Boeing Set for ‘Excellent’ Quarter, Investors Hungry for Detail

(Bloomberg) -- Boeing Co. investors can bank on the planemaker for another stellar quarter.

Strong deliveries in the second quarter, several strategic deals and a stable cash flow has ensured big returns for Boeing shareholders over the past year, with the stock gaining nearly 67 percent, compared to a 14 percent bump for the rest of the market. While intensifying concerns about a trade war have taken some of the shine off, Boeing is still the biggest gainer in the Dow Jones Industrial Average over the past 12 months.

Credit Suisse analyst Robert Spingarn expects an “excellent quarter,” helped by “decent” deliveries at Boeing's commercial airplanes segment and “continued operational excellence across the business.”

Here are the top things to watch out for when Boeing reports second-quarter results Wednesday before the market open. Shares of the company gained as much as 1.6 percent in early session trading on Tuesday.

Outlook

The planemaker is expected to slightly raise its profit outlook for the full year, with consensus analysts' estimate standing at $14.53, compared with Boeing's guidance range of $14.30 to $14.50.

“BA hiked earnings per share & cash flow guide on the first-quarter call, but there may be additional upside given robust airline traffic and a favorable production environment,” Cowen analyst Cai von Rumohr wrote in a note dated July 11.

Profit for the second quarter is expected to reach $3.25 per share, on revenue of $24.04 billion.

Cash Flow

Boeing's stunning cash flow growth is expected to continue, further fueling shares. According to Bloomberg data drawn from three analysts, free cash flow for the quarter will total about $2.11 billion.

Credit Suisse's Robert Spingarn, who is not included in the Bloomberg poll, expects free cash flow of about $3.4 billion, which he said may face some moderate headwinds from lower military aircraft deliveries and potentially weaker cash margins on 787s.

Not every analyst, however, is betting on the robust cash flow growth to persist. Buckingham Research Group's Richard Safran said investors could now focus on the likelihood that there may be “little upside to consensus cash flow expectations.”

“The bulk of 787 cost reduction is behind Boeing as the program proceeds down the learning curve and advances are likely to slow meaningfully given fewer production rate increases,” Safran wrote in a note to clients.

The wide range in free cash flow estimates may be explained by the volatility in the number. Melius Research's Carter Copeland, who was included in the Bloomberg poll, said Boeing's free cash flow “exhibits a large amount of quarterly volatility, with reported figures often coming in $1 billion or more above/below consensus due to large, discrete items.”

Trade Commentary

As the rhetoric around potential trade wars and tariffs flew over the past few months, Boeing shares took a beating as investors saw it as a proxy for sentiment toward the escalating tensions. While some of those initial jitters have calmed down, the stock is still down more than 5 percent since touching a record high in early June.

“While risks are that China could put more orders with Airbus or cancel existing orders with Boeing, we believe the long-term economic impact of China's aircraft demand will ‘trump' the current policy talk with limited damage to existing backlog and/or future orders,” Robert W. Baird & Co analyst Peter Arment said.

Read: Boeing Tops Air Show With $79 Billion Haul as Airbus Falls Short

Boeing Chief Executive Officer Dennis Muilenburg has said the U.S.-China trade dispute could be a concern for an industry that relies on the free flow of goods. Speaking at the Farnborough air show south of London last week, Muilenburg said finding a solution was “an important topic to us.”

Deal Details

Investors will listen closely for further detail on Boeing's recently announced planemaking partnership with Embraer SA, its purchase of aerospace parts distributor KLX Inc. and the joint venture with Safran Power Units.

“Discussion regarding recent strategic announcements is likely to be a key focus as investors seek to better understand Boeing's strategy and appetite for further deals this year,” Credit Suisse's Spingarn wrote.

--With assistance from Karen Lin.

To contact the reporter on this story: Esha Dey in New York at edey@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Scott Schnipper, Will Daley

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