Embraer reports fourth quarter and full year results

Lauren Eldershaw
By Lauren Eldershaw March 14, 2019 16:47

Embraer reports fourth quarter and full year results

During 4Q18, Embraer delivered 33 commercial and 36 executive aircraft (24 light jets and 12 large jets), for a total of 90 commercial and 91 executive aircraft (64 light and 27 large) delivered in 2018. Deliveries of commercial jets were within the company’s stated guidance range of 85 to 95 deliveries for 2018, while executive jet deliveries were below guidance of 105 to 125 total jet deliveries for the year.

Embraer states that global market conditions for executive jets, although gradually improving, continued to recover more slowly than expected. In addition, Embraer’s increased focus on improving profitability and price preservation, as well as the recent launch of the new midsize/super midsize executive jets (Praetors), which will begin delivering in 2019, led the company to adopt a more cautious approach toward deliveries in 2018. In 2017, total commercial jet deliveries totalled 101 aircraft and total executive jet deliveries totalled 109 aircraft (72 light and 37 large).

Consolidated revenues of US$1,670.9 million in 4Q18 represented a 3.5% year-over-year decline, with revenue growth in the Commercial Aviation and Services & Support segments offset by declines in the company’s remaining segments. For the full year 2018, Embraer’s consolidated revenues totalled US$ 5,071.1 million versus US$ 5,859.4 million reported in 2017, driven by lower deliveries in the Commercial Aviation and Executive Jets segments as well as lower revenues in the Defense & Security segment. These declines were only partially offset by 6.4% revenue growth in the Services & Support segment, which finished 2018 with US$ 980.8 million in revenues.

Embraer’s reported gross margin of 14.1% in 4Q18 represented a decline compared to the 20.0% reported in 4Q17, driven principally by lower gross margin in Commercial Aviation on unfavorable mix and in the Defense & Security segment on additional cost base revisions on the KC-390 development contract. For fiscal year 2018, Embraer’s gross margin was 15.1%, representing a decline from the 18.7% reported in 2017. The Executive Jets segment reported an increase of more than 500 basis points in its gross margin for 2018 as compared to 2017, while the Services & Support segment had relatively stable gross margins in 2018.

Administrative expenses for 4Q18 were US$ 52.5 million, slightly up from the US$ 49.0 million reported in 4Q17, and for fiscal year 2018 administrative expenses totalled US$ 182.6 million compared to 2017 administrative expenses of US$ 179.1 million.

Net income (loss) attributable to Embraer shareholders and Earnings (Loss) per ADS for 4Q18 were US$ (18.1) million and US$ (0.10) per share, respectively, bringing total 2018 Net income (loss) attributable to Embraer shareholders and Earnings (Loss) per ADS to US$ (178.2) million and US$ (0.97) per share, respectively.

Embraer finished fiscal year 2018 with a net debt position of US$ 439.9 million, compared to the net debt position of US$ 880.5 million at the end of 3Q18.

In 4Q18, Embraer invested a total of US$ 90.2 million in product development, principally related to the development of the E-Jets E2 commercial jet program, which continues to progress according to schedule. Development expenditures net of contributions from suppliers in the quarter were also US$ 90.2 million. For the full year, the Company’s net development expenditures totalled US$164.8 million, which ended 2018 at a lower level then Embraer’s initial outlook for spending of US$ 300 million.

Embraer reports that its total debt decreased US$ 374.9 million to US$ 3,647.7 million at the end of 4Q18 compared to US$ 4,022.6 million at the end of 3Q18. Short-term debt at the end of 4Q18 was US$ 179.3 million and long-term debt was US$ 3,468.4 million. The average loan maturity of the company’s debt at the end of 4Q18 was 5.5 years. The cost of Dollar denominated loans at the end of 4Q18 was stable at 5.27% p.a., while the cost of real denominated loans declined to 2.47% p.a. at the end of 4Q18.

Considering all deliveries as well as firm orders obtained during the period, the Company’s firm order backlog ended 4Q18 at US$ 16.3 billion.

The Commercial Aviation segment represented 50.2% of consolidated revenues in 4Q18 versus 38.1% of revenues in 4Q17, as the segment’s deliveries increased on a year-over-year basis, from 23 jets to 33 jets.

In 4Q18, Embraer delivered 33 commercial jets and in 2018 delivered 90 jets. The Company’s Commercial Aviation segment represented roughly 59% of the total value of backlog reported at the end of 4Q18, with a value of US$ 9.7 billion in firm orders.

On December 17, 2018, Embraer and Boeing announced that they approved the terms of a strategic partnership that would position both companies to accelerate growth in global aerospace markets. The approved terms define the joint venture comprising the commercial aircraft and services operations of Embraer, in which Boeing will hold an 80 percent ownership stake and Embraer will hold the remaining 20 percent. Under the terms of the proposed partnership, Boeing will acquire an 80 percent ownership stake in the joint venture for $4.2 billion.

Once the transaction has closed, the commercial aviation joint venture will be led by Brazil-based management, including a president and chief executive officer. Boeing will have operational and management control of the new company. Embraer will retain consent rights for certain strategic decisions, such as transfer of operations from Brazil.

On January 10, 2019, the Brazilian Federal Government confirmed that it will not exercise its veto right with regard to the strategic partnership.

On February 26, 2019, the shareholders of Embraer approved the strategic partnership, which remains subject to the approval by the antitrust authorities of Brazil, the United States of America and other applicable jurisdictions, and the satisfaction of other customary closing conditions. Until such approvals and the satisfaction of closing conditions, there can be no assurance of the consummation of the transaction or the timing of this, said Embraer.

Lauren Eldershaw
By Lauren Eldershaw March 14, 2019 16:47