Focus On Dreamliner 787 Profitability In Boeing Q4 2015 Earnings Results

  • Boeing Q4 2015 earnings are scheduled to be reported on 27th January before market open.
  • Boeing raised its EPS and full-year revenue guidance during its third quarter earnings call which is a positive sign.
  • The main focus during the earnings call will be Boeing's Dreamliner project and its profitability trends.

Giant aircraft manufacturer Boeing (NYSE:BA) will report Q4 2015 earnings on 27th January before market open. Wall Street consensus is for the company to report EPS of $2.11. During its third quarter earnings call, Boeing upped its full-year earnings guidance to $7.95-$8.15 from an earlier range of $7.70-$7.90, which implies the company expects fourth quarter EPS to clock in the range of $2.03-$2.23, the midpoint, $2.13, being $0.03 higher than the Wall Street average. Boeing also raised its full-year revenue guidance to a range of $95B-$97B from an earlier range of $94.5B-$96.5B, which implies that the company expects fourth quarter revenue to fall in the range of $22.459B-$24.459B.

Boeing’s full-year EPS guidance implies a 5.2%-7.6% Y/Y decline while its revenue guidance points to 4.7%-6.9% Y/Y growth. Boeing has managed to exceed earnings guidance in each of the preceeding four quarters.

Boeing Earnings Surprise History

Fiscal
Quarter End
Date
Reported
Earnings
Per Share
Consensus
EPS* Forecast
%
Surprise
Sep2015 10/21/2015 2.52 2.22 13.51
Jun2015 07/22/2015 1.62 1.4 15.71
Mar2015 04/22/2015 1.97 1.81 8.84
Dec2014 01/28/2015 2.31 2.07 11.59

Source: NASDAQ

Dreamliner Profitability in Focus

Recent reports that Airbus Group (OTC:EADSY) had once again trounced Boeing in aircraft in deliveries in 2015 sent ripples amongst Boeing investors. Boeing recorded 878 gross aircraft orders consisting of 666 single-aisle 737s, 99 Dreamliner 787s, 58 Boeing 777s, 58 Boeing 767s, and 6 Boeing 747s. 110 orders were cancelled leaving Boeing with 768 net aircraft orders in 2015. That was about 35% lower than Airbus’1,036 net orders for the period.

Investors were also alarmed by reports that Boeing only recorded 768 new orders in 2015 compared to 1,432 in 2014 despite deliveries hitting a record of 762.

Investors should note that Airbus is benefitting from the relative weakness of the Euro in comparison to the dollar thus making its aircraft cheaper to buy. This does not in any way signify that Boeing will necessarily continue lagging its European counterpart in the coming years. Boeing’s current order backlog of 5,795 planes is enough to sustain the company for seven years at current production rates.

Since Boeing delivery numbers for 2015 is already old news, the real focus will be the company’s cash flow as well as Dreamliner costs and how it affects Boeing’s profitability. Boeing has so far sunk more than $32B in Dreamilner development costs, and has been having trouble recouping its investment since the airplane remains unprofitable. Analysts have worked out that Boeing is set to lose ~$80M on every Dreamliner for the first 350 or so planes sold before it can be able to turn a profit on the model.

During the third quarter, Boeing lost ~$25M on each Dreamliner it sold which suggests its losses could be contracting. The company also recorded a huge increase in cash flow from $317M to $2.3B largely due to lower Dreamliner 787 development costs. Boeing itself said during the earnings call that it was on course to break even on its Dreamliner sales by the end of 2016.

Even though some analysts and investors still fear that Boeing might be unable to ever turn a profit on 787s and might eventually be forced to undertake a huge accounting write-off that would likely leave the company in a large profit hole for years, this is not something that is likely to happen any time soon. Boeing stock could, nevertheless, sell-off if the company is unable to demonstrate that it’s getting closer to its goal to turn a profit on Dreamliner sales during the upcoming earnings call. In the same vein, the upshot to this is that Boeing stock could make good gains if the company is able to demonstrate that it’s closer to turning a profit on the model.

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