Embraer SA’s (ERJ) adjusted third-quarter 2014 earnings of 50 cents per American Depository Share (ADS) spiked 150% from 20 cents per ADS in the prior-year quarter. The reported figure also beat the Zacks Consensus Estimate of 25 cents by 100%. Adjusted figure excluded the deferred income tax and social contribution.
On a GAAP basis, Embraer incurred a quarterly net loss of $10.7 million, hurt by poor commercial and executive jet deliveries and a rising tax bill. The higher income tax in the reported quarter is due to the effect of foreign exchange variation in the period, which led to a non-cash deferred income tax expense on non-monetary assets.
Total Revenue
Net revenue was $1,239.7 million, down 3.8% from $1,288.2 million in the year-ago quarter. The top line also fell short of the Zacks Consensus Estimate of $1,453.0 million by 14.7%. The decline was due to poor executive jet deliveries.
Gross margin increased 30 basis points year over year to 19.5% in the quarter.
Order and Delivery
In the third quarter of 2014, the jet manufacturer delivered a total of 34 jets, down 41.4% year over year.
The commercial aviation and business aviation markets were delivered 19 and 15 jets, respectively. Embraer provided 16 E-175s, 2 E-190s and 1 E-195 to the commercial aviation market, while the rest were delivered to the business aviation market, which included only Light jets.
Embraer, however, reported a record order backlog of $22.1 billion as of Sep 30, 2014. The company recorded a firm order backlog of $18.1 billion in Jun 2014 alone. The surge in the backlog, the highest ever in the company’s history, can be attributed to the KC-390 contract and a firm order of 50 E175s from Republic Airways Holdings Inc.
Segment Details
Commercial Aviation revenues, comprising 53.3% of total quarterly revenues, decreased 3.9% year over year to $660.7 million.
Defense & Security revenues, representing 27.9% of total quarterly revenues, surged 29.8% year over year to $346.2 million.
Executive Jets generated revenues of $213.3 million that accounted for 17.2% of total third-quarter sales and decreased 32.2% from the year-ago period.
The Other category accounted for 1.6% of total third quarter revenues, climbing approximately 1.6% year over year to $19.5 million.
Financial Update
Cash and cash equivalents were $1,176 million as of Sep 30, 2014, compared with $1,683.7 million as of Dec 31, 2013.
As of Sep 30, 2014, the company's total debt was $2,373 million, up from $2,224.2 million as of Dec 31, 2013.
In the third quarter 2014, Embraer’s net cash from operating activities was $21.8 million, down from $200.5 million a year ago.
Capital expenditure was $88.9 million, down from $106.2 million in the third quarter 2013.
Free cash outflow was $137.6 million in the quarter compared with $84.4 million a year ago.
Guidance
In its guidance issued earlier in February, Embraer projected 2014 total revenues in the range of $6.0 billion to $6.5 billion. Embraer expects 2014 revenues to increase slightly from 2013 levels on the back of its Defense & Security and Executive Jets segments.
The company expected EBIT margin in the range of 9.0%−9.5% for 2014.
In addition, the company has also maintained its prior investment guidance of around $0.7 billion for 2014. This comprises $0.08 billion of research, $0.3 billion of product development and $0.2 billion of capital expenditure.
Embraer believes that any budget cut in Brazil will not affect its top-line generation with respect to its contracts with the country's Air Force. The company’s Chief Executive Frederico Curado pointed out that strong demand in the new mid-size Legacy 500 will likely generate firm orders in the next few months. Additionally, a recovery in the developed economies will also help the company to attain its guidance.
Other Releases
Aerospace giant The Boeing Company (BA) delivered upbeat third-quarter 2014 results backed by robust deliveries. The company reported adjusted third-quarter 2014 earnings of $2.14 per share, beating the Zacks Consensus Estimate by 9.2%. The quarterly number rose an impressive 18.9% from $1.80 per share a year ago.
Pentagon’s prime contractor, Lockheed Martin Corp. (LMT), reported quarterly earnings of $2.76 per share, comfortably surpassing the Zacks Consensus Estimate of $2.72 by 1.5%.
Northrop Grumman Corporation (NOC) reported third-quarter 2014 adjusted earnings of $2.32 per share, beating the Zacks Consensus Estimate of $2.16 by 7.4%. Earnings also increased 17.8% year over year.
Zacks Rank
Embraer currently has a Zacks Rank #3 (Hold).
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