The Q2 earnings cycle is nearing its end. As of Jul 29, 73.5% of the market cap of the S&P 500 index have released their quarterly numbers. Reported results reveal a 3.3% decline in second-quarter earnings due to a 0.9% dip in revenues.
Coming to the defense sector, we have seen Q2 results from 95.6% of the sector’s total market cap, as of Jul 29. Reported results reveal a 28.8% decline in second-quarter earnings despite 2.7% growth in revenues. Though the trend is already clear, we would have a more complete picture by the end of this week. For more details, you may go through our Earnings Trends report.
Defense heavyweights of the likes of Lockheed Martin Corp. LMT, The Boeing Co. BA, Northrop Grumman Corp. NOC, General Dynamics Corp. GD, Raytheon Co. RTN and L-3 Communications Holdings Inc. LLL have already released their results.
We are gearing up for the next batch of reports through this week.
Thanks to mixed performances, we now expect the sector to log an earnings decline of 27.4% regardless of a minor 1.5% revenue growth.
Let’s take a look at a few defense stocks that are scheduled to report their quarterly numbers on Aug 4.
Huntington Ingalls Industries, Inc. HII, the largest American shipbuilder, is set to release second-quarter 2016 results tomorrow, before the opening bell.
The company is a Zacks Rank #2 (Buy) stock with an Earnings ESP of 0.00%. In the preceding quarter, the company delivered a positive earnings surprise of 36.02%.
The shipbuilding business outlook remains strong given the enacted fiscal 2016 budget and the fiscal 2017 proposal. Huntington Ingalls’ shipbuilding programs that were funded by the enacted 2016 budget comprised the construction of LPD-28 and the 9th National Security Cutter as well as accelerated development of LX(R) by two years. This may have a positive bearing on the company’s second-quarter results (read more: Huntington Ingalls Q2 Earnings: What's in Store?).
CPI Aerostructures Inc. CVU is a U.S. manufacturer of structural assemblies for fixed wing aircraft, helicopters and airborne Intelligence Surveillance and Reconnaissance pod systems in both the commercial aerospace and national security markets.
The company will issue second-quarter results on Aug 4 before the opening bell.
CPI Aerostructures has a Zacks Rank #4 (Sell) with an Earnings ESP of 0.00%. In the preceding quarter, the company had delivered a negative earnings surprise of 50.00%.
While the company’s 0.00% ESP makes surprise prediction difficult, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Although the company did not issue a second-quarter guidance, it stated during the first-quarter earnings call that it has plans to lower inventory levels and slash unbilled receivables CEE for the remainder of 2016 to strengthen its balance sheet. Again, CPI Aerostructures revealed its intention to invest in automation to enhance the efficiency of its manufacturing processes. It will also work to lower debt levels by improving operating cash flow and will strive to further reduce overhead and G&A expenses.
For the second quarter, the Zacks Consensus Estimate for earnings is 15 cents a share, reflecting a 25% year-over-year jump, while consensus revenues are pegged at $21.25 million, implying a 3.16% year-over-year decline.
Teledyne Technologies Incorporated TDY supplies sophisticated instrumentation, digital imaging products and software, aerospace and defense electronics, and engineered systems.
It has a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%. Hence, it’s difficult to predict a positive surprise for this quarter. The company has posted positive earnings surprises in all the last four quarters and has an average positive surprise of 4.46%. In the preceding quarter, the company delivered a positive earnings surprise of 0.92%.
Notably, in Q2, the company will incur major severance and lease termination costs as well as M&A transaction expense for the three acquisitions and divestitures it made. The company completed three acquisitions early in the second quarter with a minimal increase in net debt compared to year-end 2015.
Additionally, the company is actively involved in cost control initiatives. To that extent, it had earlier stated that in the second quarter it will exit approximately 2,000 square feet of facilities or roughly 4% of its total footprint. The company had also pointed out that marine instrumentation will be especially difficult in the second quarter.
On a GAAP basis, the company expects earnings in the second quarter to be in the range of $1.20 to $1.26 per share.
Esterline Technologies Corp. ESL, a specialized engineering and manufacturing company principally serving aerospace and defense markets, will release third-quarter fiscal 2016 results tomorrow.
It has a Zacks Rank #4 (Sell) and an Earnings ESP of -0.77%. The combination of a negative ESP and a Zacks Rank #4 makes a beat most unlikely this season. In the preceding quarter, the company had delivered a negative earnings surprise of 8.91%.
During the second quarter earnings call, the company stated that it is experiencing higher orders reflecting strong commercial aerospace and defense demand across its three business segments. The company continues to make progress in strategic areas.
Wesco Aircraft Holdings, Inc. WAIR, engaged in comprehensive supply chain management services to the global aerospace industry, will release its third-quarter fiscal 2016 results on Aug 4.
It has a Zacks Rank #3 and an Earnings ESP of 0.00%. The company posted positive earnings surprises in three of the last four quarters, still resulting in an average negative surprise of 3.85%. In the preceding quarter, the company had delivered a positive earnings surprise of 7.41%.
During the fiscal second quarter earnings call, the company stated that it remains focused on growing sales and has also renewed long-term contracts with scope of expansion. It has signed new business in the second quarter that are expected to drive incremental sales growth in the second half of fiscal 2016 and into fiscal 2017 and 2018.
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NORTHROP GRUMMN (NOC): Free Stock Analysis Report
BOEING CO (BA): Free Stock Analysis Report
GENL DYNAMICS (GD): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
ESTERLINE TECHN (ESL): Free Stock Analysis Report
CPI AEROSTRUCTR (CVU): Free Stock Analysis Report
TELEDYNE TECH (TDY): Free Stock Analysis Report
RAYTHEON CO (RTN): Free Stock Analysis Report
L-3 COMM HLDGS (LLL): Free Stock Analysis Report
HUNTINGTON INGL (HII): Free Stock Analysis Report
WESCO AIRCRAFT (WAIR): Free Stock Analysis Report
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