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Will Storage Cost Dent Spirit AeroSystems (SPR) Q3 Earnings?

Zacks Equity Research

Spirit AeroSystems Holdings, Inc. SPR is set to release third-quarter 2019 results on Oct 31, before the opening bell.

Increased revenue expectations from the Propulsion Systems segment is likely to have boosted the company’s third-quarter revenues. However, costs to store Boeing’s BA 737 MAX parts and fuselages may have negatively impacted earnings.

The company’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 3.27%.

Let’s see how things have shaped up prior to this announcement.

Propulsion Systems Likely to Drive Growth

The Propulsion Systems segment, which represents almost 26% of total sales, has been a major growth driver for the company and is likely to have performed well in the third quarter too. Higher production volume for Boeing’s 777 and 787 series of jets are likely to have driven revenues for Spirit AeroSystems’ Propulsion Systems segment in the third quarter. The Zacks Consensus Estimate for the segment’s third-quarter sales is pegged at $502 million, suggesting growth of 13.6% from the prior-year quarter’s reported figure.

Spirit Aerosystems Holdings, Inc. Price and EPS Surprise

View on 737 Max & Wing Systems

Per the agreement that Spirit AeroSystems signed with Boeing this May, the latter will to pay the former for deliveries of shipsets and take possession accordingly, irrespective of Boeing’s low production number for 737 product line. We believe this to have positively impacted Spirit AeroSystems’ revenues in the to-be-reported quarter.

Meanwhile, Spirit AeroSystems signed a collaboration contract under the Airbus Wing of Tomorrow program, contributing across four technology projects supporting commercial aviation applications. We expect this collaboration, along with high production volume for 787 jets, to have boosted revenues for the company’s Wing Systems segment. The Zacks Consensus Estimate for the segment’s third-quarter sales is pegged at $508 million, implying growth of 34% from the prior-year quarter’s reported figure.

Considering positive growth projections for two major business units of the company, constituting almost 46% of its total revenues, we remain optimistic about the company’s overall Q3 top line growth. The Zacks Consensus Estimate for Spirit AeroSystems’ third-quarter revenues is pegged at $1.97 billion, indicating 8.4% improvement from the prior-year quarter’s reported number.

Bottom line Expectations

In order to protect the 737 MAX parts and fuselages from inclement weather conditions, the company installed temporary storage mechanisms at its Wichita unit.

The installation costs may have outweighed the positive impact of revenue growth and hurt Q3 earnings. The Zacks Consensus Estimate for Spirit AeroSystems’ third-quarter earnings stands at $1.67, suggesting 1.8% decline from the prior-year quarter’s reported number.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Spirit AeroSystems this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Spirit AeroSystems has an Earnings ESP of +0.29% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks to Consider

Investors can consider the following players from the Aerospace sector that also have the right combination of elements to beat on earnings in their next releases.

Ducommun Incorporated DCO is expected to report third-quarter 2019 results on Oct 30. The company has an Earnings ESP of +8.79% and a Zacks Rank #3.

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

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Click to get this free report Huntington Ingalls Industries, Inc. (HII) : Free Stock Analysis Report The Boeing Company (BA) : Free Stock Analysis Report Ducommun Incorporated (DCO) : Free Stock Analysis Report Spirit Aerosystems Holdings, Inc. (SPR) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research