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Embraer (ERJ) Beats on Q2 Earnings, Reaffirms '17 Outlook

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Embraer SA (ERJ - Free Report) reported second-quarter 2017 adjusted earnings of 67 cents per American Depository Share (ADS) that surpassed the Zacks Consensus Estimate of 49 cents by 36.7%. Earnings also surged 179.2% from 24 cents in the year-ago quarter.

Revenues

In the second quarter, Embraer posted total revenue of $1,769.6 million that surpassed the Zacks Consensus Estimate of $1,455 million by 21.7%. Revenues also increased 29.5% year over year owing to higher deliveries at the Commercial Aviation segment, favorable mix of deliveries in the Executive Jets segment, the launch of the Brazilian Strategic Geostationary Defense & Communications satellite, and growth in services revenues.

While revenues at the company’s Commercial Aviation segment increased 27%, the Executive Jets segment witnessed growth of 16%. Again, the same from the Defense & Security segment rose 59.7% year over year.

Order and Delivery

Embraer delivered a total of 59 jets in the quarter, up 13.5% year over year. It delivered 35 and 24 jets in the commercial and business aviation markets, respectively compared with 26 jets each in the year-ago period. Deliveries to the executive aviation market included 16 light and eight large executive jets.

Notably, the company exited the reported quarter with an order backlog of $18.5 billion, lower than the first-quarter level of $19.2 billion. Embraer’s backlog was pegged at 417 aircraft, which comprised 100 E175-E2s, 102 E195-E2s, 65 E175s, 83 E190-E2s, 57 E190s, 9 E195s and one E170s jets.

Additionally, it received orders and commitments from unidentified customers for E2 jets, the second generation of its E-Jets family of commercial aircraft. They ordered for 10 E195-E2 jets, including purchase rights for 10 additional jets. The company also received a commitment to purchase 20 E190-E2s from one more unidentified customer.

Moreover, Embraer obtained an order for two aircraft of the current generation of E-Jets, one E175 and one E195, from Belavia and Belarus, respectively. Both these aircraft are scheduled to be delivered in 2018.

Another agreement was signed with Japanese airline, Fuji Dream Airlines, for three E175 jets including purchase rights for three additional aircraft. The other orders included – two more E190 jets for KLM Cityhopper - KLM's regional subsidiary and a deal with Japan Airlines for more E190 jets.

Apart from this, Embraer also inked a deal with the American Airlines Group for four E175 jets, valued at $182 million at list prices.

Operational Highlights

In the quarter under review, Embraer’s cost of sales and services was $1,452.5 million, up from $1,082.7 million a year ago.

As a result, the company’s gross profit improved 11.8% to $317.1 million in the quarter.

The company reported quarterly adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $245.4 million compared with $143.8 million in the prior-year quarter.

Financial Update

As of Jun 30 cash and cash equivalents were $1,207.4 million compared with $1,241.5 million as of Dec 31, 2016.

At the end of the second quarter, the company had non-recourse and recourse debt of $356.3 million compared with $351 million at the end of 2016.

Net cash inflow from operating activities was $457.7 million compared with cash outflow of $361.4 million a year ago.

The company’s free cash inflow was $220 million compared with outflow of $422.2 in the year-ago quarter.

Guidance

Embraer reiterated its 2017 revenue guidance in the range of $5.7–$6.1 billion. While Defense & Security revenues are still expected in the $0.80–$0.90 billion band, Commercial Aviation revenues are projected in the range of $3.25–$3.40 billion. For Executive Jets segments, the company still anticipates revenues in the band of $1.60-$1.75 billion.

The company also reaffirmed its expectation to deliver 97–102 jets in Commercial Aviation segment, along with 70–80 large jets and 35–45 light jets in Executive Jets segment for 2017.

It still expects EBIT margin in the range of 8–9% and EBITDA margin of in 13.5–14.5% band.

For 2017, the company restated its plans to invest $650 million, including capital expenditure of $200 million.

Peer Releases

AAR Corp. (AIR - Free Report) reported fourth-quarter fiscal 2017 earnings of 44 cents per share, which surpassed the Zacks Consensus Estimate of 43 cents. Earnings were up 29.4% from the year-ago figure of 34 cents.

Lockheed Martin Corp. (LMT - Free Report) reported second-quarter 2017 earnings from continuing operations of $3.23 per share, beating the Zacks Consensus Estimate of $3.10 by 4.2%. Earnings also surpassed the year-ago period’s bottom-line figure by 10.2%.

Textron Inc. (TXT - Free Report) reported second-quarter 2017 adjusted earnings from continuing operations of 60 cents per share, beating the Zacks Consensus Estimate of 55 cents by 9.1%.

Zacks Rank

Embraer currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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