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Dismal 787 Deliveries May Drag Down Boeing (BA) Q4 Earnings

Zacks Equity Research
·4-min read

Dismal 787 delivery figures along with rising severance and storage costs are expected to have weighed on The Boeing Company’s BA commercial business in the fourth quarter. The coronavirus pandemic impact can be identified as a major growth inhibitor for the unit.

Scheduled for release on Jan 27, Boeing’s fourth-quarter 2020 results are likely to reflect these factors.

Click here to know how the company’s overall Q4 performance is expected to have been.

Did 737 Max Hurt Q4 Results?

Boeing’s 737 Max program received the approval from the U.S. Federal Aviation Administration (FAA) to return to service at the end of November 2020. Consequently, the company was able to deliver 31 units of its single-aisle 737 jets compared to nine units delivered in the fourth quarter of 2019. This must have boosted its commercial revenues to some extent.

However, the company is bound to have incurred significant expenses on account of the huge number of 737 aircraft that are still parked in the company’s storage facilities. This must have weighed on the company’s commercial bottom-line performance.

The Boeing Company Price and EPS Surprise

The Boeing Company Price and EPS Surprise
The Boeing Company Price and EPS Surprise

The Boeing Company price-eps-surprise | The Boeing Company Quote

Poor 787 Deliveries

Apart from 737, deliveries of other commercial products of Boeing remained unimpressive during the fourth quarter, declining 25.3% year over year. In particular, the aircraft giant could deliver only 59 airplanes in the soon-to-be-reported quarter, primarily due to dismal 787 Dreamliner jets. This dragged down overall commercial delivery figures, likely affecting its commercial segment’s top line in the soon-to-be-reported quarter.

The recovery observed in global air traffic was not enough to offset the impact of reduced demand, which touched rock bottom. In fact, this has forced the company to consolidate its manufacturing facilities for the 787 program in recent times, with a large number of Dreamliners stranded in its inventory.

Moreover, some quality control problems associated with the manufacturing of 787 jets have been affecting delivery at this product line. Similar issues are expected to have weighed on the company’s commercial business unit’s Q4 performance.

Currently, the Zacks Consensus Estimate for Boeing’s commercial business segment’s revenues, pegged at $4,679 million, indicates 37.3% decline year over year.

Abnormal Production Cost Woes

In light of the ongoing crisis situation, Boeing decided to reduce the production rates of several of its commercial airplane programs. As the company continues to produce at abnormally low production rates, it expects to incur approximately $5 billion of abnormal production costs, of which it already incurred $2.1 billion as of Sep 30, 2020. We expect the company to have incurred similar notable abnormal production cost in the fourth quarter as well, which may have hurt its earnings from commercial business.

Also, Boeing has been incurring notable severance costs on account of employees leaving due to the pandemic impact. With additional approximate 7,000 employees expected to leave the company through the end of 2021, Boeing must have incurred significant severance costs in the fourth quarter. Further, storage of a large number of finished 787 jets must have pushed up the company’s expenses for storage, thus dragging down its commercial unit’s earnings.

Currently, the Zacks Consensus Estimate for its commercial unit is pegged at a loss of $689 million.

What the Zacks Model Unveils

According to the Zacks model, a company needs the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise.

Boeing has an Earnings ESP of 0.00% and a Zacks Rank #3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some defense companies you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases:

Leidos Holdings LDOS has an Earnings ESP of +6.79% and a Zacks Rank #2.You can see the complete list of today’s Zacks #1 Rank stocks here.

Curtiss-Wright CW has an Earnings ESP of +1.50% and a Zacks Rank of 3.

Triumph Group, Inc. TGI has an Earnings ESP of +7.14% and a Zacks Rank of 2.

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