Brazilian aircraft manufacturer Empresa Brasileira de Aeronautica S.A., or Embraer(ERJ) reported encouraging results for the fourth quarter and fiscal year 2010, surpassing or meeting all its annual guidance. Earnings per ADS climbed 29.2% year over year to $0.6777 from $0.5246 in the year-ago comparable quarter. Results were also above the Street Consensus of $0.63 per ADS.
The improvement in bottom-line results can be attributed to higher sales and decline in operating expenses, which were slightly offset by higher cost of sales.
In the fiscal year 2010, earnings per ADS were down by 29.1% to $1.8243 from $2.5714 in the fiscal year 2009. However, earnings were above the Zacks Consensus Estimate of $1.76 per ADS.
Revenue
Net revenue in the quarter was $1,970.2 million, up 20.9% year over year from $1,629.6 million in the year-ago quarter.
During the fourth quarter of fiscal 2010, the company delivered 31 commercial and 61 executive aircraft, with total deliveries of 101 commercial and 145 executive aircraft for the fiscal year 2010. Commercial Aviation revenue accounted for 47.3% of the total revenue, Defense and Security Business 11.7%, Executive Aviation 32.1%, Aviation Services 7.8% and Others 1.1%.
In the fiscal year 2010, net revenue was $5,364.1 million, slightly down from $5,497.8 million in 2009.
Gross profit improved 3.5% year over year to $330.6 million, while margins fell 280 basis points due to higher cost of sales during the period. Operating expenses were down by 29.2% year over year and accounted for roughly 10% of total revenue.
EBIT in the quarter improved from $39.2 million in the fourth quarter of 2009 to $132.4 million in the fourth quarter of 2010. EBITDA in the quarter improved 88% year over year while margin stood at 10% compared with 6.4% in the year-ago quarter.
Balance Sheet
Exiting the fourth quarter, Embraer had cash and cash equivalents of approximately $1,393.1 million versus $1,592.4 million in 2009. Loans and financing, net of current portions were $1,362.2 million versus $1,465.9 million in 2009.
The company’s cash from operating activities more than doubled in the quarter to settle at $578.1 million while spending on property, plant and equipment came to $65.9 million, up 132% year over year.
In the fiscal year 2010, cash from operating activities were $873.8 million while capital spending totaled $149.6 million.
Outlook
For the fiscal year 2011, management expects net sales to be approximately $5.6 billion, comprising Commercial Aviation revenue of $3.1 billion, Executive Aviation revenue of $1.2 billion, Defense and Security Business revenue of $600 million, and Aviation Services and Other Business revenue of $700 million. EBIT is expected to be approximately $420 million, with EBIT margin around 7.5%.
The company expects to deliver 102 commercial jets, 100 light jets and 18 large jets. Investments are expected to approximate $500 million, including research expenditures of roughly $90 million, product development expense of $210 million and capital spending of $200 million. EBITDA margin is expected to reach 11% in 2011 with EBITDA being $615 million.
Embraer recently signed a memorandum of understanding with ABC Financial Leasing Co., Ltd. on aircraft financing and leasing. ABC Financial Leasing is a wholly owned subsidiary of Agricultural Bank of China. The agreement will enable Embraer to develop its market in China and is expected to reach roughly $1.5 billion in a period of five years.
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