Embraer reports first Q3 net profit since 2017

UPDATE - Embraer reported its first Q3 net profit to shareholders since 2017, ending the 2023 third quarter with a $61 million result. Excluding special items, the net profit was $32.9 million. All business units produced positive results, although revenues for Commercial Aviation and Executive Aviation were higher in Q2. The consolidated net profit of $61 million compares to a $-30.2 million net loss for Q3 last year. Revenues grew to $1.284 billion from $929 million, Adjusted EBIT to $100.1 million from $49.9 million. This resulted in an Adjusted EBIT margin of 7.8 percent, up from 5.4 percent. The result reflects higher volumes at Commercial Aviation and Defense and Security. Adjusted free cash flow was $44 million. For January-September, Embraer reports a consolidated net loss of $-28.6 million compared to $0-208.3 million last year. Revenues improved to $3.293 billion from $2.549 billion year on year. Adjusted EBIT was $168.4 million, up from $104.1 million, resulting in a margin of 5.1 percent. Adjusted free cash flow excluding EVE Air Mobility was $-365.7 million. Higher deliveries boost revenues Commercial Aviation has seen an increase in revenues for the 9M period to $1.096 billion, up from $722.4 million. This reflects higher deliveries of 39 E-Jets compared to 27 last year. Q3 deliveries were up to 15 from 10 aircraft year on year. Commercial produced $424.9 million in revenues, up 68 percent from $253.2 million in Q3 last year but down from $471.9 million in Q2. Executive Jets reported revenues for the 9M period of $805 million, up from $628.3 million as it continues to see strong demand for its products. The business unit delivered 66 Phenoms and Praetors, up from 52 last year. In Q3, deliveries improved to 28 from 23. Q3 revenues were up by 25 percent to $339.9 million versus $271.7 million, but like Commercial Aviation they were lower than the $378 million in Q2. Defense and Security saw revenues grow by 40 percent between January and September to $313.2 million from $296.6 million. Q3 revenues were $133.1 million, up from $95.2 million last year and higher than $82.4 million in Q2. Services and Support generated $1.032 billion in revenues, up from $886.3 million year-on-year Q3 revenues improved by 24 percent to $365.8 million from $295.1 million last year and up from $339.7 million in Q2. The unit extended maintenance programs with the Brazilian Air Force and signed new or renewed Pool Programs with various airlines. Embraer ended September with $1.031 billion in cash and cash equivalents and net debt of $1.357 billion excluding EVE, down from $1.605 billion a year before. It concluded successful liability management, which means that Embraer is without any main liability until mid-2027. Loan maturities have been extended by on average 4.8 years. The backlog was up by $500 million to $17.8 billion, thanks to a $0.6 billion higher order intake at Commercial Aviation to $8.6 billion. Embraer has 291 E-Jets in the backlog, including 174 E195-E2s, 101 E175s, and 16 E190-E2s. The backlog still excludes orders from The Netherlands, Austria, and the Czech Republic for the C390 Millennium multirole transport aircraft. Q4 will be challenging Embraer reiterates its operational and financial guidance for 2023, expecting 65-70 deliveries for Commercial Aviation, 120-130 for Executive Aviation, consolidated revenues of $5.2 to $5.7 billion, and an Adjusted EBIT margin of 6.4 to 7.4 percent. Adjusted free cash flow should be $150 million or better. CEO Francisco Gomes Neto said during the earnings call that Q4 will be challenging, given the continued supply chain problems. They are a combination of delays in the delivery of parts and equipment. "We therefore had to adapt the line, sometimes bring an aircraft back into the production line. That can be difficult and cause delays." To meet its full-year delivery guidance, Embraer will have to deliver another 26-31 E-Jets and make the year backloaded once again. "We know we have a challenge ahead in terms of deliveries. Therefore, we can expect an intense Q4." Embraer is still waiting for Service Bulletins from Pratt & Whitney regarding the impact of the powder metal contamination issue on the PW1900G that powers the E2 family. But as P&W stated last month, inspections and repairs can be done within regular shop visit intervals. "It is true that P&W said that the E2s will be less impacted by this powder metal issue. The E2s have arrived on the market later and are also much lighter. This year, we don't have planned any inspections and for next year, we are still waiting for P&W to supply a schedule of inspections. We expect them in the coming weeks. Of course, it would be much better for our customers if we could do the inspections during regular shop visits." Embraer is going to the Dubai Airshow next week trying to secure a few more orders for both commercial and military aircraft. The Brazilians have sold the E2 two Oman Air-subsidiary SalamAir as well as to Royal Jordanian. Gomes Neto sees other options: "The Middle East is a very important market for Embraer, either for the C390 or for the E2 family. You mentioned SalamAir and Royal Jordanian, but we have more opportunities in the region. Dubai Airshow will be a great opportunity for us to connect with potential customers and showcase our great products."

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