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Earnings Preview: Boeing earnings might soar in Q2

Boeing (BA) received a whopping $100 billion worth of orders and commitments in the recently concluded Farnborough Airshow. With strong order pipeline and backlogs, the company is scheduled to report its second-quarter results on July 25th before the bell. Wall Street expects profits to touch $3.28 per share while sales to come in at $24 billion. Aircraft maker is having a dream run in the bourses surging nearly 67% in the last 12 months and 20% in 2018.

Thanks to strong travel demand and improving load factors, new aircraft orders have been rising steadily. The aviation industry has been witnessing growth for the past eight years. With strong macros in place, Boeing last week published its Commercial Market Outlook for the next 20 years. It now expects global deliveries to touch 42,730, which is a 3% improved over the previous outlook with total orders now valued at $6.3 trillion.

Related: Farnborough 2018: Boeing and Airbus land orders worth billions

Boeing’s deliveries in the second quarter rose 6% primarily aided by strong demand for its single-aisle 737 airplanes. It’s worth noting that single-aisle planes are in high demand globally and is expected to garner two-thirds of the global demand over the next two decades. This is going to augur well for Boeing with 737 jets being sought after more. Commercial Airplanes division brings in more than 50% of revenues to Boeing. With strong deliveries expected for the second quarter, investors are expecting strong sales and earnings from the Commercial segment.

(Image Courtesy: Dave Sizer, Wikimedia Commons)

The aircraft maker has also clinched few defense contracts in the second quarter. Last quarter Defense segment reported 13% growth in sales. It would be interesting to see whether it continues the double-digit growth from the previous quarter. Another key area in the Defense segment would be KC-46 tanker deliveries. The program has hurt the company due to technical issues and bloated costs. Investors will be keeping a close tab on whether the program is on track.

In June 2017, Global Services division was launched to tap on the after-sales and services market which is touted to be worth $2.6 trillion in the next ten years. Since inception, the services unit has been growing steadily, outpacing the other two divisions.

Related: Boeing Q1 results

Last quarter, services segment rose 8% bringing in $3.9 billion. More importantly, its backlog stood at $20 billion. This division is expected to bring in a steady stream of revenues to Boeing compared to other divisions which are dependent on other macro factors. With better margins than the other two units, analysts would be expecting solid top and bottom line numbers from the Services segment.

With the ongoing trade wars between the US and China seem to be never-ending for now, this would act as a potential headwind for Boeing. China is the second-biggest aviation market globally, and one needs to see how the company is going to tackle the situation. Any potential loss on orders from China would be Airbus’ gain. With no immediate signs of ending trade wars, the situation would be volatile keeping Boeing in the tenterhooks. Let’s wait and watch what Dennis Muilenburg and his team have in store for us.

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