What to expect from Boeing Q3 earnings?

Shares of the aircraft maker Boeing (BA) have jumped nearly 39% over the last 12 months. The company has benefited from buoyant demand for travel which has increased load factors for the airlines. With rising crude oil prices and ongoing trade war between the US and China, there are headwinds that the company will be facing for the impending future.

In addition, there are signs of the Chinese economy slowing down, which would also impact the aircraft maker in terms of new orders and deliveries. Against this backdrop, Boeing is slated to report its third quarter results before the market opens on October 24. Analysts expect sales to come in at $24.23 billion, which is slightly lower than prior year period and profit is expected to increase 29% year-over-year to $3.51 per share.

Commercial Airline division has been the biggest contributor to Boeing’s results. Last quarter, the division reported modest growth of 1%, but missed analysts’ estimates. Margins improved by 2.4% to 11.4%. The company expects the margins for the commercial aircraft segment to touch 15% over the next few years due to the various cost-cutting initiatives it has taken based on the negotiations with its suppliers. Investors will be keeping an eye on the margin growth in the third quarter.

At the end of September, order backlog remains healthy at 5,932 airplanes. The company is increasing its production rate to ramp up deliveries to its clients. Since the majority of the orders are for the 737 planes, the company plans to increase monthly production to 57 planes in 2019. However, for the first nine months, the deliveries for 737 came in at 45 per month compared to the planned monthly deliveries of 52.

Boeing’s strong aircraft deliveries lift Q2 results

Production ramp up might take a hit if the suppliers are not able to stay abreast with the aircraft maker to deliver parts on time. Boeing needs to make sure its supply chain is intact to fulfill its commitment of orders by beefing up production.

The United States is beefing up its security and has increased its defense budget for fiscal 2019 to $716 billion compared to $700 billion allotted for fiscal 2018. This is going to bode well for Boeing’s defense division with an expected increase in orders from foreign countries. The key topic of interest for stakeholders will be KC-46 Tanker program.

Related: Boeing Q2 2018 Earnings Transcript

Last month, the tanker program completed its certification process from FAA. The company now needs to get the Military Type Certificate (MTC) from the US Air Force. Investors will be looking for updates regarding when the first delivery of the tanker will happen.

Global Services (GS) has been catching the attention of investors as each quarter passes by. Launched in June 2017, GS would be taking care of the services for its clients. The division also helps the aircraft maker to bring in sustainable revenues compared to cyclical nature of commercial and defense side.

Margins for the GS side are much better than the other two divisions which also help Boeing to improve its bottom line. Last quarter, GS backlog stood at $20.4 billion, which grew 4% over prior year. Investors will be watching out whether the company is able to ramp up the backlog in the third quarter.

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