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Demand for 737 to Aid Spirit AeroSystem's (SPR) Q1 Earnings

Spirit AeroSystems Holdings, Inc. SPR is set to release first-quarter 2018 results on May 2 before the opening bell.

Increased demand for 737 jets is expected to boost Spirit AeroSystems’ first-quarter revenues. However, change in accounting standards and contributions from higher production rates set to boost bottom line in late 2018 are projected to hurt quarterly earnings.

Let’s see how things are shaping up at the company prior to this announcement.

Spirit Aerosystems Holdings, Inc. Price and EPS Surprise

Spirit Aerosystems Holdings, Inc. Price and EPS Surprise | Spirit Aerosystems Holdings, Inc. Quote

Will Fuselage Systems Drive Growth?

Fuselage Systems segment, which represents more than 50% of Spirit AeroSystems’ total sales, has been a major growth driver for the company. The segment’s revenues increased 12.2% year over year in the fourth quarter of 2017, primarily driven by higher production deliveries on the Boeing 737 program. With Boeing being the company’s primary client and its first-quarter deliveries reflecting a solid 16.8% improvement for 737 models, the delivery upside is likely to boost Fuselage Systems segment’s revenues. Therefore, we may expect to witness a rise in this segment’s top line in the to-be-reported quarter.

Evidently, the Zacks Consensus Estimate for the segment’s first-quarter sales is pegged at $933 million, reflecting year-over-year rise of 1.7%.

Other Factors at Play

The company is focusing on executing the multiple production rate increases, meeting the targets on safety, quality, delivery and costs. In 2018, production rates for 737 will increase to 52 aircraft per month. The A350 will rise to 10 aircraft per month in 2018, while Boeing is working on increasing the 787 to 14 aircraft per month. Such increased production rates are likely to bolster Spirit AeroSystems’ overall revenues. In line with this, the Zacks Consensus Estimate for first-quarter revenues of $1.70 billion reflects year-over-year growth of 0.5%.

During the fourth-quarter earnings call, management announced that it expects the company to deliver lower earnings as earnings contributions from higher production rates are expected in the latter part of 2018. Moreover, shortened accounting contracts are absorbing higher percentage of near-term cost increases to support these rates, thereby weighing on the bottom line. Also, due to some changes in its pension accounting, the company forecasts to incur forward loss in the range of $15-$20 million. This is also likely to drag down its earnings growth.

What Does the Zacks Model Predict?

Our proven model shows that Spirit AeroSystems is unlikely to beat estimates because it does not have the right combination of the two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates, and Spirit AeroSystems has the right mix.

Zacks ESP: Earnings ESP for the company is -1.47%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Spirit AeroSystems carries a Zacks Rank #3.

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell-rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Stocks that Warrant a Look

Here are a few defense stocks worth considering on the basis of our model, which shows that they have the right combination to pull off a beat.

Curtiss-Wright Corporation CW is expected to report first-quarter 2018 results on May 2. The company has an Earnings ESP of +0.11% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Air Industries Group AIRI is expected to report first-quarter results on May 29. The company has an Earnings ESP of +100.00% and a Zacks Rank #3.

L3 technologies Inc. LLL is expected to report first-quarter results on May 1. The company has an Earnings ESP of +4.33% and a Zacks Rank #3.

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Air Industries Group (AIRI) : Free Stock Analysis Report
 
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