Why Boeing’s Q1 Earnings Will Likely Decline



First-quarter expectations

Boeing (BA) is scheduled to report its first-quarter earnings results on April 24. The company has beaten the earnings estimates for the last nine quarters with an average surprise of 10.4%. Boeing reported strong double-digit earnings growth in the previous five quarters.

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However, Boeing might not be able to continue its growth momentum in the first quarter. According to the analysts polled by Reuters, Boeing’s adjusted EPS will likely fall 11.3% YoY (year-over-year) to $3.23.

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What’s driving the pessimism?

Lower revenues and increased costs associated with Boeing’s troubled 737 series jets are weighing on the company’s first-quarter earnings. Analysts expect the company’s first-quarter revenues to fall 1.2% YoY to $23.1 billion due to lower deliveries of its fast-selling and most profitable 737 aircraft.

During the first quarter, Boeing’s shipments of 737 series planes fell to 89 from 132 during the same period last year. The company halted its 737 MAX deliveries. The planes have been grounded worldwide following two fatal crashes in Indonesia and Ethiopia, which killed 346 people.

The 737 series planes account for 80% of Boeing’s total aircraft shipments. The 737 planes contribute ~30% of the company’s overall operating profit. Therefore, delays or delivery cancellations would hurt the company’s revenues, earnings, and cash flows.

Analysts expect research and development expenses to rise in order to fixing the software problem in the 737 MAX planes. The increased expenses could hurt Boeing’s bottom-line results. The initial investigations into the Indonesia and Ethiopia crashes pointed to faults in the company’s anti-stall system also known as the “Maneuvering Characteristics Augmentation System.”

Boeing has reworked the software glitch. The company has made 96 flight tests to secure the safety of its 737 MAX planes. Boeing has reduced its monthly 737 MAX production to 42 from 52. Reduced productivity and lower efficiencies will likely have a negative impact on Boeing’s first-quarter bottom-line results.

Peers’ expectations

Analysts’ first-quarter EPS projections for major aerospace and defense stocks (XLI) including Lockheed Martin (LMT) and Northrop Grumman (NOC) are $4.34 and $4.59, respectively, which would mean rises of 8% and 8.9% YoY, respectively. General Dynamics’ (GD) first-quarter EPS will likely fall 8.5% YoY to $2.42.


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