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Embraer (ERJ) Slips into Loss in Q1, Maintains 2016 Guidance

Embraer SA ERJ reported a first-quarter 2016 adjusted loss of 1 cent per American Depository Share (ADS), whereas the Zacks Consensus Estimate was earnings of 31 cents. The company had generated earnings of 26 cents per ADS in the year-ago quarter.

Total Revenue

In first-quarter 2016, Embraer posted total revenue of $1,309 million, surpassing the Zacks Consensus Estimate of $1,188 million by 10.2%. Reported revenues also increased 24% year over year owing to higher deliveries in the Executive Jets and Commercial Aviation segments.

Higher revenues from Commercial Aviation (up 7.4%) and Executive Jets (up 140.5%) offset lower contributions from Defense & Security (down 11.3%).

Order and Delivery

The company delivered a total of 44 jets in the quarter, up 37.5% year over year.

Deliveries to the commercial aviation and business aviation markets were 21 and 23 jets, respectively.

In comparison, in the first quarter of 2015, the company had delivered 20 jets to the commercial aviation market and 12 jets to the business aviation market. In total, the company had delivered of 32 jets in the prior year.

In the first quarter of 2016, under commercial aviation, Embraer supplied 19 E175s and 2 E195 jets. The rest were delivered to business aviation, which included 12 light and 11 large jets.

Embraer reported an order backlog of $21.9 billion as of Mar 31, 2016. Although this represents a 2.7% sequential decrease, the figure climbed 7.4% from $20.4 billion recorded a year ago.

Operational Highlights

In the quarter under review, Embraer’s cost of sales and services was $1,047.7 million, up from $805.6 million a year ago.

The company’s gross profit increased 4.4% to $261.3 million in the first quarter.

The company reported quarterly earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $167.6 million, up from $149.1 million in the prior-year quarter.

Financial Update

Cash and cash equivalents were $1,959.4 million, as of Mar 31, 2016, compared with $2,165.5 million as of Dec 31, 2015.

As of Mar 31, 2016, the company had total debt of $ 3,663.2 million.

In the reported quarter, net cash used by operating activities was $29 million versus $291.4 million a year ago.

In the first quarter 2016, the company’s capital expenditure was around $76.1 million, while free cash outflow was $216.3 million. Free cash outflow in first-quarter 2015 was $439.6 million.

Guidance

Embraer reiterated its expectation for 2016 revenues in the range of $6.0–$6.4 billion. Defense & Security revenues are expected to remain within the $700–$750 million band.

The company expects to deliver 105–110 jets in Commercial Aviation and 40–50 large jets and 75–85 light jets in Executive Jets.

It expects EBIT margin of 8–8.5% and EBITDA margin of 13.3–13.7%.

For 2016, the company plans to invest $650 million, including capital expenditure of $275 million.

Other Releases in the Sector

Aerospace giant The Boeing Company BA delivered first-quarter 2016 adjusted earnings of $1.74 per share, missing the Zacks Consensus Estimate of $1.81 by 3.9%. Earnings also plunged 12% from $1.97 per share a year ago, owing to a $156 million after-tax charge (24 cents per share) on the KC-46 Tanker program the company is developing for the U.S. Air Force.

Pentagon’s prime contractor, Lockheed Martin Corp. LMT, reported adjusted first-quarter 2016 earnings of $2.58 per share, surpassing the Zacks Consensus Estimate of $2.51 by 2.8%.

Northrop Grumman NOC reported first-quarter 2016 adjusted earnings of $2.77 per share, beating the Zacks Consensus Estimate of $2.47 by 12.1%. Earnings also increased 29.4% from $2.14 per share in the year-ago quarter on higher sales volume.

Zacks Rank

Embraer currently has a Zacks Rank #5 (Strong Sell).

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