Poor Defense Deliveries to Hurt Boeing's (BA) Q3 Earnings

The Boeing Company’s BA Defense, Space & Security (BDS) segment is likely to have recorded dismal top-line growth in third-quarter 2020, courtesy of poor deliveries of the company’s varied defense products. Moreover, coronavirus-induced supply chain shortage is likely to have impacted results.

Boeing’s third-quarter 2020 results are scheduled to be released on Oct 28.

Click here to know how the company’s overall Q3 performance is expected to be.

Steady Order Flow to Aid Backlog

With the U.S. administration spending significantly on the nation’s defense for the past couple of years, Boeing’s defense and space unit has been witnessing solid order flow from the Pentagon, NASA and Congress for its varied products. This, in turn, has been boosting BDS unit’s backlogs.

Keeping up with its usual trend, the aerospace giant clinched a handful of big contracts during the third quarter as well. These include a $22.9 billion contract involving the F-15EX aircraft. The jet maker also won a $150 million modification contract for the Ground-based Midcourse Defense development and sustainment. These should duly get reflected in the upcoming results in the form of backlog growth.

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 Deliveries & Expenses Mar Q3 Performance

Boeing’s third-quarter 2020 defense delivery figures reflected a significant plunge of 108.1% from the year-ago period.

In the quarter, its defense deliveries totaled 37, down from 77 in the year-ago period. Such dismal delivery figures are expected to have brought down the defense segment’s revenues in the soon-to-be-reported quarter. Such a bleak delivery figure can once again be attributed to coronavirus-led business restrictions that reduced and in some cases, paused shipment activities within the United States as well as across borders.

Meanwhile, the company must be continuing with its hiring in the defense business unit to meet customer commitments and to fill critical skill positions. This is expected to have shot up its quarterly expenses and in turn weighed on its Q3 bottom line.

Other Headwinds

Boeing implemented procedures to promote employee safety in its facilities, including more frequent and enhanced cleaning and adjusted schedules and work flows to support physical distancing. These actions may have increased operating costs.

In addition, a number of its suppliers have suspended or otherwise reduced their operations, and the company is experiencing some supply chain shortages. Its suppliers are also experiencing liquidity pressure and disruptions to their operations as a result of COVID-19. These disruptions reduced overall productivity and adversely impacted Boeing’s operations and cash flows in the first half of 2020. We expect third-quarter results to reflect similar adverse trends.

What the Zacks Model Unveils

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

Boeing has an Earnings ESP of +9.58% and a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stock to Consider

Here is a defense company you may want to consider as it has the right combination of elements to post an earnings beat in its upcoming release:

L3Harris Technologies LHX has an Earnings ESP of +0.57% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Recent Defense Releases

Lockheed Martin LMT reported third-quarter 2020 earnings from continuing operations of $6.25 per share, which surpassed the Zacks Consensus Estimate of $6.07 by 3%. The bottom line also improved 10.4% from the year-ago quarter’s $5.66.  

Northrop Grumman NOC reported third-quarter 2020 earnings of $5.89 per share, which surpassed the Zacks Consensus Estimate of $5.60 by 5.2%. Moreover, the bottom line improved 7% from $5.49 reported in the year-ago quarter.

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Northrop Grumman Corporation (NOC): Free Stock Analysis Report
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