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Embraer (ERJ) Q4 Earnings & Sales Miss, Deliveries Slip Y/Y

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Embraer SA ERJ reported fourth-quarter 2017 adjusted earnings of 32 cents per American Depository Share (ADS), which missed the Zacks Consensus Estimate of 69 cents by 53.6%. The bottom line also plunged 71.9% from $1.14 in the year-ago quarter.

Barring the one-time items, the company posted GAAP earnings of 19 cents per share compared with $1.06 in the prior-year 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 Quote

 

In 2017, Embraer delivered adjusted earnings per share of $1.52, which fell short of the Zacks Consensus Estimate of $1.83 by 17% and the year-ago figure of $1.58.

Revenues

Embraer’s fourth-quarter revenues came in at $1,733 million, missing the Zacks Consensus Estimate of $1,784 million by 2.9%. The top line also declined 14.6% year over year primarily on lower deliveries at the Commercial Aviation segment and a decrease in revenues in the Defense & Security segment.

While revenues at the company’s Commercial Aviation segment were down 22.4%, the Executive Jets segment witnessed a decline of 2.5%. At the Defense & Security segment, the same decreased 15% year over year.

In 2017, the company’s revenues totaled $5.84 billion, which lagged the Zacks Consensus Estimate of $5.89 billion. The reported figure was down compared with $6.22 billion in a year ago.

Order and Delivery

Embraer delivered a total of 73 jets in the quarter, down 2.7% year over year. Of these, deliveries to the commercial aviation market and the business aviation market included 23 and 50 jets, respectively.

In fourth-quarter 2016, the company had delivered 32 jets to the commercial aviation market and 43 jets to the business aviation market, totaling to delivery of 75 jets a year ago.

Notably, in 2017, Embraer reported deliveries of 210 jets compared with 225 in the year-ago period, reflecting a 6.7% decline.

Deliveries to commercial and business aviation markets included 101 and 109 jets in 2017, respectively, compared with 108 jets and 117 jets each in the previous year. Meanwhile, deliveries to the executive aviation market included 72 light and 37 large executive jets. However, the full-year delivery numbers met the company’s guidance for 2017.

In the fourth quarter, Embraer’s Commercial Aviation unit supplied 14 E175s, 5 E190s and 4E195 jets. The rest were delivered by Business Aviation, which included 32 light and 18 large jets.

Embraer’s Commercial Aviation unit supplied 79 E175s, 12 E190s and 10 E195 jets in 2017. The rest were delivered by Business Aviation, including 72 light and 37 large jets.

Markedly, Embraer exited 2017 with a backlog of orders worth $18.3 billion, lower than $18.8 billion last year.

Operational Highlights

In the fourth quarter, Embraer’s cost of sales and services was $1,387 million, down from $1,621 million a year ago.

Additionally, the company’s gross profit declined 15.1% to $345.9 million.

Embraer posted quarterly adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $220.3 million compared with $348 million in the prior-year quarter.

Financial Update

As of Dec 31, 2017, the company’s cash and cash equivalents were $1,270.8 million compared with $1,241.5 million as of Dec 31, 2016.

At the end of 2017, Embraer had net debt of $310.8 million, reflecting an improvement from $722.8 million at the end of 2016.

Net cash inflow from operating activities was $1,001.9 million compared with $287.2 million a year ago.

The company’s adjusted free cash flow was $404.8 million at 2017-end compared to outflow of $359.2 million in the previous year.

Guidance

For 2018, Embraer expects to generate revenues in the range of $5.8-$5.9 billion. While Defense & Security revenues are projected in the $0.80-$0.90 billion band, Commercial Aviation revenues are envisioned to lie within $2.30-$2.45 billion. For the Executive Jets segments, the company anticipates revenues between $1.35 and $1.50 billion.

Furthermore, the company anticipates delivering 85-95 jets in the Commercial Aviation segment along with 70-80 light jets and 35-45 large jets in the Executive Jets segment for 2018.

It expects EBIT margin in the range of 5-6% and EBITDA margin of in 10-11% band.

For 2018, Embraer expects to invest $550 million, including capital expenditures of $200 million.

Zacks Rank

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

Peer Releases

Huntington Ingalls Industries’ HII fourth-quarter 2017 adjusted earnings per share of $3.11 surpassed the Zacks Consensus Estimate of $2.92 by 6.5%. However, the bottom line declined 26% from $4.20 a year ago.

Lockheed Martin’s LMT fourth-quarter 2017 adjusted earnings from continuing operations were $4.30 per share, which surpassed the Zacks Consensus Estimate of $4.06 by 5.9%.

Raytheon’s RTN fourth-quarter 2017 adjusted earnings from continuing operations were $2.03 per share, which outpaced the Zacks Consensus Estimate of $2.02 by 0.5%.

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