Will Earnings Make Boeing King of the Dow Again?

For nearly all of 2017, Boeing Co. (NYSE: BA) was the top-performing stock among the 30 equities that comprise the Dow Jones industrial average. The Dow posted a gain of 25.1% last year and Boeing posted a nearly unbelievable 89.4% share price increase. Since the beginning of 2018, Boeing stock is up another 14.9%, but it trails Cisco Systems as the biggest year-to-date gainer on the Dow.

While a near-15% gain in less than four months is outstanding for a 100-year old company with a $200 billion market cap, Boeing has faced a few headwinds and some uncertainty so far this year.

When the aerospace giant reports first-quarter results Tuesday morning, analysts are looking for earnings per share of $2.58 on revenues of $22.24 billion. That’s a 28% year-over-year increase in EPS and a 6% increase in revenues. When Boeing reported fourth-quarter 2017 results, analysts had forecast first-quarter EPS at $2.80 and sales at $21.79 billion.

When the president announced that he would impose tariffs on some goods imported from China, most analysts saw Boeing as a likely target for retaliation. In the event, the impact on Boeing from China’s announced retaliatory tariffs is likely to be small.

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With that concern out of the way, Boeing reported first-quarter deliveries of 189 planes, a year-over-year increase of nearly 9%. The company has forecast full-year deliveries of 810 to 815 commercial planes for this year along with a plan to move 787 production from 12 per month to 14 per month by the beginning of 2019.

In the March quarter, Boeing delivered 34 787s, and deliveries most likely have slowed in April. According to the “All Things 787” blog, Boeing has delivered just three 787s this month. A problem with the Trent 1000 engines installed on about a quarter of the 787s so far delivered to customers is forcing engine maker Rolls-Royce to replace the earlier engines.

What this means for Boeing is the company has to choose whether to put the scarce new engines on an existing plane or put it on a new plane that it can sell. Until Boeing delivers a new plane (with engines), the company does not receive its final payment for the aircraft.

It’s reasonable to expect Boeing to say something about the impact of the 787 engine issue tomorrow. The company is also coping with an issue on the CFM56 engines on some of its 737 jets. A broken fan blade in one of the engines was responsible for the death of a passenger on Southwest Airlines flight 1380.

In both cases, the engine makers are on the hook for repair costs, but the Southwest incident revealed a problem with the 737’s engine cowling that Boeing, as the airframe maker, almost certainly will have to address. That likely will mean getting those 737s back to Seattle yet again at some cost to Boeing.

In any case, the hit will go to Boeing’s cash flow, which the company expects to reach $15 billion this year. But it’s the size of the hit that matters, and that’s one thing we should expect to hear Boeing address tomorrow.

Just before noon Tuesday, Boeing stock traded down about 0.5%, at $336.60 in a 52-week range of $175.47 to $371.60. The 12-month price target on the stock is $387.29.

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