On July 28, Embraer S.A (ERJ) reported its financial results for the second quarter of 2011. Earnings per ADS in the quarter were 53 cents, up from 32 cents in the year-ago quarter and down from 58 cents in the sequential quarter. Results surpassed the Zacks Consensus Estimate of 46 cents.
The year-over-year improvement is attributable to the company’s aircraft deliveries of 25 commercial and 23 executive aircraft in 2Q11 (20 light jets and 3 large jets).
Revenue
Net revenue in the quarter was $1,358.6 million compared with $1,357.9 million in 2Q10, surpassing the Zacks Consensus Estimate of $1,296 million.
The company’s continuous improvement in the commercial aviation market as well as the new strategic agreements resulted in higher sales in the reported quarter.
Commercial Aviation revenue accounted for 65.3% of total revenue, Defense and Security Business contributed around 14.8%, Executive Aviation 18.1%, and Others 1.8%.
Embraer's firm order backlog at the end of 2Q11 totaled $15.8 billion, slightly down sequentially from $16 billion in the previous quarter.
Margins
The strategic product mix in addition to the company's efforts of improving productivity and efficiency positively impacted operational outcome, resulting in gross margin growth from 20.2% in 2Q10 to 22.4% in the reported quarter.
EBIT margin in the quarter was 7.8% compared with 9.0% in the year-ago quarter and 8.9% in the previous quarter. EBITDA in the quarter was recorded at $153.1 million from $166.1 million in the year-ago comparable quarter, while margin stood at 11.3%, down from 12.2% in the year-ago quarter.
Balance Sheet
Exiting the second quarter, Embraer’s net cash position was recorded at $406.3 million compared with $504.9 million in the pervious quarter, down 24.3%. Cash and cash equivalents was $1,350.9 million compared with $1,302.5 million in the previous quarter.
During the reported quarter, the company's total debt increased to $1,719.9 million compared with $1,513.8 million in the previous quarter.
Cash Flow
The company’s net cash generated by operating activities reached $78.3 million in 2Q11, up from $62.1 million in the previous quarter, down drastically from $343.4 million a year ago. Capital spending was $92.9 million, up from $10.6 million in the year-ago quarter and $91.8 million in the previous quarter. Free cash flow was a negative $37.7 million in the reported quarter versus a positive $219.9 million in the year-ago quarter and a negative $125.7 million in the previous quarter.
Guidance
The company revised its 2011 revenue guidance from $5.6 billion to $5.8 billion. The EBIT margin guidance is also being revised from 7.5% to 8% with the EBITDA margin projections revised to 12% for the full year. Management also revisited its Development investment outlook from $210 million to $160 million.
Embraer S.A designs, manufactures and sells aircraft and aviation-related structural parts to the world’s commercial aviation, executive aviation and defense markets. The company’s product portfolio supporting strong customer orders and diversified global footprint, gives a tough competition to its peers, such as Boeing Co. (BA), Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC), etc.
We currently maintain a long-term Outperform recommendation on the stock. Embraer has a Zacks # 2 Rank, which translates into a short-term Buy rating (1-3 months).
BOEING CO (BA): Free Stock Analysis Report
EMBRAER AIR-ADR (ERJ): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
NORTHROP GRUMMN (NOC): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment