Embraer Beats Q3 Earnings Estimates, Misses on Revenues - Analyst Blog

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Embraer SA 's ( ERJ ) adjusted third-quarter 2014 earnings of 50 cents per American Depository Share (ADS) spiked 150% from 20 cents per ADS in the prior-year quarter. The reported figure also beat the Zacks Consensus Estimate of 25 cents by 100%. Adjusted figure excluded the deferred income tax and social contribution.

On a GAAP basis, Embraer incurred a quarterly net loss of $10.7 million, hurt by poor commercial and executive jet deliveries and a rising tax bill. The higher income tax in the reported quarter is due to the effect of foreign exchange variation in the period, which led to a non-cash deferred income tax expense on non-monetary assets.

Total Revenue

Net revenue was $1,239.7 million, down 3.8% from $1,288.2 million in the year-ago quarter. The top line also fell short of the Zacks Consensus Estimate of $1,453.0 million by 14.7%. The decline was due to poor executive jet deliveries.

Gross margin increased 30 basis points year over year to 19.5% in the quarter.

Order and Delivery

In the third quarter of 2014, the jet manufacturer delivered a total of 34 jets, down 41.4% year over year.

The commercial aviation and business aviation markets were delivered 19 and 15 jets, respectively. Embraer provided 16 E-175s, 2 E-190s and 1 E-195 to the commercial aviation market, while the rest were delivered to the business aviation market, which included only Light jets.

Embraer, however, reported a record order backlog of $22.1 billion as of Sep 30, 2014. The company recorded a firm order backlog of $18.1 billion in Jun 2014 alone. The surge in the backlog, the highest ever in the company's history, can be attributed to the KC-390 contract and a firm order of 50 E175s from Republic Airways Holdings Inc.

Segment Details

Commercial Aviation revenues, comprising 53.3% of total quarterly revenues, decreased 3.9% year over year to $660.7 million.

Defense & Security revenues, representing 27.9% of total quarterly revenues, surged 29.8% year over year to $346.2 million.

Executive Jets generated revenues of $213.3 million that accounted for 17.2% of total third-quarter sales and decreased 32.2% from the year-ago period.

The Other category accounted for 1.6% of total third quarter revenues, climbing approximately 1.6% year over year to $19.5 million.

Financial Update

Cash and cash equivalents were $1,176 million as of Sep 30, 2014, compared with $1,683.7 million as of Dec 31, 2013.

As of Sep 30, 2014, the company's total debt was $2,373 million, up from $2,224.2 million as of Dec 31, 2013.

In the third quarter 2014, Embraer's net cash from operating activities was $21.8 million, down from $200.5 million a year ago.

Capital expenditure was $88.9 million, down from $106.2 million in the third quarter 2013.

Free cash outflow was $137.6 million in the quarter compared with $84.4 million a year ago.


In its guidance issued earlier in February, Embraer projected 2014 total revenues in the range of $6.0 billion to $6.5 billion. Embraer expects 2014 revenues to increase slightly from 2013 levels on the back of its Defense & Security and Executive Jets segments.

The company expected EBIT margin in the range of 9.0%−9.5% for 2014.

In addition, the company has also maintained its prior investment guidance of around $0.7 billion for 2014. This comprises $0.08 billion of research, $0.3 billion of product development and $0.2 billion of capital expenditure.

Embraer believes that any budget cut in Brazil will not affect its top-line generation with respect to its contracts with the country's Air Force. The company's Chief Executive Frederico Curado pointed out that strong demand in the new mid-size Legacy 500 will likely generate firm orders in the next few months. Additionally, a recovery in the developed economies will also help the company to attain its guidance.

Other Releases

Aerospace giant The Boeing Company ( BA ) delivered upbeat third-quarter 2014 results backed by robust deliveries. The company reported adjusted third-quarter 2014 earnings of $2.14 per share, beating the Zacks Consensus Estimate by 9.2%. The quarterly number rose an impressive 18.9% from $1.80 per share a year ago.

Pentagon's prime contractor, Lockheed Martin Corp. ( LMT ), reported quarterly earnings of $2.76 per share, comfortably surpassing the Zacks Consensus Estimate of $2.72 by 1.5%.

Northrop Grumman Corporation ( NOC ) reported third-quarter 2014 adjusted earnings of $2.32 per share, beating the Zacks Consensus Estimate of $2.16 by 7.4%. Earnings also increased 17.8% year over year.

Zacks Rank

Embraer currently has a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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