The Aerospace Giant Is Scheduled To Announce Its Fourth-Quarter Earnings Report On Wednesday.
Boeing Company (NYSE:BA) is set to post its earnings report of the fiscal fourth quarter before the opening bell on January 25, 2017, finishing off a rather rowdy but eventful year. The world’s largest aerospace company got beaten up at some points last year, which includes charges to its delayed KC-46 military tanker, declining sales of its 777 widebody jet, and general slowdown in commercial jet orders due to low oil prices.
It did not help when US President Donald Trump caused a fuss during the second half of 2016, when he attempted to block a deal with Iran while taking to Twitter to cancel the Air Force One. Trump claimed that the expenses at the program are expected to cross the $4 billion mark soon if things are not put in check. This event must have had hurt sentiment at least in the last quarter of the year.
Boeing officials have been working closely with the President-elect to find a way to bring costs lower following his statement with the Air Force One deal.
Even with these headwinds however, Boeing still released solid gains in 2016. To maintain this momentum in 2017, the commercial jet manufacturer will have to return earnings growth and present continued progress on cash flow.
For its earnings report tomorrow, Boeing is expected to report earnings of $2.34 per share on $23.44 billion in revenue by analysts.
The widely-owned stock is also trading near its record high, as indicated on the chart. The BA stock finished the previous session with a loss of 1.06% or $1.69 to trade at $158.08, but still remains in the range of all-time high levels. Solid backlogs and high delivery rates can be attributed to its mostly bullish trend.
Decreased orders
However, Boeing and its rival, Airbus Group SE (PA:AIR), have suffered from lower commercial orders in 2016. Historically, orders from airlines have been cyclical in nature and right now, it seems that the market is going through a slump.
Boeing’s deliveries have tumbled significantly over the last two years and will continue to do so with the current economic environment. The weak economy has forced air carriers and governments to postpone or cancel orders for new aircraft. Additionally, airliners built more than two or three decades ago are still flying regular routes after being restored several times. This trend is expected to continue well into this year.
The aerospace gargantuan had also targeted to sell as many planes as it delivers but fell short of the goal. Based on its guidance, Boeing projected to deliver between 745 and 750 planes, but only managed to book only 668 orders in the year.
Furthermore, orders for widebody aircraft are stuck in a downward trend. This becomes apparent from the weak order activity throughout last year for Boeing’s main widebody aircraft programs, the 777 and the 787. The company ended 2016 with only 58 net orders for the 787 and a measly amount of 17 net orders for the 777.
This is a gloomy performance considering those two programs combined received over 600 orders during the 2013 - 2014 period.
Analysts forecast 777 deliveries to further decline to about 3.5 a month in 2018, as the successor 777X model enters production. Currently, Boeing builds and produces an estimated 8.3 planes a month.
Nonetheless, in this context, solid execution will be the key to Boeing's performance. Should the aircraft manufacturer win some of the few major ongoing sales campaigns while keeping costs low and improving the profitability of its 787 production, the stock could keep going up this 2017.
Cost Cuts
Another thing investors should watch for in the upcoming earnings report is if whether Boeing’s cut costs are working or not. Over the past five years, the aerospace giant’s defense unit has fallen dramatically in order to uphold its profitability in the face of weak US military spending. In contrast, Boeing's commercial aircraft division did not have the same focus on cut costs, until recently.
Boeing's full-year earnings dropped year over year in 2016 following the minimized costs, even excluding the effect of several one-time charges the company incurred. Boeing instigated heavy cost cuts in its commercial airplanes division during 2016 in response to slowing sales and bigger pricing pressure in the commercial aircraft market. The commercial airplanes segment cut its workforce by 8% last year, and even more cuts are expected in 2017.
Boeing CEO Dennis Muilenburg projects revenue to be approximately flat year over year in 2017. For earnings to rebound, the company's cost cuts will have to drive meaningful savings this year.
With this, investors should pay attention to Boeing's formal guidance in the earnings report and management's comments about the cost-cutting program on the succeeding earnings call.