Will Global Services Unit Aid Boeing's (BA) Q4 Earnings?

The Boeing Company (NYSE:BA) is set to release fourth-quarter and full-year 2019 results on Jan 29, before the opening bell.

Lower commercial deliveries are expected to weigh on Boeing’s quarterly results. However, contract wins for its services segment should reflect impressive figures.

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

Will Mixed Deliveries Boost Q4 Results?

Boeing’s fourth-quarter deliveries reflected a 66.8% year-over-year plunge in commercial shipments. However, its defense deliveries increased a solid 78% in the soon-to-be-reported quarter.

Nonetheless, this mixed delivery figures do not raise hopes for an optimistic operational performance this time around. This is because the aircraft giant’s defense business unit contributes 23% to its total revenues whereas its commercial segment accounts for 60% of overall revenues.

Therefore, an improved defense delivery of 78% will not be sufficient to offset the adverse impact of the commercial unit’s delivery loss of almost 67%. Since lower deliveries tend to affect the company’s top as well as bottom line, our consensus estimate for both indicates year-over-year decline.

BGS Unit to Reflect Growth

Boeing Global Service (BGS) segment is expected to have witnessed revenue growth. To this end, it is imperative to mention that last November, the aircraft giant clinched some service orders and agreements at the Dubai Airshow.

Such new business wins are likely to have boosted this business segment’s top line in the soon-to-be-reported quarter. The Zacks Consensus Estimate for BGS unit’s fourth-quarter revenues is pegged at $5.02 billion, suggesting 2.6% improvement from the prior-year reported number. The consensus estimate for the unit’s bottom line is pegged at $777 million, indicating 6.1% rise from the prior-year reported number.

Nevertheless, BGS along with Boeing’s defense units together constitutes 40% of the company’s overall revenues, still less than that of the commercial unit. Therefore, the jet maker’s top and bottom line results are projected to reflect dismal performance.

Notably, the Zacks Consensus Estimate for the company’s total revenues in the fourth quarter is pegged at $21.67 billion, suggesting 23.6% decline from the prior-year reported number. The consensus estimate for Boeing’s fourth-quarter earnings is pegged at $1.73 per share, indicating 68.4% decline from the year-ago quarter reported figure.

Cash Flow to Take a Hit

Lower delivery payments due to fewer 737 deliveries combined with costs for building and storing 737 aircraft are expected to have weighed on Boeing’s operating cash in the to-be-reported quarter.

Notably, Boeing added $872 million of program costs on 737 in the third quarter of 2019 to reflect assumptions regarding the timing of return to service in its third-quarter result accounting. But considering the company’s decision to temporarily suspend 737’s production, which it announced in December, along with extension of expected return of this jet to service in June, the 737 program is projected to have incurred higher costs that earlier anticipated.

These in turn are likely to get reflected in the company’s fourth-quarter balance sheet.

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 -7.83% and a Zacks Rank #3, which makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

Here are some other defense companies you may want to consider, which have the right combination of elements to post an earnings beat this quarter:

Aerojet Rocketdyne Holdings (NYSE:AJRD) has an Earnings ESP of +2.17% and a Zacks Rank #3. The company is expected to announce fourth-quarter 2019 earnings soon.

General Dynamics (NYSE:GD) has an Earnings ESP of +2.23% and a Zacks Rank #3. The company will announce fourth-quarter 2019 earnings results on Jan 29.

Heico Corp. (NYSE:HEI) has an Earnings ESP of +8.94% and a Zacks Rank #1. The company is expected to announce first-quarter fiscal 2020 earnings soon.

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