Boeing Pre-Earnings: Rising Commercial Airplane Deliveries To Boost Earnings

Boeing (NYSE:BA) is shceduled to release its fourth quarter results on January 27th. The company posted good growth figures last quarter primarily due to a record number of commercial plane deliveries. In the quarter, the aerospace giant delivered 199 aircraft. This is close to a 7% growth in production from the same prior year quarter. The company also posted double digit top line growth in the segment and we believe this trajectory has continued through the fourth quarter and into the new year.  Management has guided to a good finish to the year and in fact on the last earnings call raised revenue and earnings per share by $500 million and $0.25, respectively. ((Boeing (BA) Q3 2015 Earnings Call Transcript, www.seekingalpha.com))

Financial Highlights from Q3:

• The company managed to post revenues of $25.8 billion, beating the consensus revenue estimate of $24.74 billion.
• Boeing completely surpassed the consensus EPS estimate of $2.22 by achieving an adjusted EPS figure of $2.52. The figure recorded in the same quarter last year was $2.14.
• The number of commercial airplane deliveries rose to 199 from 186 during the same period last year.

In the current quarter, Boeing surpassed even its own projections by delivering a record number of airplanes. With higher demand and additional orders, it seems likely to expect yet another solid performance by the company this quarter.

See our complete analysis of Boeing here

Surge in Commercial Airplane Deliveries to Carry Earnings

Boeing has a large order backlog of close to $425 billion. It is for this reason that the company has implemented strategies to try and increase production rates over the past few quarters. This seems to be working pretty well for the company. To gain more perspective, the number of jets delivered in 2015 is close to double the number of jets that were delivered in 2008. The company delivered close to 762 jets this year, which also represents a 5.4% increase year over year. ^[1]

The aerospace giant hopes to increase production rates even further for some of its most profitable aircraft, while cutting production of aircraft that aren’t performing as well. In this respect, the company plans to increase the production figures of its 787 series to 12 per month in 2016, with a further increase to 14 per month by the end of the decade. ^[2] Additionally, the Chicago based company has decided to cut production of its wide-bodied 747-8 aircraft to just 6 a year (representing a 50% cut in production), as the trailing cargo market continues its downtrend. The management believes that the slashed production will result in a $569 million after-tax charge, or 84 cents per share, in its fourth-quarter 2015 financial results. ^[3]

Despite the decision to cut production of the 747-8, Q4 saw close to 182 commercial jet deliveries on the back of rising demand for the for 787 Dreamliner and Next Generation 737 single-aisle variants. Furthermore, Boeing could be awarded two major contracts from Iran and United Airlines. With further orders expected in the new year, higher passenger revenue miles (an indicator of air travel demand) and increased production rates, it seems very likely that this upward trend is going to continue at least in the near term.

The Defense Segment Could Continue to Weigh On Revenues:

Intense competition from fellow fighter jet manufacturer Lockheed Martin has led to a decrease in the number of orders the company was awarded in 2015. In the last quarter, the pressure from reduced orders weighed on the segment’s top and bottom lines.

To compensate for this fall in orders, Boeing has decided to focus more on international orders to try and offset the negative impact from the local demand-supply stalemate. The company expects to sell close to 150 new, foreign Chinooks by 2022. Specifically, in Q3, international orders represented almost 35% of the revenue and about 40% of the total backlog. Revenues in the quarter also witnessed a 6% growth.

Despite this, however, Boeing is poised to release yet another solid quarter this Wednesday. Analysts expect the company to post an EPS of about $2.16 and revenues of $23.4 billion in the current quarter driven primarily by a heavy surge in commercial plane deliveries and orders. Will the commercial segment help outweigh the negative impact from the defense segment? Possibly, yes. But one just has to wait and see. ^[4]

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More Trefis Research

1. Boeing’s Q4 Deliveries Shine; What About its Earnings? www.zacks.com [↩]
2. Boeing Will Sustain Its Current Market Share In Commercial Airplane Deliveries, www.trefis.com [↩]
3. Boeing’s Earnings; What to Watch, www.wsj.com [↩]
4. BA Set to Announce Earnings on Wednesday, www.covuswire.com [↩]