Embraer Misses Earnings, Maintains View - Analyst Blog

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Embraer SA ( ERJ ) reported second-quarter earnings of 50 cents per American Depository Shares (ADS), down 42.5% year over year from the year-ago profit of 87 cents per ADS. The reported figure also missed the Zacks Consensus Estimate of 65 cents by 23%.

Operational Highlights

Net revenue in the quarter was $1,557 million, down from $1,714.9 million in the year-ago quarter. Reported revenue, however, surpassed the Zacks Consensus Estimate of $1,470.0 million.

With rising demand for regional aircraft, Embraer's firm order backlog totaled $17.1 billion, reflecting a sequential increase of $3.8 billion due to significant orders in the Commercial Aviation segment. The backlog was highest since Sep 2009.

Embraer has delivered a total of 51 jets in the second quarter of 2013 ending Jun 30, 2013, which fell short of the 55 deliveries made in the same period last year. Of the total, 22 jets were delivered to the commercial aviation market including 14 of E-190, 6 E-195, 1 E-175 and 1 E-170, while the remaining 29 jets were delivered to executive aviation inclusive of 23 light and 6 large jets.

In terms of aircraft breakdown, Embraer's order backlog comprises 149 E-175, 100 E-175-E2, 90 E-190, 19 E-195 and 8 E-170 jets.

Segment Details

Commercial Aviation revenues, comprising 55.3% of total revenue, declined 26.8% year over year to $860.4 million.

Executive Aviation , representing 23.7% of total quarterly revenue, delivered 29 jets (23 light jets and 6 large jets) during the reported quarter compared with 20 deliveries in the second quarter of 2012. Segment revenues grew 41.7% year-over-year to $369.6 million.

Defense & Security generated revenues of $309.1 million that accounted for 19.9% of total second-quarter sales and increased 17.2% from the year-ago period.

The Other category accounted for 1.1% of total second quarter revenue climbing almost 25.2% year over year to $17.9 million.

Balance Sheet

Cash and cash equivalents were $1,647.4 million at the end of the reported quarter compared with $1,685.2 million at the end of the second quarter of 2012.

As of Jun 30, 2013, the company's total debt was $2,224.2 million, up from $2,155.9 million as of Jun 30, 2012. Exiting the second quarter 2013, Embraer's net cash from operating activities was $412.8 million versus $190.5 million in the second quarter 2012. Capital expenditure was $124.8 million, up from $75.4 million in the second quarter of 2012.


Based on the performance in the first half of 2013 as well as the expected increase in revenues during the second half of the year (a function of the company's normal business cycle), the company believes that it is on track to meet its delivery and revenue targets for 2013. It expects Defense & Security and Executive Aviation segments to represent a larger portion of total revenues in 2013 when compared to 2012.

Embraer, in February this year, had projected total revenue in the range of $5.9 billion to $6.4 billion for 2013. It also expects to deliver 90 to 95 commercial jets, 80 to 90 light executive jets and 25 to 30 large executive jets this year.

The company also expects to realize an EBIT margin between 13% and 14% for the year.

Other Company Releases

Recently, defense and aerospace operator General Dynamics Corp. ( GD ) announced second-quarter 2013 operating earnings of $1.81 per share, surpassing the Zacks Consensus Estimate of $1.63 by 11.0%.

Aerospace giant The Boeing Company ( BA ) reported stellar second quarter 2013 results, attributable to solid performance across the company's businesses. Its adjusted second quarter 2013 earnings came in at $1.67 per share, beating the Zacks Consensus Estimate of $1.58 by 5.7% as well as the year-ago profit of $1.48 by 12.8%.

The world's largest stand-alone defense contractor, Lockheed Martin Corp. ( LMT ) posted second quarter 2013 earnings of $2.64 per share, comfortably surpassing the Zacks Consensus Estimate of $2.21 by 19.5%.

Our Take

Though the company's top line succeeded in beating the Zacks Consensus Estimate, the bottom line failed to do so. Also, top and bottom line registered a year-over-year decline. This reflects a combination of lower commercial aviation deliveries and higher executive aviation deliveries.

Embraer is the leading manufacturer of 30-120 seat jets with a strong global customer base based on the number of aircraft sold. The company comes up with new ideas to increase production and thereby boost revenue. Also, the company has launched a number of programs involving the upgrade of existing jets along with the introduction of new advanced jets.

However, the highly competitive industry is forcing Embraer to incur high costs. The company presently retains a short-term Zacks Rank #3 (Hold).

BOEING CO (BA): Free Stock Analysis Report

EMBRAER AIR-ADR (ERJ): Free Stock Analysis Report

GENL DYNAMICS (GD): Free Stock Analysis Report

LOCKHEED MARTIN (LMT): Free Stock Analysis Report

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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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