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Will Lockheed Steal the Show From Boeing in Q3 Earnings?

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The Boeing Company (BA - Free Report) is set to report earnings on Oct 23, before market opens. But, investors are keeping an eye on the stock since Boeing’s board of directors ousted CEO Dennis Muilenburg from the Chairman position at the beginning of this month.

Muilenburg, however, remains the CEO. But, the current issues surrounding the seven-month grounding of the 737 MAX and how Boeing will deal with the situation do cast uncertainty over the upcoming earnings release.

Though the fourth quarter has begun, the company has failed to act on its claims to get the 737 Max back on the runway. Meanwhile, American Airlines (AAL - Free Report) confirmed that software updates to the 737 MAX will help the plane takeoff by the end of this year. But, the U.S. Federal Aviation Administration believes that the company will face issues with the proposed software fixes to the aircraft’s flight control systems.

So, the fate of the 737 MAX hangs in the balance. Boeing’s overall commercial aircraft shipments, by the way, have declined 67% in the third quarter on a year-over-year basis to 63 jets, thanks to the 737 MAX aircraft issue. This also doesn’t bode well for this Zacks Rank #3 (Hold) company’s third-quarter earnings release. Lest we forget, Boeing’s revenues had dropped nearly 35% in the second quarter on a year-over-year basis, thanks to a 54% drop in shipments.

For the third quarter, the Zacks Consensus Estimate for revenues is pegged at $19.34 billion. A year ago, sales were $25.14 billion. Commercial airplane supply has also declined sharply in recent times, since delivery of 737 MAX has been stopped. The Zacks Consensus Estimate for the company’s third-quarter commercial revenues is pegged at $8.57 billion, suggesting a 43.9% decline from the prior-year number.


But, not all segments are expected to perform badly. After all, Boeing’s Defense, Space & Security segment delivered 77 military aircraft in the third quarter, up 114% from the second-quarter level. Such positive developments should get reflected in the third-quarter revenue numbers.

Looking beyond the 737 MAX, Boeing’s third-quarter earnings results might also show the impact of an after-tax charge. In the second quarter, the company had reported an after-tax charge of $4.9 billion, which reduced its income by $5.6 billion.

What’s more, higher material cost might also affect its earnings results for the third quarter. U.S. tariffs on steel and aluminum from China are cited to be the reasons driving material costs. When Boeing reports results, it’s expected to post adjusted earnings per share of $2.04, down from $3.58 in the prior-year quarter.


In fact, Boeing has an Earnings ESP of -0.31%. This is Zacks’ proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Amid such controversies, one of Boeing’s major competitors Lockheed Martin Corporation (LMT - Free Report) has seen its shares climb on optimism surrounding defense spending and technological developments. On a year-to-date basis, Lockheed’s shares climbed 42.3%, way more than Boeing’s rally of 6.7%.


But, Lockheed has also been dealing with tariffs and other related problems. What’s more, its F-35 fighter jets, which constitute almost 30% of the company’s sales, were banned by the U.S. government in Turkey this July.

To top it, more or less a stronger dollar during the third quarter might affect Lockheed’s earnings results when it reports on Oct 22, before market opens. Needless to say, a stronger dollar makes its products pricey for foreigners. The Zacks Consensus Estimate for the defense giant’s third-quarter earnings per share is pegged at $5.03, suggesting a decline of 2% from the prior-year number.


However, the company’s constant focus on innovation, operational efficiency and strong bonding with customers worldwide will most likely show on the third-quarter sales results.

Lately, the company’s space business segment has witnessed an uptick in sales volumes for programs such as Next Generation Overhead Persistent Infrared (Next Gen OPIR), Global Positioning System (GPS) III and Advanced Extremely High Frequency (AEHF), to name a few. All these might get reflected on the company’s top-line results. The Zacks Consensus Estimate for the company’s third-quarter revenues stands at $14.98 billion, indicating a 4.7% increase from the year-earlier figure.


Thanks to such strong revenue expectations and sturdy business, Lockheed clearly has an edge over Boeing this earnings season. Lockheed, currently, flaunts a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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