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Will 737 Max Issue Hurt Spirit AeroSystems (SPR) Q4 Earnings?

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Spirit AeroSystems Holdings, Inc. SPR is expected to release fourth-quarter and 2019 results soon.

The company’s earnings missed the Zacks Consensus Estimate in the last reported quarter by 17.37%. Moreover, the company failed to beat the Zacks Consensus Estimate in the trailing four quarters, with the average negative surprise being 2.14%.

Let’s see how things have shaped up prior to this announcement.

Factors At Play

Spirit AeroSystems’ Propulsion Systems segment, which represents almost 24% of the company’s total sales, has been a major growth driver for the company and is likely to have performed well in the fourth quarter too. Higher production volume for Boeing’s BA 777 series of jets is likely to have driven revenues for Spirit AeroSystems’ Propulsion Systems segment in the soon-to-be-reported quarter.

Moreover, higher production volume from the 777 program is expected to have boosted the company’s Wing segment revenues. Solid segmental performances are expected to get reflected in the results in the form of positive revenue growth.

The Zacks Consensus Estimate for the company’s fourth-quarter sales is pegged at $1.93 billion, implying growth of 4.9% from the prior-year quarter’s reported figure.

The company’s focus on improving its propulsion margins is expected to have benefitted quarterly results.  

However, the 737 Max grounding since last March has hit Spirit AeroSystems hard, considering the fact that the MAX represents more than 50% of the company’s annual revenues. While grounding has cut off its revenue generation from the sale of fuselages to Boeing, Spirit AeroSystems has been incurring notable costs related to temporary storage mechanisms that the company installed for protecting 737 parts and fuselages. This, in turn, may have hurt the company’s quarterly earnings.

Moreover, Boeing’s decision to decrease production of its 787 jetliner to 12 aircraft per month from 14 per month is expected to have taken a toll on Spirit AeroSystems’ bottom line in the fourth quarter.

The Zacks Consensus Estimate for Spirit AeroSystems’ fourth-quarter earnings stands at $1.57, suggesting 15.1% decline from the prior-year quarter reported number.

In October, Spirit AeroSystems signed an agreement to acquire select assets of Bombardier aerostructures and aftermarket services businesses. An update on this deal is expected in the fourth-quarter results announcement.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Spirit AeroSystems this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

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 -8.38% and a Zacks Rank #5. You can see the complete list of today’s Zacks #1 Rank stocks here.

Recent Defense Releases

Lockheed Martin (LMT - Free Report) reported fourth-quarter 2019 earnings of $5.29 per share, which surpassed the Zacks Consensus Estimate of $4.99 by 6%. The bottom line also improved 20.5% from $4.39 in the year-ago quarter.

General Dynamics’ GD fourth-quarter earnings from continuing operations of $3.51 per share beat the Zacks Consensus Estimate of $3.46 by 1.45%.

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