Can Commercial Jet Deliveries Aid Boeing’s (BA) Q4 Earnings?

The Boeing Company’s BA Commercial Airplanes segment has been consistently witnessing solid deliveries, buoyed by the increasing demand for its commercial jetliners 737, 787 and 747 in the domestic as well as international market. We expect this strength to get reflected in fourth-quarter 2017 results, which are scheduled for release on Jan 31, before the market opens.

Solid Deliveries Buoy Optimism

On Jan 9, 2018, Boeing announced upbeat fourth-quarter and 2017 delivery figures. The company dispatched 763 jets in 2017, up 2% from the year-ago figure of 748 jets, buoyed by higher 737, 747 and 767 deliveries. The figure was within the company’s delivery guidance of 760-765.

In 2017, Boeing delivered 529 jets of the 737 fleet and 136 of the 787 fleet. In the year-ago period, the company delivered 490 units of the 737 and 137 units of the 787 fleet. Boeing delivered 74 units of the 777 model in 2017, compared with 99 units a year ago. Other deliveries include 10 767s and 14 747s, compared with 13 and 9 units, respectively.

Coming to its fourth-quarter deliveries, Boeing reported fourth-quarter 2017 commercial deliveries of 209 airplanes, up year over year backed by higher demand for 737 and 747 jets. Sequentially, the numbers went up 3.5%. Delivery of the single-aisle 737 jet increased to 148 in the fourth quarter from 122 a year ago.

Shipments of the 777 and 787 Dreamliners totaled 16 and 36, compared with 26 and 33 in the year-ago period, respectively. The company’s delivered 6 747 and 3 767 jets, compared with 1 747 and 3 767 in the year-ago quarter.

Dubai Air Show — A Grand Success

Dubai Air Show, held in November 2017, witnessed some landmark deals involving renowned jet makers from across the globe, with total orders booked worth $114 billion. Apart from Airbus Group (EADSY), Boeing sealed majority of the game-changing deals in this event, which we believe will boost its results in the quarter to be reported.

Notably, the company sealed a deal worth $15.1 billion for delivering 40 787-10 Dreamliners to Emirates airline, on the very first day of the show. The company clinched another significant deal worth $27 billion for delivering 225 737 MAX airplanes to flydubai airlines. This marked the largest-ever single-aisle jet order for Boeing, from a Middle East carrier.

Apart from these two orders, Boeing received an order from the Kuwait-based ALAFCO Aviation Lease and Finance Company for supplying 20 additional 737 MAX 8s, valued at $2.2 billion. Additionally, the company secured an order for five more 787-8 Dreamliners and a commitment to purchase two large freighters, valued at $1.9 billion, from Azerbaijan Airlines.

Will 737 be a Major Growth Driver?

Demand for Boeing’s commercial airplanes has been on the rise due to a steady improvement in 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, thanks to its fuel efficiency and passenger comfort. Interestingly, majority of the commercial orders Boeing won in 2017 belonged to the 737-fleet.

Considering the fact that 737 is the fastest-selling airplane in Boeing’s history, exceeding 4,000 total orders from more than 92 customers, we expect this fleet of jet to play the role of a key catalyst for Boeing’s fourth-quarter results.

Will Huge Orders Drive the Top Line?

Apart from the aforementioned orders that Boeing won in the Dubai Air Show, the company received a number of multi-billion dollar orders in the fourth quarter. Thus such huge order growth is expected to boost the Commercial Airplanes segment’s revenues.

However, the Zacks Consensus Estimate for the Commercial Airplanes segment’s revenue is pegged at $14.9 billion for the fourth quarter, reflecting a year-over-year decline of 9.8%. This may have been driven by lower delivery rates for the company’s 777 jets.

Indeed a 38% drop was witnessed in the fourth 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 8.3 per month to 7 per month during first-quarter 2017, which was further reduced to the rate of 5 per month in third-quarter 2017.

Also deferred production cost for the 787 Dreamliner product line remains a concern for this segment’s growth. Though the company is witnessing declining costs, it hasn’t been able to completely waive off the same.

Here’s What Our Quantitative Model Predicts

Boeing currently does not have the right combination of two main ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: The Earnings ESP for the company is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Boeing sports a Zacks Rank #1 (Strong Buy), which increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of a positive earnings surprise.

The Zacks Consensus Estimate for earnings of 73 cents reflects a 12.3% rise on a year-over-year basis.

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.

Stocks that Warrant a Look

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

Huntington Ingalls Industries, Inc. HII is expected to report fourth quarter results on Feb 15. The company has an Earnings ESP of +3.43% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Curtiss-Wright Corporation CW is expected to report fourth quarter results on Feb 21. The company has an Earnings ESP of +0.94% and a Zacks Rank #2.

AAR Corp. AIR is expected to report third-quarter fiscal 2018 results on Mar 20. The company has an Earnings ESP of +5.70% and a Zacks Rank #3.

Zacks Top 10 Stocks for 2018

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2018?

Last year's 2017 Zacks Top 10 Stocks portfolio produced double-digit winners, including FMC Corp. and VMware which racked up stellar gains of +67.9% and +61%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

Access Zacks Top 10 Stocks for 2018 today >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.