Dismal delivery figures, particularly for The Boeing Company’s BA 737 product line are expected to have weighed on the company’s commercial business in the second quarter. The coronavirus pandemic impact is also likely to have hurt the unit’s performance.
Scheduled for release on Jul 29, Boeing’s second-quarter 2020 results are likely to reflect these factors.
Click here to know how the company’s overall Q2 performance is expected to have been.
737 Max Remains a Growth Inhibitor
Once considered a key growth catalyst for Boeing’s revenues, the 737 Max program has been dragging down the jet giant’s operational performance since its grounding in last March. Although lower rate production of these jets started around the end of May 2020, the second quarter witnessed a notable plunge in deliveries when compared to the year-ago quarter.
The Boeing Company Price and EPS Surprise
The Boeing Company price-eps-surprise | The Boeing Company Quote
This happened because of this jet model’s infamous face loss in recent times, which led to majority of the airlines to either cancel scheduled delivery of 737 Max or delay the same. Consequently, Boeing’s commercial business segment results are expected to reflect poor revenues as well as earnings in the soon-to-be-reported quarter.
Moreover, costs for storing around 450 completed 737 aircraft are expected to have weighed on Boeing’s operating cash in the to-be-reported quarter.
COVID-19 Impacts Hurt More
Boeing’s second-quarter deliveries reflected a massive 77.8% year-over-year plunge incommercial shipments. In particular, the aircraft giant could deliver only 20 airplanes in the soon-to-be-reported quarter,primarily due to dismal 737 jet deliveries and comparatively lower deliveries of the 787 Dreamliner. This dragged down overall commercial delivery figures.
Along with such lower delivery volumes, impacts of the coronavirus pandemic must have affected overall commercial business of the aerospace giant. Notably, the novel coronavirus outbreak forced the majority of nations across the globe to impose strict travel ban on their citizens since the middle of the first quarter. As air traffic slowed sharply, new aircraft, which were supposed to get delivered, are now lying idle at Boeing’s manufacturing plants.
This in turn has pushed up the company’s expenses for storage, which is likely to have dragged down its commercial unit and overall earnings.
Lower Production Rates Push Up Costs
In light of the ongoing crisis situation, Boeing decided to reduce the production rates of several of its commercial airplane programs. Management believes that the reduction to the planned production rates will result in further cost increase to produce undelivered aircraft, primarily due to additional fixed cost absorption. Consequently, the company is expected to have witnessed higher abnormal production cost in the second quarter, which may have hurt its bottom line.
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 -4.82% and a Zacks Rank #4 (Sell). 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 release:
Curtiss-Wright Corp. CW has an Earnings ESP of +13.62% and a Zacks Rank #3.
Leidos Holdings, Inc. LDOS has an Earnings ESP of +0.11% and a Zacks Rank #3.
A Recent Defense Release
Lockheed Martin LMT reported second-quarter 2020 adjusted earnings of $6.13 per share, which surpassed the Zacks Consensus Estimate of $5.71 by 7.4%. It carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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