Embraer S.A: Earnings Preview

| About: Embraer S.A. (ERJ)

Embraer S.A (NYSE:ERJ) will be reporting its first-quarter 2012 financial results on Thursday, April 26, 2012, after the close of the market. The current Zacks Consensus Estimate is earnings of 42 cents per share, representing a year-over-year decline of 27.20%.

With respect to earnings surprises over the trailing four quarters, ERJ outperformed the Zacks Consensus Estimate in three quarters and underperformed in one. The average earnings surprise was a negative 22.01%, indicating that the company underperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Fourth-Quarter and Fiscal 2011 Highlights

On November 2, 2011, Embraer S.A. reported financial results for the fourth quarter and fiscal 2011. Loss per ADS in the quarter was 51 cents per share, compared with earnings of 68 cents in the year-ago quarter. Results came in substantially worse than the Zacks Consensus Estimate of 71 cents earnings.

For fiscal 2011, earnings per ADS were 62 cents per share, down from $1.83 earned a year ago.

Net revenue for the quarter was $2,025.1 million, up from $1,970.2 million in the year-ago quarter, driven by delivery of 32 commercial and 50 executive aircrafts, with a total delivery of 105 commercial and 99 executive aircrafts (83 light jets and 16 large jets) by the year end. Reported revenue beat the Zacks Consensus Estimate of $1,977 million.

For fiscal 2011, net revenue came in at $5,803.0 million, up from $5,364.1 million recorded in the prior year.

For further details please read: Embraer 4Q Hurt by AMR Bankruptcy.

Agreement of Estimate Revisions

In the last 30 days, none of the analysts increased estimates for the first quarter of 2012, while four decreased the same. For fiscal 2012, five analysts increased the EPS estimates, whereas for fiscal 2013 four analysts increased the same over the last 30 days. However, it appears that there has been no catalyst for decreasing estimates for fiscal 2012 and 2013 over the last 30 days.

Over the last 7 days no analyst increased estimates while one decreased for the current quarter. For fiscal 2012, one analyst increased his or her estimate and none decreased. A similar trend was followed for fiscal 2013.

Magnitude of Estimate Revisions

Estimates over the last 30 days decreased from 50 cents to 42 cents per share for the first quarter of 2012.

Estimate for fiscal 2012 increased from $2.51 to $2.58 over the last 30 days. For fiscal 2013, the trend was maintained and estimates increased from $3.00 to $3.06. These estimates represented year-over-year growth of 137.03% for 2012 and 18.61% for 2013.

Our Take

We believe Embraer's strong firm order backlog as well as its diversification into broader defense and corporate jets will drive financial results for the first quarter of 2012. However, surging operating costs and rising fuel prices tempers our view to certain extent. Furthermore, big industry players such as Boeing Co. (NYSE:BA), Lockheed Martin Corporation (NYSE:LMT), Northrop Grumman Corporation (NYSE:NOC) may also impede growth trajectory for Embraer, operating within a competitive aerospace industry.

We currently maintain a long-term Neutral recommendation on the stock. Moreover, ERJ has a Zacks #2 Rank, which translates into a short-term (1-3 months) Buy rating.