Cars and Planes: Boeing, GM and Ford Report Q2 Earnings This Week

Boeing, General Motors and Ford report Q2 earnings this week. Here’s a look at what might be expected from their quarterly reports.

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Boeing (BA) and General Motors (GM) report earnings before the open Wednesday, July 25. Later that day, Ford (F) releases results after the close. 

All three of these company’s stocks have faced some pressure over the past few months stemming from worries over tariffs. Not only has there been the possibility their finished products would be targeted, but many of the tariffs already implemented were on raw materials and components used in manufacturing, potentially increasing costs.  

The administration said last week it plans on talks with Europe’s trade reps this week regarding auto tariffs, so maybe some news could surface there. Keep an eye out for any headlines from those talks, and consider listening to company earnings calls to get an idea of how management thinks they might impact business.

Boeing Earnings and Trading Activity

Following the Farnborough International Airshow last week, BA announced it had received $98.4 billion in orders and commitments for commercial aircraft, and another $2.1 billion from commercial and defense service orders and agreements. At the end of Q1, BA reported a backlog of $486 billion, comprised of more than 5,800 commercial aircraft. 

While the backlog is important, what the company actually produced and delivered is what translates into results. Per usual, BA already released its Q2 deliveries a few weeks ago. It delivered a total of 194 airplanes in the quarter, 6% more than last year. Most of that was attributed to the 737 line, which accounted for 137 of the deliveries, 14 more than a year ago. BA also delivered 38 787 Dreamliners, five more than a year ago. Deliveries of both the 747 and 777 units declined. 

For Q2, BA is expected to report adjusted EPS of $3.24, up from $2.55 in Q2 2017, on revenue of $24 billion, according to third-party consensus analyst estimates. Revenue is projected to increase 5.5% year over year. 

One thing that will negatively impact this quarter’s results is a $124 million after-tax charge stemming from a Delaware Supreme Court ruling related to BA’s sale of production facilities to Spirit Aerosystems in 2005. BA said that the charge will have a $0.21 negative impact to EPS in the quarter. 


Boeing One-Year Chart. BA has had an incredible run over the past year and is up 68% over that timeframe. Ahead of earnings, the stock has been trading between $350 and $360, not too far from its $374.48 all-time high. Chart source: thinkorswim® by TD AmeritradeNot a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Around BA’s upcoming earnings release, options traders have priced in a 3.4% stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform.  Implied volatility was at the 42nd percentile as of this morning. 

In short-term trading at the July 27 weekly expiration, there hasn’t been much activity that stands out. Mostly it’s been spread out across a range of strikes around the money. 

At the August 17 expiration, trading on the call side has been concentrated at the 360 strike price, while puts have been active at the 350 strike. The 380-strike call, a decent ways out of the money, also had high volume during Monday’s session, with 3,408 contracts trading hands. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

General Motors Earnings and Options Trading Activity

GM already reported total Q2 deliveries were up 4.6%, which showed signs of strength across many of its lines. GM reported that U.S. sales were up 5.8%, helped out by a 21% increase in pickups. Sales in China were up 0.7%, quite a slowdown from the 8% increase reported in Q1. That drop was entirely a result of a 16% decline in Buick sales according to the report. 

When GM reports Q2 results, it is expected to post adjusted EPS of $1.81 on revenue of $36.86 billion, according to third-party consensus analyst estimates. Those estimates are projecting a slight decline on both the top and bottom line for GM. In the same period last year, the company reported adjusted EPS of $1.89 on revenue of $36.98 billion. 

GM’s earnings took a hit in Q1 because of a $900 million restructuring charge related to its South Korean operations. In early May, GM Korea had reached a deal with the Korean government to restructure the company and return it to profitability by 2019. Investors might be looking for some additional details on the situation there as GM looks to stabilize its Korean business. 


SOFTBANK GAINS GONE. On May 31, GM jumped after news broke that Softbank was investing $2.2 billion in Cruise, the company’s autonomous vehicle division. A few weeks after the news, shares were getting back down to the level they were at before that announcement. So far this year, the stock is down 5.3%, lagging the S&P 500’s (SPX) 4.78% increase. Chart source: thinkorswim® by TD AmeritradeNot a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
Options traders have priced in a 4% stock move in either direction around the upcoming earnings release, according to the Market Maker Move indicator. Implied volatility was at the 54th percentile as of this morning. 

In short-term trading at the July 27 weekly expiration, calls have been active at the 40 strike price, just out of the money. On the put side, recent trading has been concentrated at the 39 strike. 

Looking at the August 17 monthly expiration, trading on the call side has been concentrated between the 40 and 43 strikes. Recent volume has been much higher on the call side, with only a smattering of activity on the put side. 

Overall during Monday’s session, trading was much heavier on the call side with a put/call ratio of 0.179. Trading is still heavier on the call side today, but not to the same extent as yesterday with about two calls to every put. 
Ford Earnings and Options Trading Activity
F, like many of the automakers, has been undergoing a transformation as management looks to boost revenue and increase profitability. One of the big steps the company said it took towards that end was to stop making a vast majority of its sedans, instead choosing to focus on pickups and select other models like the Mustang. 

For Q2, F is expected to report adjusted EPS of $0.34, down from $0.56 compared to last year, on revenue of $35.9 billion, according to third-party consensus analyst estimates. Revenue is projected to decline 2.5% year over year. 

When F released Q2 deliveries, U.S. sales fell 0.8% year over year, with continued strength in the F-Series pickup trucks. China sales declined 31.3%, as the company has continued to face a challenging environment there. Europe remained a bright spot in Q2, and sales were up 3.4%.

One area analysts might be looking for some additional information is the impact on production and sales of the F-150 after a fire at a suppliers’ plant in May halted that truck’s manufacturing briefly. The company said it expects a $0.12 to $0.14 per share negative impact this quarter, but kept its full-year guidance because it said it believes it’ll be able to make up the lost production down the road.  

Returning to the Lows? After extending its decline in 2018, F is trading at levels it hasn’t hit since mid-2012. The stock hit a new 52-week low of $10.14 on March 2 and is down about 15.4% year to date. Chart source: thinkorswim® by TD AmeritradeNot a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Around the upcoming earnings release, options traders have priced in a 3.7% stock move in either direction, according to the Market Maker Move indicator. Implied volatility was at the 49th percentile as of this morning. 

In short-term trading at the July 27 weekly expiration, calls have been active at the 10.5 and 11 strike prices, while puts have been active at the 10 and 10.5 strikes. 

Volume has been pretty light in recent trading at the August 17 monthly expiration. On the call side, most of the trading has been at the 11 and 12 strike prices. On the put side, trading has been concentrated at the 10 and 10.5 strikes. 

Next up in Earnings

Earnings season kicked into high gear this week. Major reports from across sectors are scheduled this week:          

    • Facebook (FB) report after the close Wednesday, July 25         
    • McDonald’s (MCD) reports before the open Thursday, July 26, and Amazon (AMZN), and Intel (INTC) report after the close the same day        
    • Oil supermajors ExxonMobil (XOM) and Chevron (CVX), as well as Twitter (TWTR), all report before the open Friday, July 27  

    The following week, these are some of the notable companies scheduled to report:       

      • Caterpillar (CAT) reports before the open Monday, July 30         
      • Tech giant Apple (AAPL) reports after the close Tuesday, July 31 
      • Tesla (TSLA) reports after the close Wednesday, August 1

      For a look at what else is going on, check out today’s Market Update if you have time. 


      Good Trading,
      JJ

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