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What to expect from Boeing Q2 earnings

Boeing (NYSE: BA) is scheduled to report its earnings results for the second quarter of 2019 on Wednesday before the market release. The aircraft maker will take a charge of $4.9 billion related to the 737 Max airplane grounding and associated delivery delays. The charge will hurt revenue and pre-tax earnings for the second quarter by $5.6 billion.

The commercial jet aircraft market and the airline industry remain extremely competitive. Boeing has been facing aggressive international competitors who are intent on increasing their market share, such as Airbus and other entrants from Russia, China and Japan. The commercial aircraft market is predominantly driven by long-term trends in airline passenger and cargo traffic, and market conditions have a significant impact on the demand of commercial aircraft.

What to expect from Boeing Q2 earnings

Boeing continues to seek opportunities to lower the costs of building aircraft, including working with its suppliers to reduce supplier costs, identifying and implementing productivity improvements, and optimizing how to manage inventory. The company’s backlog, which is converted into revenue in future, at March 31, 2019 was $486.85 billion. The company expects about 33% to be converted to revenue through 2020 and about 76% through 2023, with the remainder thereafter.

The credibility of the company has been questioned after the two fatal crashes that resulted in the grounding of the 737 MAX jets across the world. Ever since last month’s deadly crash, airline carriers have been cutting orders for the aircraft that was touted as the most advanced model ever built by Boeing. Boeing continues to work with civil aviation authorities to ensure the 737 Max’s safe return to service.

Boeing’s estimated costs to produce the aircraft in the 737 accounting quantity increased by $1.7 billion in the second quarter, primarily due to higher costs associated with a longer than expected reduction in the production rate. The increased 737 program costs will reduce the margin of the 737 program in the second quarter and in future quarters.

Will Boeing 737 Max takeoff again this year
The Boeing 737Max aircraft
(COURTESY: Boeing)

The company is expected to meet increased funding requirements by issuing commercial paper or term debt in the event of commercial aircraft financing commitments and others including impacts related to the 737 Max grounding. The company believes its ability to access external capital resources should be sufficient to satisfy existing short-term and long-term commitments. As of the end of the first quarter, Boeing had a total debt of $15.81 billion while it had total cash of $7.73 billion.

Analysts expect the company’s earnings to plunge by 46.80% to $1.77 per share and revenue will dip by 21.20% to $19.12 billion for the second quarter. In comparison, during the previous year quarter, Boeing posted a profit of $3.33 per share on revenue of $24.26 billion. The company has surprised investors by beating analysts’ expectations thrice in the past four quarters.

For the first quarter, Boeing reported a 13% decline in earnings due to lower revenue, lower 737 deliveries as well as timing of receipts and expenditures. Revenue slipped 2% year-over-year. During the quarter, Commercial Airplanes delivered 149 airplanes and the production rate for the 787 increased to 14 airplanes per month.

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Amazon Q2 earnings preview: What to watch?

Amazon’s (NASDAQ: AMZN) stock has increased 31% in 2019 after hitting a new 52-week low level of $1,307 mark in late December. The recovery in the share price is primarily attributed to the solid first-quarter results. The e-commerce giant is planning to report its Q2 results on July 25 after the bell.

Analysts are quite upbeat about the e-commerce giant’s performance. Out of the 35 analysts tracked by TipRanks, 34 have awarded “Buy” rating and 1 analyst has given “Hold” rating. They also expect the stock price to increase 15% in the next 12 months from today’s trading level of $1,974 mark. Investors are expecting Jeff Bezos and his team to continue the momentum from the last quarter.

What to Watch?

Here are the key performance indicators to watch when Amazon reports the Q2 results on Thursday.

1) Headline Numbers: Amazon expects sales to be between $59-63.5 billion compared to $62.44 billion expected by the street. Adjusted earnings is forecasted to come in at $5.58 by the analysts, an increase of 10% from last year.

Even though the company hasn’t given earnings guidance, it expects operating income to be between $2.6-3.6 billion compared to $3 billion in the prior-year period. It would be interesting to see whether the retail giant is able to surpass last year’s metrics.

In addition to the big two numbers, cash flow trend of the retail giant is also worth to watch.

Amazon cash flow performance

2) Segment Performance: It’s no brainer that North America brings in lion’s share of revenues (60%) to Amazon. Last quarter, Amazon Web Services (AWS) top line grew 41% contributing 13% to the total sales. The performance of both of these segments is important when it comes to top-line results.

When it comes to profitability, North America and AWS have been the money spinners for the firm as the International division is yet to make profits. In the first quarter, AWS operating income jumped 59% and the segment has been growing consistently last year. Increase in revenues is expected to give a fillip to the earnings in the second quarter.

3) Prime Day Update: The annual two-day event in July catering to its Prime members has been well received by its members. The company announced last week that the Prime Day event sales surpassed the combined Black Friday and Cyber Monday, which is a good sign for investors.

Even though the Prime Day event would not contribute to Q2 results, analysts would be expecting how the company is going to provide its outlook for the third quarter. In addition, investors would be expecting insights from the management on how the free next-day shipping for Prime members is coming along.

It would be worth to watch whether there is an increase in sales from its members taking into account a possible increase in shipping costs compared to free two-day shipping offered earlier.

Looking Forward

For the Q3 period, the street is expecting revenue to improve about 19% to $67.25 billion, and adjusted earnings to come in at $6.67 per share, an increase of 16% from last year. Taking into the account the strong Prime Day event sales, shareholders would be expecting another solid performance in the third quarter.

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