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Embraer (ERJ) Q1 Earnings Miss, Commercial Deliveries Drop Y/Y

Zacks Equity Research

Embraer SA ERJ incurred first-quarter 2019 adjusted loss of 34 cents per American Depository share (ADS), wider than the Zacks Consensus Estimate of a loss of 21 cents. In the year-ago quarter, the company had incurred a loss of 33 cents.

Barring one-time items, the company incurred a GAAP loss of 23 cents per share compared with a loss of 20 cents in the prior-year period.

The year-over-year downside can be primarily attributed to lower revenues in the reported quarter.

Embraer-Empresa Brasileira de Aeronautica Price, Consensus and EPS Surprise

Embraer-Empresa Brasileira de Aeronautica Price, Consensus and EPS Surprise

Embraer-Empresa Brasileira de Aeronautica price-consensus-eps-surprise-chart | Embraer-Empresa Brasileira de Aeronautica Quote

Revenues

Embraer’s first-quarter revenues came in at $823.3 million, which missed the Zacks Consensus Estimate of $1,042 million by 21%. The top line also decreased 14.3% year over year primarily on account of lower deliveries at the Commercial Aviation segment along with lower revenues from used jet sales in Executive Jets segment. Also, a year-over-year decline across several programs in the Defense & Security segment resulted in the downturn.

Order and Delivery

Embraer delivered a total of 22 jets in the reported quarter, down 12% year over year. Of these, deliveries to the commercial aviation market and the business aviation market included 11 each. In first-quarter 2018, the company had delivered 14 and 11 jets to the commercial aviation and the business aviation market, respectively.

Embraer’s backlog at the end of the quarter under review was $16 billion, down from $19.5 billion in the year-ago quarter.

Operational Highlights

In the first quarter, Embraer’s cost of sales and services totaled $659.4 million, down from $810.2 million in the prior-year quarter. As a result, the company’s gross profit increased 9.2% to $163.9 million.

Embraer posted quarterly adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $30.9 million compared with $57.8 million in the year-earlier quarter.

Financial Update

As of Mar 31, 2019, the company’s cash and cash equivalents amounted to $777.5 million compared with $1,280.9 million as of Dec 31, 2018.
Embraer had net debt of $1,103.7 million as of Mar 31, 2019, up from $439.9 million as of Dec 31, 2018.

Adjusted net cash outflow from operating activities summed $557.5 million compared with cash outflow of $315.3 million in the year-ago period.

The company’s adjusted free cash outflow was $665.3 million as of Mar 31, 2019, compared with free cash outflow of $435.2 million at the end of the year-ago period. Additional investment in working capital (particularly higher inventories and accounts receivable & contract assets) and no contributions from suppliers to offset development expenditures in the reported quarter have resulted in this adverse free cash flow balance for Embraer.

Business Highlights

Embraer’s shareholders approved the proposed strategic partnership between the company and Boeing BA during an Extraordinary General Shareholders’ Meeting on Feb 26, 2019. However, the closing of the transaction remains subject to obtaining regulatory approvals and the satisfaction of other customary closing conditions that are expected by the end of 2019.

On closure of the merger, the commercial aviation joint venture will be led by Brazil-based management including a president and chief executive officer. Boeing will have operational and management control of the new company. Meanwhile, Embraer will retain consent rights for certain strategic decisions such as transfer of operations from Brazil.

Guidance

For 2019, the company reaffirmed its guidance. Embraer still expects to deliver 85-95 jets to the Commercial Aviation segment along with 90-110 executive jets.

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.

Recent Defense Releases

Textron Inc. TXT reported first-quarter 2019 earnings from continuing operations of 76 cents per share, which surpassed the Zacks Consensus Estimate of 70 cents by 8.6%.

Lockheed Martin Corp.’s LMT first-quarter 2019 earnings came in at $5.99 per share, which outpaced the Zacks Consensus Estimate of $4.29 by 39.6%.

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