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Embraer (ERJ) Beats on Q3 Earnings, Reaffirms '17 Outlook

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Embraer SA (ERJ - Free Report) reported third-quarter 2017 adjusted earnings of 41 cents per American Depository Share (ADS) that surpassed the Zacks Consensus Estimate of 30 cents by 36.7%. However, the bottom line declined 4.7% from 43 cents in the year-ago quarter.

Revenues

In the third quarter, Embraer posted total revenue of $1,310.4 million that missed the Zacks Consensus Estimate of $1,341 million by 2.3%. The top line also declined 13.5% year over year due to lower deliveries at the Commercial Aviation segment and the Executive Jets segment.

While revenues at the company’s Commercial Aviation segment decreased 8.7%, the Executive Jets segment witnessed a decline of 27.3%. Again, the same at the Defense & Security segment plunged 43.3% year over year.

Order and Delivery

Embraer reported third-quarter 2017 deliveries of 45 jets compared with 54 in the year-ago period, reflecting a 16.7% decline. The deliveries were also 23.7% lower than the second-quarter level.

The company delivered 25 and 20 jets in commercial and business aviation markets, respectively, compared with 27 jets each in the prior-year period. Deliveries to the executive aviation market included 13 light and seven large executive jets.

Markedly, Embraer exited the quarter under review with a backlog of orders worth $18.8 billion, higher than the second-quarter level of $18.5 billion.

Also, the company received orders from SkyWest Inc. (SKYW - Free Report) for 45 new aircraft. Again in September, this Brazilian aerospace conglomerate bagged an order of 25 E-Jets worth $1.1 billion, based on current list prices. All these aircraft are scheduled to be delivered in 2018.

In the beginning of October, the company had also announced a second order from SkyWest for 20 additional E-Jets. At current list prices, the order is estimated to be valued at $914 million. Notably, this order has been added to Embraer’s third-quarter 2017 backlog as well.

Operational Highlights

In the quarter under review, Embraer’s cost of sales and services was $1,062 million, up from $1,229.7 million a year ago.

The company’s gross profit declined 12.7% to $248.4 million in the quarter.

Embraer posted quarterly adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $139.8 million compared with $54.3 million in the prior-year quarter.

Financial Update

As of Sep 30, the company’s cash and cash equivalents were $772.5 million compared with $1,241.5 million as of Dec 31, 2016.

At the end of the third quarter, Embraer had non-recourse and recourse debt of $722.8 million compared with $351 million at the end of 2016.

Net cash inflow from operating activities was $115.3 million compared with $235.3 million a year ago.

The company’s free cash outflow was $22.7 million compared with outflow of $20.5 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 between $1.60 and $1.75 billion.

Furthermore, the company reaffirmed its expectation to deliver 97-102 jets in the Commercial Aviation segment along with 70-80 large jets and 35-45 light jets in the 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, Embraer restated its plans to invest $650 million including capital expenditure of $200 million.

Peer Releases

Lockheed Martin Corp. (LMT - Free Report) reported third-quarter 2017 earnings from continuing operations of $3.24 per share, which missed the Zacks Consensus Estimate of $3.25 by 0.3%. This Zacks Rank #3 (Hold) company’s bottom line also declined from the year-ago period’s figure by 10.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Northrop Grumman Corp. (NOC - Free Report) reported third-quarter 2017 earnings of $3.68 per share, beating the Zacks Consensus Estimate of $2.92 by 26%. Reported earnings were also up 9.9% from $3.35 in the year-ago quarter. The company holds a Zacks Rank #2 (Buy).

Zacks Rank

Embraer carries a Zacks Rank #5 (Strong Sell).

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