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Will 737 Max Issue Mar Spirit AeroSystems (SPR) Q2 Earnings?

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Spirit AeroSystems Holdings, Inc. (SPR - Free Report) is set to release second-quarter 2019 results on Jul 31, before the opening bell.

Increased revenue expectations from the Propulsion Systems segment should drive the company’s second-quarter revenues, while low deliveries of the Boeing (BA - Free Report) 737 aircraft may negatively impact earnings.

The company’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 4.19%.

Let’s see how things are shaping up prior to this announcement.

Propulsion Systems Likely to Drive Growth

The Propulsion Systems segment, which represents almost 25% of total sales, continues to be a major growth driver for the company. During the first-quarter earnings call, the company identified 777x and nacelles as its primary growth drivers for this unit, which will likely be conducive to the second-quarter performance as well.

Moreover, Boeing’s 787 production rate increase to 14 aircraft per month from 12, since the beginning of 2019, must have driven revenues for Spirit AeroSystems’ Propulsion Systems segment in the second quarter. In line with this, the Zacks Consensus Estimate for the segment’s second-quarter sales pegged at $489 million suggests growth of 15.6% from the prior-year quarter’s reported figure.

737 Max’s Impact

In May 2019, Spirit AeroSystems inked an agreement with Boeing, per which the former will keep producing shipsets for 52 aircraft each month, despite the latter reducing its 737 aircraft production to 42 per month. Notably this reduction took place following the two fatal crashes involving Boeing’s 737 jets and the product line’s subsequent grounding this March.

Per the agreement, Boeing will continue to pay Spirit AeroSystems for deliveries of shipsets and take possession accordingly, irrespective of the former’s low production number. We believe, this must have positively impacted Spirit AeroSystems’ revenues in the to-be-reported quarter.

In line with the aforementioned developments and growth projections for the propulsion systems unit, the Zacks Consensus Estimate for Spirit AeroSystems’ second-quarter revenues pegged at $1.98 billion implies an 8% improvement from the prior-year quarter’s reported number.

Other Factors at Play

In order to protect the 737 MAX parts and fuselages from inclement weather conditions, the company has been incurring expenses due to the installation of temporary storage mechanisms at its Wichita unit.

Furthermore, the closing process related to the Asco transaction stretched longer and turned out to be costlier than the company originally anticipated. Although Spirit AeroSystems and Asco negotiated a 7% purchase price reduction from $650 million to $604 million due to the incremental acquisition costs, chances of earnings getting negatively impacted still persists.

Hence, while positive revenue expectation would boost the company’s bottom line, the aforementioned expenses may mar the growth extent. Cumulatively, the Zacks Consensus Estimate for Spirit AeroSystems’ second-quarter earnings stands at $1.64, suggesting a 0.6% decline from the prior-year quarter’s reported number.

What the Zacks Model Unveils

Our proven model does not conclusively show that Spirit AeroSystems is likely to beat on earnings in the second quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Spirit AeroSystems has an Earnings ESP of -0.15% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zacks Rank #4 or 5 (Sell-rated) stocks are best avoided, especially if they have a negative Earnings ESP.

Spirit Aerosystems Holdings, Inc. Price and EPS Surprise

Upcoming Defense Releases

Investors can consider the following players from the Aerospace sector that have the right combination of elements to beat on earnings in their next releases.

Ducommun Incorporated (DCO - Free Report) is expected to report second-quarter 2019 results on Aug 5. The company has an Earnings ESP of +12.05% and a Zacks Rank #3.

Triumph Group, Inc. (TGI - Free Report) is expected to report first-quarter fiscal 2020 results on Jul 31. The company has an Earnings ESP of +6.03% and a Zacks Rank #3.

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