The shares of the Brazilian jet maker
) dropped 4.7% to $33.63 on Oct 15 in the wake of weak third
quarter 2013 deliveries. The plane maker has delivered a total of
44 jets in the third quarter of 2013 ending Sep 30, 2013, which
fell short of the 51 deliveries made in the last quarter.
However, the quarterly deliveries exceeded the year-ago level of
40. Of the total deliveries this quarter, 19 jets were delivered
to the commercial aviation market including 9 of E-190, 9 E-175
and 1 E-170, while the remaining 25 jets were delivered to
executive aviation inclusive of 21 Light and 4 Large jets. The
company noted that though its backlog includes demand for its
defense and security business, it does not report quarterly
deliveries of military aircraft.
With rising demand for regional aircraft, Embraer's firm order
backlog totaled $17.8 billion, reflecting an increase of 4.1%
from the last reported quarter. This marked a four-year high in
the company's backlog history. In terms of aircraft breakdown,
Embraer's order backlog comprises 140 E-175, 100 E-175-E2, 78
E-190, 25 E-195-E2, 25 E-190-E2, 22 E-195 and 6 E-170 jets.
Importantly, during the third quarter, Embraer's Commercial
Aviation unit entered into an agreement, worth $2.85 billion at
list prices, with International Lease Finance Corporation
("ILFC") to deliver 50 E-Jets. The deal has an option to extend
the potential order to up to 100 aircraft. This firm order was
initially announced as a Letter of Intent at the Paris Air Show
held in Jun 2013.
Again, earlier this month, Embraer announced the sale of three of
its E195 jets to two European airlines, Belavia of Belarus and
Guernsey-based Aurigny Air Services. In a contract with
Minsk-based Belavia, Embraer would supply two 122-seat E195s
under a firm purchase agreement worth $80 million.
Embraer also said Aurigny Air Services would take delivery of
an E195 next year. Aurigny Air Services mainly flies between
London Gatwick airport and Guernsey, a British dependency in the
English Channel. Under this firm order, Embraer would receive $40
million at current list prices from the Guernsey-based Aurigny
for one E195.
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Embraer is the world's third largest commercial aircraft
The Boeing Co.
) and Europe's Airbus. We believe these substantial deals, along
with a series of contracts and tie-ups with several companies for
its jets, will eventually boost the performance of Embraer's
commercial aircraft division. A steady demand for E-Jets
demonstrates the confidence of its customers, which will improve
Although deliveries were higher year over year in the third
quarter, it was not up to expectations. A poor mix reflecting
more of executive jets and smaller aircraft cut into profit
margins. Again, it had earlier projected to deliver 90 to 95
commercial jets, 80 to 90 light executive jets and 25 to 30 large
executive jets this year. Hence, Embraer will have to deliver 32
to 37 jets in the fourth quarter to meet its guidance of 90 to 95
commercial jets for the year, which indeed is a steep climb.
The current Zacks Consensus Estimate for the third quarter of
2013 is 56 cents, reflecting a year-over-year increase of 54.2%.
Estimates for 2013 and 2014 are $1.81 and $2.72, reflecting
annual decline of 6.1% and growth of 49.8%, respectively.
Embraer SA retains a Zacks Rank #5 (Strong Sell). However, there
are other stocks in the space that are performing well, with a
favorable Zacks Rank. These are
Lockheed Martin Corp.
Northrop Grumman Corp.
), each with a Zacks Ranks #2 (Buy).