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Embraer’s (ERJ) Q1 Deliveries Decline Y/Y, Backlog Slips


Embraer S.A. ERJ recently reported its delivery figures for the first quarter of 2018. Total number of jets delivered in the reported quarter was 25, marking a decline of 24.2% from the year-ago quarter’s figure of 33 jets.

Q1 Deliveries & Backlog

Embraer delivered a total of 14 jets in the first quarter 2018, in the commercial aviation market, compared to 18 jets delivered in the prior-year’s first quarter.

In the business aviation market, a total of 11 aircraft were delivered in the first quarter, which was respectively segregated into eight light jets and three large jets. In the first quarter of 2017, deliveries to the executive aviation market included 11 light and four large executive jets, amounting to a total of 15 jets.

On a year-over-year basis, commercial deliveries dropped 22.2%, while executive aviation deliveries fell 26.7%.

Embraer’s first-quarter backlog was pegged at 421 aircraft, which comprised 106 195-E2s, 100 175-E2s, 92 E175s, 74 190-E2s, 43 E190s, five E195s and one E170 jets. This compares unfavorably with the company’s fourth-quarter backlog of 435 jets.

Recent Developments

The company has been awarded the triple certification for the E190-E2 commercial aircraft from the Brazilian Civil Aviation Agency (Agência Nacional de Aviação Civil – ANAC), the FAA (Federal Aviation Administration) and EASA (European Aviation Safety Agency). This event turned out to be the main highlight for Embraer in the first quarter of 2018.

Major flight test results were also announced by the company in the reported quarter confirming the E2 jet as the most efficient environment friendly single-aisle aircraft in the market, in terms of fuel consumption and takeoff performance.

The company also delivered its first new Phenom 300E business jet after receiving certification from the U.S. Federal Aviation Administration, the European Aviation Safety Agency, and the Brazilian Civil Aviation Agency.

What’s Ahead for Embraer?

Embraer expects total market deliveries of 6,400-2,300 jets at the 70-90 seat segment and 4,100 units at the 90-130 seat segment by 2035. The 70-130 seat worldwide fleet in service is anticipated to increase from 2,670 jets in 2015 to 6,690 by 2035, making it the fastest growing segment.

On the other hand, Boeing’s BA latest market outlook, the world will need 41,030 new planes, worth $6.1 trillion, between 2017 and 2036. The company expects cost effective single-aisle jets to be the major demand driver, accounting for 72% of the total projection along with widebody jets, comprising over 20%. Further, the commercial passenger traffic is also expected to grow 4.7% annually.

As a result of such improved projections on commercial jets, we expect Embraer’s commercial fleet to receive a boost in the upcoming quarterly results, based on steady inflow of orders and solid demand

Price Movement

Shares of Embraer have gained 31.0% over a year, outperforming the industry’s gain of 47.3%. The underperformance might have been led by the stiff competition that the company faces in the commercial aircraft manufacturing industry dominated by aerospace giants — Boeing and Airbus SE.

Zacks Rank & Key Picks

Embraer carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Huntington Ingalls HII and Curtiss-Wright Corporation CW, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1Rank stocks here.

Huntington Ingalls recorded an average positive earnings surprise of 3.85% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by $4.94 to $17.38 in the last 90 days.

Curtiss-Wright recorded an average positive earnings surprise of 15.06% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 52 cents to $5.79 in the last 90 days.

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