(ERJ) Embraer S.A. 2011 Fourth Quarter Earnings Preview

Embraer S.A (ERJ) will be reporting its fourth-quarter and fiscal 2011 financial results on Tuesday, March 20, 2012, after the market close.

The current Zacks Consensus Estimate for earnings per share (EPS) is 71 cents, representing an annualized growth of 5.07%.

With respect to earnings surprises over the trailing four quarters, ERJ outperformed the Zacks Consensus Estimate in all the four quarters with an average earnings surprise of a positive 32.44%, indicating that the company outperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Third-Quarter 2011 Highlights

On November 2, 2011, Embraer S.A reported financial results for the third quarter of 2011. Diluted earnings per ADS in the quarter were 1 cent, down from 70 cents in the year-ago quarter. The decline was primarily due to Brazilian currency fluctuation against dollar. Results missed the Zacks Consensus Estimate of 50 cents.

Net revenue in the quarter was $1,363.6 million, up from $1,044.0 million in 3Q10, based on the delivery of 28 jets to the commercial aviation market and 18 to the executive aviation market (17 light jets and 1 large jet). The revenue, however, missed the Zacks Consensus Estimate of $1,444 million.

Gross margin grew marginally from 20.5% in 3Q10 to 21.2% in the reported quarter, based on the company’s efforts to improve productivity and efficiency.

Agreement of Estimate Revisions   

In the last 30 days, two analysts increased the company’s earnings per share (EPS) estimates for the fourth quarter while none decreased the same. For fiscal 2011, two analysts increased the EPS estimates whereas for fiscal 2012 four analysts decreased the same over the last 30 days. It appears that there has been no catalyst for such change.

Magnitude of Estimate Revisions   

Estimates over the last 30 days marginally increased from 69 cents to 71 cents per share for the fourth quarter of 2011, representing a year-over-year growth of 5.07%.

Estimate for fiscal 2011 also increased marginally from $1.86 to $1.88 over the last 30 days while that for fiscal 2012, the trend was reversed and estimates decreased from $2.53 to $2.50. These estimates represented a year-over-year decline of 1.93% for 2011 and annualized growth of 32.77% for 2012.

Our Take   

We believe improved worldwide commercial and defense aviation demand, as well as Embraer’s diversification into broader defense and corporate jets will ensure steady financial results for the fourth quarter. Throughout the year, Embraer’s dedicated customer orders servicing, on-time deliveries and a strong firm order backlog have drawn an impressive outline, which is expected to bring in a positive trend in financial results for fiscal 2011.

About the Company

Embraer S.A designs, manufactures and sells aircraft and aviation-related structural parts to the world’s commercial aviation, executive aviation and defense markets. The company’s product portfolio supporting strong customer orders and diversified global footprint, gives a tough competition to its peers, such as Boeing Co. (BA), Lockheed Martin Corporation (LMT), Northrop Grumman Corporation (NOC).

We currently maintain a long-term Neutral recommendation on the stock. ERJ has a Zacks #4 Rank, which translates into a short-term Sell rating (1-3 months).
BOEING CO (BA): Free Stock Analysis Report

EMBRAER AIR-ADR (ERJ): Free Stock Analysis Report

LOCKHEED MARTIN (LMT): Free Stock Analysis Report

NORTHROP GRUMMN (NOC): Free Stock Analysis Report

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