U.S. suppliers of planes and aircraft parts are likely to post solid quarterly results on better air traffic as defense contractors are challenged by a tough budgetary environment.
Next week, investors will be eyeing 2011 outlooks from key companies including plane maker Boeing Co
Analysts expect U.S. aerospace companies to benefit from rising plane orders and higher demand for parts and maintenance as global airlines rebound from the economic downturn.
We are in the early part of the (commercial) recovery so I think the outlook is going to be good, said Alex Hamilton, managing director of EarlyBirdCapital.
Boeing this week revised its delivery schedule for the 787 Dreamliner, bringing a sense of relief after a November electrical fire on a test plane cast doubt over the program.
Hamilton said Boeing's outlook will not only show financial effects of the latest 787 delay but also will provide insight on the state of the aerospace recovery.
For 2011, analysts expect Boeing to report a profit of $4.54 a share, up from the $4.00 consensus estimate for 2010, according to Thomson Reuters I/B/E/S.
Many defense companies, on the other hand, could face slower growth as global governments look to trim budget deficits.
While the U.S. Defense Department earlier this month outlined plans for its budget to grow modestly through 2014 before leveling off in 2015 [ID:nLDE7060K4], longer-term concerns persist given growing pressure to eliminate waste and make weapons programs more affordable.
With the U.S. government still operating on a continuing resolution (for funding), coupled with uncertainty over long-term spending, we think the defense sector is likely to have seen another soft quarter for revenues and orders, particularly in services, RBC Capital Markets analyst Robert Stallard said in a note to clients on Wednesday.
Stallard added that while cost-cutting likely aided defense contractor margins, weak revenues could be a factor.
Analysts expect Lockheed to turn in lower profits and revenue for the fourth quarter. For 2011, per-share earnings are expected to fall to $6.64 from $6.99 in 2010.
(Reporting by Karen Jacobs; Editing by Richard Chang)