On The Fly: What to watch in Boeing's earnings report
Boeing (BA) is scheduled to report results of its second fiscal quarter before the market opens on Wednesday, July 27, with a conference call scheduled for 10:30 am ET. What to watch for: 1. COST RECLASSIFICATION AND CHARGES: On July 21, Boeing announced that it will recognize an impact to earnings across three programs when it announces second quarter results. On the 787 program, the company decided not to invest funds for the refurbishment and sale of the two remaining unsold flight test aircraft that were scheduled to be introduced into the modification line. Costs associated with these aircraft were reclassified from 787 program inventory to research and development expense resulting in a non-cash after-tax charge of $847M, or $1.33 per share. The company plans to continue producing 747-8 aircraft at a rate of 0.5 per month and no longer increase the production rate to 1.0 per month in 2019. An $814M after-tax charge, or $1.28 per share, on the 747 program reflects a lower estimated total of 747-8 Freighter aircraft to be produced in the program accounting quantity and lower estimated revenues on future aircraft sales. The company will also recognize a $393M after-tax charge, or 62c per share, on the KC-46 Tanker program. In total, the company will record an after-tax earnings impact of $2.1B. 2. FARNBOROUGH AIRSHOW: On July 14, Boeing announced it booked 321 net orders in 2016, including customer orders and commitments during the week for a total of 182 Boeing commercial airplanes, valued at $26.8B at list prices. However, The Wall Street Journal reported on the same day that the aerospace company only secured 20 firm orders at the airshow, valued at $3.3B at catalog prices. Comparatively, Airbus (EADSY) ended the airshow with 380 net firm orders, according to The Wall Street Journal. 3. BREXIT: Investors will be looking for further guidance from management regarding the impact of the United Kingdom's referendum to leave the European Union. During the Farnborough Airshow, Boeing CEO Dennis Muilenburg told CNBC that it was too early to tell what impact a "Brexit" would have on the company. Muilenburg added that he doesn't see a significant impact right now. Reuters reported on July 11 that the company finalized orders with Britain for nine P-8A Poseidon maritime patrol planes and the upgrade of fifty Apache helicopters. 4. SUPPLIER PAYMENTS: On July 26, Bloomberg reported that Rockwell Collins (COL) Chief Executive Officer Kelly Ortberg said in an interview that Boeing still owes his company $30M-$40M for goods and services provided. Ortberg said that Boeing's effort to lengthen its payment terms is inconsistent with their contract and the company is "delinquent for payment they had for the quarter."