Embraer S.A.‘s (ERJ) first quarter of 2012 earnings per ADS came in at 35 cents, missing the Zacks Consensus Estimate of 42 cents. This also compared unfavorably with earnings of 58 cents in the year-ago quarter. .
The tapered earnings is attributable to heavier tax burden alongside rising labor costs, partially offset by a strong mix of deliveries during the quarter.
Revenue
Net revenue in the quarter was $1155.9 million, up 9.5% year over year, driven by delivery of 21 commercial and 13 executive (12 light and 1 large) jets. Revenue also surpassed the Zacks Consensus Estimate of $1145.0 million.
Commercial Aviation revenue accounted for 65.7% of total revenue, Defense and Security Business contributed around 20.1%, Executive Aviation 13.1%, and Others 1.1%.
Embraer’s firm order backlog at the end of the first quarter of 2012 totaled $14.7 billion, slightly down from $15.4 billion at the end of 2011.
EBIT margin in the quarter was 7.4% compared with 8.9% in the year-ago quarter and a negative 0.3% in the previous quarter. EBITDA in the quarter was recorded at $148.1 million, down 5.2% year over year, while EBITDA margin stood at 12.8%, plummeting from 14.8% in the year-ago quarter.
Balance Sheet
The company’s net cash position was $301.8 million at the end of the reported quarter, down from $445.7 million at the end of the previous quarter. The drop in net cash position is an outcome of increased inventory, partially offset by an increase in Trade accounts payable.
Cash and cash equivalents were $1,436.6 million compared with $1,350.2 million at the end of the prior quarter.
The company’s total debt increased to $1,988.2 million up 19.9% year over year.
Exiting the first quarter, Embraer’s net cash used in operating activities was $128.9 million. The net cash generated by operating activities was recorded at $62.1 million in the previous year quarter.
Capital spending came in at $39.6 million in the quarter compared with $91.8 million in the year-ago quarter and $76.8 million in the previous quarter. Free cash flow was recorded at negative $173.9 million versus negative $125.7 million in the year-ago quarter and positive $276.6 million in the previous quarter.
Brazil-based Embraer’s product portfolio supports strong customer orders worldwide. Its diversified global footprint offers tough competition to industry players of the likes of Boeing Co. (BA), Lockheed Martin Corporation (LMT), and Northrop Grumman Corporation (NOC).
We currently maintain a long-term ‘Neutral’ recommendation on the stock. Furthermore, Embraer has a Zacks # 2 Rank, which translates into a short-term (1-3 months) ‘Buy’ rating.
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