What happened

Shares of airplane-parts supplier Spirit AeroSystems Holdings (SPR +0.00%) are up 16.1% as of 2:30 p.m. EDT.

Wednesday is sort of a bad news, good news, great news day for Spirit. On the bad news front, the company just reported a big second-quarter loss of $0.48 per share on sales of $1.8 billion.

The good news, however, is that this is less than Wall Street had expected Spirit to lose.

So what

Couching estimates in the language of "pro forma" or "adjusted" earnings, Wall Street was looking for Spirit to earn about $1.20 per share this quarter, before accounting for charges to earnings. Spirit notes that backing out those charges would have left the company with pro forma profits of $1.57 per share -- and that's how a money-losing quarter gets turned into an "earnings beat." (To be fair, Spirit also beat soundly on sales, booking revenue of $1.83 billion when analysts had expected only $1.72 billion.)

Boeing's 787 airliner is one of Spirit's biggest lines of business. Image source: Getty Images.

Now what

And now here's the great news for Spirit AeroSystems stockholders. As management advised in its earnings release, it has signed a memorandum of understanding with Boeing (BA +3.35%) "into 2022 on open commercial issues related to a range of programs."

One result of this MOU was the big $353 million charge to earnings that Spirit took, which torpedoed its Q2 results. But on the plus side, management explained that, assuming final agreement is reached with Boeing in the current third quarter, this MOU will reduce "uncertainty that has long existed in the relationship with our largest customer" and enable Spirit "to meet our long-term cash flow goals" by reducing the expected losses Spirit will incur in producing 787 plane parts for Boeing.

With the agreement expected to become official within just the next few months, Spirit was confident enough to raise its (pro forma) earnings guidance for the year by $0.40, to a new range of $5.00 to $5.25. Additionally, management expects to generate free cash flow of between $500 million and $550 million -- up $50 million from previous expectations -- and to book revenues of between $6.8 billion and $6.9 billion for the year.

Assuming the free cash flow figures, at least, come to fruition, it looks like Spirit stock is now being valued at an EV/FCF (enterprise value to free cash flow) ratio of roughly 17 times the cash profit it expects to generate this year. That seems a bit pricey to me (analysts are only expecting Spirit to grow earnings at about 10% annually over the next five years). But for most other investors, it seems the news was good enough to inspire a stock rally.