Embraer SA ERJ reported second-quarter 2015 adjusted earnings of 67 cents per American Depository Share (ADS), beating the Zacks Consensus Estimate of 55 cents by 21.8%. Quarterly earnings slipped 0.4% from 70 cents per ADS a year ago.
On a GAAP basis, Embraer incurred a loss of 71 cents per ADS as against earnings of 78 cents a year ago.
Embraer's results mainly demonstrate the poor value of the Brazilian real compared to the U.S. dollar. At home, a shrinking Brazilian economy along with a series of populist tax incentives has put pressure on the government's finances. This has delayed payments resulting in a severe cash flow crunch at Embraer.
Total Revenue
In the second quarter, Embraer posted total revenues of $1,513.2 million, missing the Zacks Consensus Estimate of $1,817 million by 16.7%. Reported revenues also decreased 14.1% year over year due to weakness across the board. The company generated lower revenues from Executive Jets (down 4%), Defense & Security (39.4%), Commercial Aviation (9.2%) and Others (11%).
Order and Delivery
Embraer delivered 60 jets in the second quarter of 2015, up from 58 deliveries in the year-ago quarter. The company delivered 27 commercial (comprising only E175 jets) and 33 executive jets (26 light jets and 7 large jets) in the quarter. In comparison, the company had delivered 29 jets in each of the two categories in the year-ago quarter.
Backlog reached the highest level in the company’s history in the second quarter. Embraer reported an order backlog of $22.9 billion at the end of the reported quarter, up 26.5% year over year and 12.3% sequentially.
The company managed to bring in 102 firm orders for its E-Jets commercial-jet.
Operational Highlights
In the quarter under review, Embraer’s cost of sales and services was $1,226.5 million, down from $1,376.1 million a year ago.
The company’s gross profit decreased 25.6% year over year to $286.7 million in the second quarter.
The company reported quarterly earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $177.6 million compared with $261.4 million in the prior-year quarter.
Income tax expenses in the quarter were $21.3 million as compared to $41.9 million a year ago. The real appreciated 3% during the quarter, leading to non-cash deferred income tax gains on non-monetary assets.
Financial Update
Cash and cash equivalents were $2,346.8 million as of Jun 30, 2015, compared with $1,713 million as of Dec 31, 2014.
As of Jun 30, 2015, the company's debts were $510.7 million, up from $84.5 million as of Dec 31, 2014.
In the quarter, the company invested around $35.9 million as capital expenditure and generated $72.7 million of free cash flow. Free cash flow in the preceding quarter was a negative $439.6 million.
Guidance
Embraer trimmed its revenue guidance for the year to a range of $5.8–$6.3 billion from its earlier forecast of $6.1−$6.6 billion. The downward revision is mainly due to a $300 million cutback in expected revenues in the Defense & Security segment, which is now expected to remain within $800–$950 million.
Delayed military contracts and extended deadlines for the company’s cargo jet program due to the Brazilian government’s austerity drive along with a sharp depreciation of Brazil's the real weighed on its projection.
Nevertheless, Embraer does not expect lower revenues to have an impact on its operating earnings. The company boosted its operating margin outlook. It now expects EBIT margin in the range of 8.5–9%, up from a previous range of 8–8.5%, and EBITDA margin in the range of 12.6–13.6%, up from 12%–13%.
For 2015, the company plans to invest $0.65 billion, including capital expenditures of $0.3 billion.
Other Releases in the Sector
The Boeing Company BA delivered second-quarter 2015 adjusted earnings of $1.62 per share, beating the Zacks Consensus Estimate by 15.7%. Earnings however decreased 33.1% from $2.42 per share a year ago hurt by a huge charge related to its military KC-46 tanker program.
L-3 Communications Holdings Inc. LLL posted second-quarter 2015 adjusted earnings of $1.41 per share, lagging the Zacks Consensus Estimate of $1.72 by 18%. Earnings were also lower than the year-ago figure of $1.53 by 8%.
General Dynamics Corporation GD announced second-quarter 2015 earnings from continuing operations of $2.27 per share, comfortably surpassing the Zacks Consensus Estimate of $2.03 by 11.8%. Earnings also increased 20.7% from the prior-year figure of $1.88, backed by improved operating margins.
Zacks Rank
Embraer currently has a Zacks Rank #3 (Hold).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment