Embraer Reports Weak Deliveries, Backlog Declines To $19.2B

Embraer S.A. (NYSE:ERJ) reported first-quarter 2017 deliveries of 33 jets, compared with 44 in the year-ago period, reflecting a decline of 25%.

The company delivered 18 and 15 jets in the commercial and business aviation markets respectively, in the same timeframe compared with 21 and 23 jets in the year-ago period. Deliveries to the executive aviation market included 11 light and four large executive jets.

Q1 Backlog

The company exited the first quarter with an order backlog of $19.2 billion, lower than the fourth-quarter level of $19.6 billion. Embraer’s backlog was pegged at 432 aircraft, which comprised 100 E175-E2s, 90 E195-E2s, 88 E175s, 85 E190-E2s, 56 E190s, 10 E195s and three E170s jets.

During the first quarter, Embraer and Azul Brazilian Airlines announced a contract of up to 50 aircraft, including firm order for 30 E195-E2 jets and purchase rights for 20 jets. These planes are scheduled for delivery in 2019.

Long-Term Outlook

Embraer expects total market deliveries of 6,400–2,300 jets in the 70- to 90-seat segment and 4,100 units in the 90- to 130-seat segment by 2035. The 70- to 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.

The Boeing Company’s (NYSE:BA) research report projects the commercial fleet to double over the next two decades to 45,240 airplanes by the end of 2035. The upside is expected to be driven by sustained 4.8% annual growth in commercial passenger traffic. For that, the world will need 39,620 new planes, worth $5.9 trillion, between 2016 and 2035. It should be noted that the larger commercial aircraft category is already being dominated by Boeing and Airbus Group (PA:AIR) SE (OTC:EADSY) . Still the improved outlook for commercial jets is expected to boost growth for Embraer as well.

Q1 Order Details of Peers

Boeing’s first-quarter order details show that the company has booked 198 net commercial orders (accounting for cancellations). The figure included 167 orders for the 737, 15 for the 767, 11 for the 787, and nine for the 777 jets. The figure is adjusted for loss of four orders for the 747 model. On the other hand, Airbus registered net bookings of just six aircraft, trailing far behind Boeing.

Moreover, Boeing delivered a higher number of planes to its customers across the globe than Airbus. Specifically, Boeing and Airbus delivered 169 and 136 aircraft, respectively, in the first quarter.

Price Movement

Shares of Embraer gained 4% on a year-to-date basis, underperforming the Zacks categorized Aerospace–Defense industry’s gain of 7.4%. This could be because the company is hurt by the weakening Brazilian real against the U.S. dollar. Additionally, the soft Defense and Security business remains a concern.

Zacks Rank & Stock to Consider

Embraer currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Lockheed Martin Corporation (NYSE:LMT) , sporting a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lockheed reported a positive earnings surprise of 6.91% in the last reported quarter. The Zacks Consensus Estimate for 2017 moved up by 0.2% over the last 60 days to $12.62.

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