What happened
Shares of Embraer (ERJ +7.53%) traded down more than 10% at the open Thursday on the heels of the Brazilian aerospace manufacturer's fourth-quarter earnings report. Earnings came in well ahead of expectations, but Embraer isn't as optimistic about 2022 as some investors might have hoped.
So what
Embraer earned $0.31 per share in the fourth quarter, significantly better than the $0.11 per share analysts had expected, but much of that beat was due to below-the-line items including tax credits. Embraer's revenue in the quarter was down 30% year over year to $1.3 billion, short of analyst expectations for $1.47 billion in sales.
Embraer's KC-390 in flight. Image source: Embraer.
The defense side of the business was responsible for the revenue miss, largely due to a decision by the Brazilian Air Force to reduce the number of KC-390 cargo planes on order. Embraer's defense business generated revenue of $114.5 million in the quarter, compared to analyst expectations for nearly $200 million in sales.
Issues with the KC-390 order were well known. But Embraer likely also spooked investors with light guidance for 2022. The company said to expect revenue of $4.5 billion to $5 billion in 2022, compared to analyst expectations for $5.33 billion in sales.
NYSE: ERJ
Key Data Points
Now what
That guidance is disappointing, but there is at least a case to be made that Embraer is being overly conservative. The company expects to deliver more than 100 business jets in 2022, and at least 60 commercial jets. Strong book-to-bill -- a measure of how much new business was booked in the quarter compared to what was billed out -- in commercial outweighed the impact of the KC-390 debooking, giving the company total bookings 1.15 times what was billed. If Embraer can deliver on the commercial side in 2022, there is likely upside to its guidance.
For now, we are in wait-and-see mode. Embraer shares are down more than 30% in the past six months due to the issues with the Brazilian Air Force, and the latest earnings report is doing little to inspire investors to jump back into these shares.
