Can Low 777 Demand Hit Spirit AeroSystems' (SPR) Q4 Earnings?

Spirit AeroSystems Holdings, Inc. (NYSE:SPR) , a designer and manufacturer of aero structures for both commercial and defense aircraft, is set to release fourth-quarter 2017 results on Feb 2, before the opening bell.

Expectations of sales decline at Fuselage Systems might mar the company’s fourth-quarter results. However, growing demand for commercial jets is expected to boost sales.

Spirit Aerosystems Holdings, Inc. Price and EPS Surprise

Will Fuselage Systems Drive Growth?

Fuselage Systems, which represents more than 50% of total sales, has been a major growth driver for Spirit AeroSystems. Unfortunately, the top-line scenario for this segment is bleak for the yet-to-be-reported quarter. Evidently, the Zacks Consensus Estimate for the segment’s fourth-quarter sales is pegged at $791 million, reflecting year-over-year decline of 6.8%.

Boeing (NYSE:BA) being the primary client, the demand of its commercial jets influences Spirit AeroSystems’ prospects. Per Boeing’s fourth-quarter delivery numbers, a 38% drop was recorded in the deliveries of 777 model
which clearly shows declining demand. This in turn might have led Zacks analysts to slash top-line expectations for the Fuselage Systems segment.

Other Factors at Play

Although delivery numbers remained unimpressive for the 777 program of Boeing, other primary programs like 737 and 787 reflected solid growth. Therefore, the overall fourth-quarter growth story for Spirit AeroSystems remains impressive.

Demand for commercial airplanes has been rising on a steady improvement in passenger and freight traffic. As a result, the company’s long-term contracts with industry bellwethers like Boeing and Airbus Group (PA:AIR)
should help boost quarterly top and bottom-line figures.

The Zacks Consensus Estimate for Spirit AeroSystems’ fourth-quarter earnings reflects annual growth of 37.1% on 5.1% higher revenues.

What Does the Zacks Model Predict?

Our proven model does not conclusively show an earnings beat for Spirit AeroSystems this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below.

Zacks ESP: Spirit AeroSystems has an Earnings ESP of -0.08%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company carries a Zacks Rank #2.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some defense companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Huntington Ingalls Industries (NYSE:HII) is expected to report fourth-quarter results on Feb 15. The company has an Earnings ESP of +3.43% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Curtiss-Wright (NYSE:CW) is expected to report fourth-quarter results on Feb 21. The company has an Earnings ESP of +0.94% and a Zacks Rank #2.

AAR (NYSE:AIR) is expected to report third-quarter fiscal 2018 results on Mar 20. The company has an Earnings ESP of +5.70% and a Zacks Rank #3.

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