Will Higher 737 Deliveries Drive Boeing's (BA) Q1 Earnings?

With the rise in demand for commercial jetliners both in the domestic and the international market, The Boeing Company’s BA Commercial Airplanes segment has been receiving contracts regularly for delivering 737, 787 and 747 jets. We believe the impact of the same to get duly reflected in the company’s first-quarter 2018 results, slated to release on Apr 25, before the market opens.

Solid Deliveries Buoy Optimism

On Apr 11, Boeing announced upbeat first-quarter 2018 commercial delivery figures. The company delivered 84 airplanes, up 8.9% year over year. The rise in delivery came on the back of  higher demand for 737 jets. Delivery of the single-aisle 737 jet increased to 132 in the first quarter of 2018 from 113 a year ago.

Shipments of the 777 and 787 Dreamliners totaled 12 and 34, compared with 21 and 32, respectively in the year-ago period. For the 747 and 767 jets, the company delivered two and four jets, respectively compared with 1 and 2 in the year-ago quarter.

737 — A Major Growth Driver

Demand for Boeing’s commercial airplanes has been on the rise due to a steady improvement in the passenger and freight traffic. Per Boeing's current market outlook, the world will need 41,030 new planes, worth $6.1 trillion between 2017 and 2036. Single-aisle jets are expected to be the major demand driver, comprising 72% of the total projection.

Interestingly, the company’s 737 model remains one of the best-selling planes in the single-aisle market, courtesy of its fuel efficiency and passenger comfort. Interestingly, majority of the commercial orders Boeing has won in 2018 belonged to the 737-fleet. In particular, recent ramp up in the production of 737 Max has been fueling the demand for 737-fleet.

Considering the fact that management at Boeing expects its current-year revenues to reflect higher planned production of the 737 model, we expect this fleet of jet to play the role of a key catalyst for Boeing’s first-quarter results.

The Boeing Company Price and EPS Surprise

The Boeing Company Price and EPS Surprise | The Boeing Company Quote

Will Huge Orders Drive the Top Line?

Keeping with its trend, Boeing received a number of multi-billion-dollar orders in the first quarter. However, it has been witnessed that majority of these orders came for either 737-Max or 787-Dreamliners.  In particular, lower delivery rates for its 777-model marred the order growth for 737. 

Indeed, a huge drop of 43% was witnessed in the first quarter deliveries of 777 model, which clearly show lack of demand for this particular jet. In fact, realizing its declining demand, Boeing implemented a planned production rate decrease from seven per month to five per month during third-quarter 2017, which has been further reduced to the rate of 3.5 per month for 2018.

This significant decline in 777 deliveries may outweigh the 16.8% improvement in 737 deliveries and might get reflected in the form of lower revenues for Boeing’s commercial jets in the upcoming results. In line with this, the Zacks Consensus Estimate for the Commercial Airplanes segment’s revenues is pegged at $13.1 billion for the first quarter, reflecting a year-over-year decline of 12.4%.

What the Zacks Model Unveils

Our proven model shows that Boeing is likely to beat earnings this quarter. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Well, Boeing possesses the right combination currently, as the Zacks Rank #2 company has an Earnings ESP of +1.70%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Please note that 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.

Other Stocks that Warrant a Look

Here are a few other stocks in the Aerospace and Defense space worth considering on the basis of our model which shows that they have the right combination to pull off a beat:

Rockwell Collins COL is expected to report second-quarter fiscal 2018 results on Apr 27. The company has an Earnings ESP of +0.19% and a Zacks Rank #2.

General Dynamics GD is expected to report first-quarter 2018 results on Apr 25. The company has an Earnings ESP of +0.18% and a Zacks Rank #3.

L3 Technologies LLL is expected to report first-quarter 2018 results on May 1. The company has an Earnings ESP of +2.51% and a Zacks Rank #3.

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