Spirit AeroSystems, a major supplier to Boeing, is set to release its fourth-quarter results on Tuesday. The focus of attention will be on the 737 MAX aircraft.
Over the years, Spirit Aero has been manufacturing various versions of the 737 and has supplied more than 10,000 complete “ship sets” to Boeing. Each ship set includes all the necessary components for one aircraft.
At present, Spirit Aero is responsible for 70% of the structure of the 737 MAX, utilizing around 400,000 fasteners in the process.
However, the company has encountered some challenges recently. In a flight operated by Alaska Air on January 5th, an emergency door plug unexpectedly came loose from a 737 MAX 9 jet. This incident led to increased scrutiny and production uncertainties for both Boeing and Spirit Aero.
Additionally, Spirit Aero informed Boeing last Thursday about some holes that were improperly drilled. Consequently, Boeing plans to revise approximately 50 jets to address the issue.
The steps Spirit Aero will take to rectify the situation, improve quality, and enhance production will be the central topic of discussion during the upcoming conference call with investors and analysts, scheduled for 11 a.m. Eastern.
Regarding the fourth quarter financials, Wall Street forecasts a loss of 35 cents per share from sales amounting to $1.7 billion. In comparison, the previous year’s fourth quarter saw Spirit Aero report a loss of $1.46 per share from $1.3 billion in sales.
Though there are signs of increasing volume and reduced losses, it’s important to note that the company is still operating at a loss. Patrick Shanahan, the CEO of Spirit AeroSystems who assumed his role at the end of September, emphasized during the third-quarter earnings call that one of his top priorities is to generate positive free cash flow and shareholders can expect guidance on this matter during the upcoming earnings call for the fourth quarter.
Spirit Aero’s Earnings Expectations and Potential Challenges
The Alaska Air jet experienced a door plug blowout incident recently, which may or may not have an impact on the company’s guidance. Despite this uncertainty, Wall Street analysts are anticipating earnings per share of 41 cents from sales totaling $7.6 billion for the year 2024. Furthermore, the company is projected to achieve positive free cash flow after four consecutive years of utilizing cash.
However, it’s important to note that the growth in sales and cash flow is not guaranteed. Analyst Kristine Liwag from Morgan Stanley expresses concern over potential pressure on Spirit Aero due to lower production rates of the 737 aircraft. Currently, Boeing is producing approximately 38 MAX jets per month. The Federal Aviation Administration has imposed restrictions on any production expansion until it is satisfied with Boeing’s manufacturing and quality management processes.
Liwag rates Spirit Aero shares as Hold and has set a price target of $35 for the stock. On average, other analysts have a price target of around $33 for Spirit Aero stock. Approximately 43% of analysts covering Spirit Aero shares recommend buying them. It is worth noting that the average Buy-rating ratio for stocks in the S&P 500 stands at about 55%.
Taking a look at the options markets, it is anticipated that the stock may experience a movement of around 8%, either up or down, following the earnings report. Historical data shows that, on average, shares have moved around 15%, both up and down, after the last four quarterly reports. During this period, shares have demonstrated a mix of rising and falling trends.
As of Tuesday trading, Spirit Aero shares had declined by approximately 22% over the past 12 months. In contrast, the S&P 500 and Nasdaq Composite indices reported gains of about 20% and 31%, respectively.
