What to Expect From the Big Aerospace and Defense Companies This Earnings Season

It's that time of the year again. Every Fool's favorite quarterly celebration -- earnings season -- has arrived. This series will give you a heads-up on reporting dates, analyst expectations, and past earnings performance for a variety of Industrials stocks. Today we take a look at the aerospace and defense industry.

Why is this important? Because even though we don't believe that moving in and out of the market in the short term is the best strategy, we still like to arm ourselves with regular information. Each earnings report gives you the opportunity to learn much more about a company's recent performance. Whether you're checking in on a stock you already own or looking for the next company to add to your portfolio, we'll show you here what to expect during the course of earnings season.


Source: Standard & Poor's.

For the industrials sector as a whole, there's some good news and some reason for pause. First, the good news. Year-over-year, earnings are expected to increase 10% compared with 2010's third quarter. However, the expected earnings trend for the industry this quarter is slightly worrisome. The second-quarter earnings rise for 2011 is not expected to continue in the third quarter, as analysts believe overall earnings will decrease by 3.6%.

Part of this decrease is likely seasonality. Since 2009, industrial companies have tended to show decreases in earnings in Q1 and Q3, while they tend to grow their earnings in Q2 and Q4. This helps explain some of the drop that we're expected to see after a strong second quarter.

Now that you have the big picture for industrials, let's zero in on aerospace and defense companies and show you what to expect over the next few weeks.

CompanyEstimated Report DateEstimated EarningsEarnings Estimate 90 Days AgoYear-Ago EarningsEarnings Reported Last Quarter
Honeywell (NYS: HON) Oct. 21$1.00$1.02$0.76$1.02
Boeing (NYS: BA) Oct. 26$1.07$1.14$1.12$1.25
General Dynamics (NYS: GD) Oct. 26$1.76$1.76$1.70$1.79
Lockheed Martin (NYS: LMT) Oct.26$1.81$1.78$1.55$2.14
Northrop Grumman (NYS: NOC) Oct.26$1.68$1.68$1.51$1.81
L-3 Communications (NYS: LLL) Oct. 26 to Oct. 27$2.15$2.15$2.07$2.26
Raytheon (NYS: RTN) Oct.27$1.33$1.25$1.71$1.23
Embraer SA (NYS: ERJ) Oct. 31$0.47$0.49$0.54$0.53

Sources: Yahoo! Finance and Earnings.com.

United Technologies (NYS: UTX) kicked off earnings season for the industry this morning by beating analysts' projections. The company posted 10.5% quarterly earnings growth and also raised its full-year forecast because of solid sales across its aerospace and commercial construction segments.

Analysts expect five of these eight companies to follow United Technologies' lead and show increased earnings from last year. That's good news for the overall state of the aerospace and defense industry. The only companies expected to report lower earnings than last year are Embraer, Raytheon, and Boeing. But perhaps you shouldn't be too concerned about analyst expectations of decreased earnings for Boeing. All it's done is beat earnings expectations four straight quarters by an average of 23%. It'll be most interesting to see how much progress Boeing is making in turning its huge backlog into revenue.

Of course, impending defense cuts have cast a shadow over many of these companies. We'll be watching to see how many of them get anxious and opt to place more emphasis on non-military-related segments. For example, Lockheed Martin is cutting thousands of jobs from its aeronautics and space-systems units, while moving to expand its health-care segment through the pending acquisition of QTC Holdings.

A company like Boeing, with its massive commercial airplane business, has a better ability to withstand defense cuts, even major ones like the recent termination of a U.S. Army radio contract valued at $19.5 billion. But for companies like Northrop Grumman and Raytheon, which are already offsetting lower investment outlays from some DOD projects with cost controls, defense cuts can be a scarier proposition. Keep an eye on how the defense contractors used their cash in the third quarter. With defense-budget cuts looming, investors will certainly scrutinize their investment and dividend decisions.

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At the time this article was published Fool contributor Brendan Byrnes owns no shares of any of the companies mentioned in this article. The Motley Fool owns shares of L-3 Communications Holdings, General Dynamics, Raytheon, Northrop Grumman, and Lockheed Martin. Motley Fool newsletter services have recommended buying shares of Embraer and L-3 Communications Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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