Following the earnings release of Empresa Brasileira de Aeronautica S.A. – Embraer (ERJ) on April 29, analysts covering the stock have become optimistic and moved their estimates upward.
Their optimism is based on first quarter results, which were based on the reduction in short-term loans, consequently reduced interest expenses and thereby enhanced net earnings. However, the marker discounted the news and the stock fell by approximately 8.0%.
First Quarter Highlights
Embraer has reported an EPADS of 20 cents for the first quarter of fiscal 2010 versus a loss of 13 cents in the year-ago quarter. But this was just half of the Zacks Consensus Estimate of 40 cents.
Net income reached $35.3 million compared with a loss of $23.4 million in the first quarter of 2009. However, net revenues dropped by 14.2% and reached $990.1 million from $1,154.1 million in the year-ago quarter, based on lower aircraft delivery.
Revenue from the Commercial Aviation segment dropped 40% to $523.4 million, while revenue from the Defense segment more than doubled to $189.0 million. Executive Aviation and Aviation Services segmental revenue shot up 65.2% and 10.9% to reach $116.0 million and $142.1 million, respectively.
Gross margin bloated by 580 basis points while operating expense as a percentage of revenue remained flat at 15.9%. Net interest income came to $11.8 million from an expense of $2.0 million in the year-ago quarter. This was the reason for the increase in net income during the quarter.
(Read our full coverage on this earnings report: Embraer Missed Zacks Estimate)
Agreement of Analysts
First quarter results encouraged analysts to raise their estimates. Thus for the current year, out of 8 analysts covering the stock, 2 moved up with only one lowering. For the following year, 2 raised their estimates with none moving in the opposite direction.
Magnitude of Estimate Revisions
The optimistic view of the analysts in the last month has helped raise the EPS estimate for the upcoming year by 4 cents to 48 cents. For 2011, the estimate has gone up to $1.87 from $1.77.
Embraer Remains Neutral
The international economic environment remains an issue for Embraer, considering its exposure to the U.S. and European markets. Moreover, the company’s high concentration in some models, with a primary focus on American airline companies, exposes it to considerable risk. However, the support of the Brazilian government and the strength in the company’s aircraft family are encouraging.
We maintain our Neutral recommendation on the ADR. This is supported by a Zacks #3 Rank (Hold).
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
Read the full analyst report on “ERJ”
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