Higher Commercial Airplane Deliveries Likely Drove Boeing’s Q3 Earnings

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BA: The Boeing Company logo
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The Boeing Company

Boeing (NYSE:BA) will announce its third quarter earnings for 2015 on October 21st. [1] The company is coming off a good performance through the first half of 2015, in which its revenues and EBITDA rose on higher commercial airplane deliveries. We expect the company to continue this trajectory in the third quarter as well. Boeing delivered 199 commercial airplanes in Q3 as compared to 186 in the prior year quarter and this will likely lift the earnings despite continued headwinds on the defense side.

Separately, in a recent development, Richard Anderson, CEO of Delta Air Lines, said there was a surge of wide-body models coming off lease. [2] This sparked fears among investors about pressure on pricing for Boeing’s new aircraft, which, in turn, led to a 4% decline in Boeing’s stock, sharpest intraday decline in past year. We will be looking for any update on this from Boeing’s management on its earnings conference call.

  • Trefis currently has a $131 price estimate for Boeing’s shares, translating into a $90 billion market cap. This is slightly below the current market price of $134.
  • We estimate the company’s 2015 gross revenues to be around $95 billion for earnings per share of $7.25, as compared to $8.05, according to Reuters.

See our complete analysis of Boeing here

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Higher Commercial Airplane Deliveries Will Surely Boost The Top Line

Boeing has so far delivered 580 airplanes in 2015, of which, 101 were 787s, averaging around 11 per month. In Q3, Boeing’s deliveries stood at 37 787s, 27 777s, 5 767s and 4 747s. [3] This growth in deliveries points towards stronger cash flows, as Boeing receives a significant portion of its payment at the time of airplane delivery. Boeing is increasing its production rates to avoid long waiting periods on airplane deliveries as it could compel airlines to look at other manufacturers. These higher production rates will help Boeing sustain its global market share and drive revenue growth in the foreseeable future. Also, strong demand for new commercial airplanes should persist as airline profits are rising amid lower fuel costs and growing demand for air travel. Low oil prices have also given airlines the opportunity to invest in new equipment. Boeing itself bagged new orders for 182 aircrafts in Q3. Also see:

Boeing Will Sustain Its Current Market Share In Commercial Airplane Deliveries

Why It Makes Sense For Boeing To Continue Increasing Its Production Rate

Defense Orders Likely To Remain Subdued

Boeing continues to face pressure on defense orders and this has weighed on the segment’s top line as well as bottom line. Revenues fell 7% and earnings were down over 20% during the first half of 2015. [4] Boeing’s fighter jet program continues to witness low orders and an uncertain future in the global fighter jets market due to intense competition from Lockheed Martin. We expect it to continue this trajectory in the near term. In response to the slowdown in the U.S. defense orders, Boeing has been focusing on international markets for growth. Recently, the company inked a $2.5 billion deal with India to sell Apache and Chinook helicopters. [5] Boeing said that it expects to sell 150 new foreign Chinooks by 2022. Overall, we believe that strong profit growth from the commercial aviation segment should be sufficient to lift the company’s overall earnings despite continued weakness in the defense orders.

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Notes:
  1. Boeing’s Press Release, Sep 24, 2015 []
  2. Boeing Plunges as Delta Sees `Bubble’ of Used Wide-Body Jets, Bloomberg, Oct 15, 2015 []
  3. Boeing Reports Third-Quarter Deliveries, Boeing, Oct 5, 2015 []
  4. Boeing’s SEC Filings []
  5. Boeing’s Press Release, Sep 29, 2015 []