Poor Segmental Performance to Mar Boeing's (BA) Q3 Earnings

The Boeing Company BA is set to release third-quarter 2020 results on Oct 28, before the opening bell.

The company’s four-quarter average negative earnings surprise stands at 77.6%. Lower commercial service volume along with reduced deliveries are expected to have weigh on Boeing’s results in the third quarter.

Let's take a detailed look at the factors likely to have influenced Boeing’s performance in the third quarter.

Poor Deliveries Indicate Lackluster Earnings

Boeing’s third-quarter deliveries reflected a massive 54.8% decline in commercial shipments from the year-ago reported figure. Defense shipments plunged 108.1%.

For manufacturing companies like Boeing successful deliveries of finished products play 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 results this time around. Consequently, 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-eps-surprise | The Boeing Company Quote

Dismal Segmental Performance

Poor delivery figures for Boeing’s commercial and defense segments are expected to have weighed on the operational performance of these business units. Hopes for Boeing Global Services (BGS) unit’s performance in the third quarter are not quite high as well.

This is because, although the global economy is recovering, the pace is very slow and the adverse impact of coronavirus on air travel continues. Consequently, commercial aerospace has been bearing the brunt of restricted air travel, which, in turn, is hampering aftermarket commercial jet services. Hence, such low commercial service volume is expected to have weighed on BGS unit’s revenues in the yet-to-be-reported quarter.

In fact, all the major business segments of Boeing are likely to have performed dismally in the third quarter. While coronavirus impacts must have been a major growth inhibitor, effect of 737 grounding since March 2019 and the subsequent halt in production of this program are likely to have also taken a toll on the jet maker’s overall quarterly performance.

Moreover, 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.

Q3 Expectations

Notably, the Zacks Consensus Estimate for total revenues is pegged at $14.14 billion, suggesting 29.2% decline from the prior-year reported number. The consensus estimate for Boeing’s third-quarter earnings is pegged at $2.93 per share, indicating a massive 253.8% 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. 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. 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 +9.58% and a Zacks Rank #4 (Sell).

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:

L3Harris Technologies LHX has an Earnings ESP of +0.57% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kratos Defense KTOS has an Earnings ESP of +33.33% and a Zacks Rank of 3.

A Recent Defense Release

Lockheed Martin LMT reported third-quarter 2020 earnings from continuing operations of $6.25 per share, which surpassed the Zacks Consensus Estimate of $6.07 by 3%. The bottom line also improved 10.4% from the year-ago quarter’s $5.66.

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