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Will After-Tax Charge of $4.9B Hurt Boeing's (BA) Q2 Earnings?

Zacks Equity Research

Lower volume of commercial deliveries along with an after-tax charge related to the 737 MAX grounding and associated delivery delays are expected to weigh on The Boeing Company’s BA revenue growth at the Commercial Airplanes segment in second-quarter 2019. The aerospace giant is slated to release quarterly results on Jul 24, before market open.

Poor Delivery Figures

Boeing announced dismal second-quarter 2019 commercial delivery figures on Jul 9. The company delivered 90 airplanes, reflecting a steep decline of 53.6% year over year. However, the delivery figure came in line with the Zacks Consensus Estimate. The downturn can be primarily attributed to lower deliveries of 737 jets in the quarter under review. Specifically, delivery of the single-aisle 737 jets plunged 82% to 24 in the second quarter from 137 a year ago.

Although solid air passenger traffic in the commercial jet space has been favoring Boeing, the largest jet maker in this space, poor delivery figures presented by its flagship commercial fleet of 737 jets are concerning. The decline in deliveries might hurt Boeing’s commercial business in the to-be-reported quarter.

The Boeing Company Price and EPS Surprise

The Boeing Company Price and EPS Surprise

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

After-Tax Charges to Hurt Earnings

On Jul 18, 2019, Boeing announced that it will record an after-tax charge of $4.9 billion on account of disruptions related to the 737 MAX grounding and associated delivery delays. This charge will result in a $5.6 billion reduction of revenues and pre-tax earnings in the quarter.  

Additionally, Boeing estimated costs to produce the 737 aircraft has increased by $1.7 billion in the second quarter primarily owing to higher costs associated with a longer-than-expected decline in the production rate. The increased 737 program costs will dent the margin of the 737 program in the second quarter, thereby hurting the commercial unit’s earnings significantly.  

Considering Boeing's lackluster delivery performance and the aforementioned charges, the Zacks Consensus Estimate for revenues at the Commercial segment stands at $9,068 million, indicating a 37.4% decline from the year-ago quarter’s reported figure. In tandem, the same for this unit’s earnings is pegged at $350 million, suggesting a 78.7% decline from the year-earlier quarter’s reported number.

What the Zacks Model Unveils

Our proven model shows that Boeing is likely to beat earnings in second-quarter 2019. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Boeing has an Earnings ESP of +2.72% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks That Warrant a Look

Here are some companies in the Aerospace sector that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Lockheed Martin LMT is scheduled to report second-quarter 2019 results on Jul 23. The company has an Earnings ESP of +0.14% and a Zacks Rank #1.

Moog Inc. MOG.A is expected to report third-quarter fiscal 2019 results on Jul 26. The company has an Earnings ESP of +0.76% and a Zacks Rank #3.

Ducommun Incorporated DCO is expected to report second-quarter 2019 results on Aug 5. The company has an Earnings ESP of +12.75% and a Zacks Rank #3.

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The Boeing Company (BA) : Free Stock Analysis Report
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Moog Inc. (MOG.A) : Free Stock Analysis Report
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