.

Other Factors

Lower delivery payments due to fewer deliveries combined with costs for building and storing completed aircraft are expected to have weighed on Boeing’s operating cash in the to-be-reported quarter. We expect the company’s balance sheet to duly reflect a poor cash flow figure when it reports.

On a brighter note, since the third quarter, Boeing has started witnessing domestic air traffic in China at almost 2019 levels. However, as international travel remains effectively low, Chinese airlines have been pushing back deliveries, as stated by a Reuters report. The recovery in the domestic market in China is unlikely to have had a notable positive impact on the company’s performance in the yet-to-be reported quarter.

Q4 Expectations

Notably, the Zacks Consensus Estimate for total revenues is pegged at $15.26 billion, suggesting 14.8% decline from the prior-year reported number. The consensus estimate for Boeing’s fourth-quarter earnings is pegged at $1.60 per share, indicating a 31.3% decline from the year-ago quarter reported figure.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Boeing this time around. This is because the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here, as stated below:

Boeing has an Earnings ESP of -5.82% 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 as these have the right combination of elements to post an earnings beat in their upcoming releases:

Leidos Holdings LDOS has an Earnings ESP of +6.79% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Curtiss-Wright CW has an Earnings ESP of +1.50% and a Zacks Rank of 3.

Teledyne Technologies TDY has an Earnings ESP of +5.86% and a Zacks Rank of 3.

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