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Earnings Preview: The Boeing Company

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Aerospace & defense behemoth, The Boeing Company (BA - Free Report) is all set to report its third quarter 2012 results before the start of trading on October 24, 2012. The Zacks Consensus Estimate for the third quarter of 2012 is $1.12 (year-over-year decrease of 23.1%) on revenues of $20,110 million (year-over-year increase of 13.4%).

Prior-Quarter Recap

Boeing posted second quarter 2012 earnings per share (EPS) of $1.27, beating both the Zacks Consensus Estimate of $1.11 and year-ago EPS of $1.25. The company witnessed 27% higher commercial airplane deliveries while its defense business, showing resilience, clocked higher revenues and strong margins in a difficult market environment.

On the revenue front, the company witnessed its quarterly revenue rise 20.9% year over year to $20.0 billion, above the Zacks Consensus Estimate of $19.4 billion.

Boeing raised its fiscal 2012 earnings per share guidance to a range of $4.40–$4.60 versus its earlier guidance range of $4.15–$4.35. The company also raised its revenue guidance for 2012 to the range of $79.5 billion – $81.5 billion versus the earlier range of $78.0 billion–$80.0 billion.

(Read our full coverage on this earnings report: Boeing Tops, Raises Outlook).

Agreement of Estimate Revisions

Over the last 7 days, 2 of the 18 analysts covering Boeing for the third quarter of 2012 have upped their earnings estimates with 1 downward movement. Prior to that, the company, over the last 30 days, has also witnessed a positive bias among analysts regarding estimate revisions. In the aforementioned period Boeing witnessed 7 upward moves versus 3 downward revisions.

The upward revisions are mainly attributed to Boeing’s status as the largest aircraft manufacturer in the world in terms of revenue, orders and deliveries, and one of the largest aerospace and defense contractors. Its revenue exposure is spread across more than 90 countries around the globe. Due to the continuing recovery of the global economy, demand for Boeing’s Commercial Airplanes is benefiting from a steady improvement in passenger and freight traffic. To catch up with the expected rise in air traffic and to check fuel bills, airliners will need to replace older airplanes with new ones. The company is slated to benefit greatly from improving air traffic.

Per the company, the worldwide market for new commercial airplanes is expected to be $4.5 trillion in the next 20 years. Boeing’s projection of growth is based on the strength of the commercial aviation market, recovery witnessed in world economies and strong demand for fleet addition and replacement. Airline traffic is forecast to grow at a 5% annual rate over the next two decades, with cargo traffic projected to grow at an annual rate of 5.2%.

The downward revisions are attributed to the cautious stance of some analysts in the face of downward U.S. defense budget trends and the incoming effect of sequestration currently required under the Budget Control Act.

Estimates for 2012 have also witnessed a positive bias. Consensus 2012 earnings estimate of $4.71, composed of 22 estimates, witnessed 4 upward revisions compared with 2 downward revisions over the last 30 days.

Magnitude of Estimate Revisions

Given the positive sentiment in earnings estimate revisions witnessed over the last month, the consensus earnings estimate for the third quarter of 2012 has gone up by a penny to $1.12. Earnings estimate for 2012 has remained fixed at $4.71 per share over the last 30 days.

Surprise History

Boeing has consistently surpassed earnings estimates in the last four quarters. The company recorded a maximum positive surprise of 31.53% in the third quarter of 2011. On an average, the earnings surprise was 22.80%.

Our Recommendation

Boeing currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our Neutral recommendation on the stock. This is in sync with other aerospace and defense behemoths. A clearer picture will emerge next Wednesday when Boeing along with defense biggies like Lockheed Martin Corporation (LMT - Free Report) and Northrop Grumman Corporation (NOC - Free Report) release their versions of the third quarter of 2012.

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