What Can We Expect From Boeing’s Q3 Earnings?

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The Boeing Company

Boeing (NYSE:BA) is set to announce earnings for its third quarter Wednesday, October 26th. Overall, the company has suffered from low orders and high charges on some of its troubled programs, greatly affecting earnings. Furthermore, the airplane manufacturer pre-announced a decline of about 5.5% in its commercial deliveries this quarter, offset partially by an increase in defense deliveries by about 4.2%. However, despite a slowdown, Boeing deliveries have been higher than rival Airbus in the same period. That said, we can expect revenues and earnings to fall year over year by 5% to 10%.

Boeing deliveries have fallen considerably this year and will continue to do so considering the current economic environment. The weak economy has forced air carriers and governments to delay or cancel orders for new aircraft, including the flagship 787 Dreamliner. Furthermore, airliners built more than 20 to 30 years ago are still flying regular routes after being refurbished multiple times. To compensate for falling revenues, Boeing is seeking to push aggressively into aftermarket sales that currently show 4.5% annual growth.

In a recent announcement, the company announced that deliveries have fallen from 199 aircraft delivered in Q2 to 188 delivered in Q3. The deliveries for its 737 airplane fell from 126 to 120 from about a year ago and 787 deliveries fell to 36 from 37.

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Additionally, it seems likely that Boeing might cut production of its current-generation 777 aircraft. Management has already announced that the company will be cutting production of its wide body jet to about 7 per month in 2017 from about 8.3 per month currently. That said, it seems likely that even 7 may prove to be pushing it, as carriers wait for the next generation 777X model. We expect such cuts to adversely impact sales this quarter.

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On the defense side, it is likely that Boeing will address its troubled KC-46 Air Force tanker program, which has been plagued with delays and cost overruns. In Q2, the company took a heavy $393 million after-tax charge on the plane due to higher costs associated with technical issues that delayed the delivery of the plane. Furthermore, the company also reported a charge on the tanker in Q1 and racked up $1.5 billion in cost overruns on additional engineering and development work. However, there is some good news for the program which cleared a major milestone in August, allowing low-rate initial production to begin.
Last month, the White House approved sales of up to 72 Boeing F-15s for Qatar and 32 Boeing F/A-18 Super Hornets for Kuwait after a massive aid package for Israel was approved. These approvals are bound to help Boeing’s St. Louis operations and should keep the Super Hornet production line in St. Louis running into 2020.
All in all, we expect Boeing to post revenues marginally lower year over year. This trend is likely to continue well into 2017 as well.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment / ask questions on the comments section

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of Boeing

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