Business Context and Reporting Period
This Form 6-K filing by Embraer S.A. (NYSE: ERJ) dated February 9, 2012, provides a summary of 2011 operational highlights and detailed financial guidance for the 2012 fiscal year. Embraer is a global manufacturer of commercial, executive, and defense aircraft, headquartered in São José dos Campos, Brazil.
Key Financial Metrics and 2011 Performance
- 2011 Deliveries: 105 commercial jets and 99 executive jets (83 light, 16 large).
- 2011 Orders: 124 new orders for the E-Jets family.
- Backlog: US$15.4 billion as of December 31, 2011.
- Liquidity: Net cash position of approximately US$470 million at year-end 2011.
- 2011 Margins: Operating margin exceeded annual guidance due to productivity efforts and revenue mix.
- 2011 Revenue: Met annual guidance, supported by Aviation Services and Defense & Security segments offsetting executive jet delivery shortfalls.
2012 Guidance and Outlook
Embraer projects modest total revenue growth for 2012, driven by accelerated growth in the Defense & Security segment and stable performance in Commercial and Executive Aviation. The company anticipates a stable book-to-bill ratio in commercial aviation but notes that the executive aviation market has not yet recovered due to financial market volatility and the European crisis.
2012 Revenue and Delivery Targets
| Segment | Revenue Range (US$ Million) | Delivery Range (Units) |
|---|---|---|
| Commercial Aviation | 3,700 - 3,850 | 105 - 110 |
| Executive Aviation | 1,100 - 1,300 | 90 - 105 (75-85 light, 15-20 large) |
| Defense & Security | 900 - 950 | N/A |
| Aviation Services | 750 - 800 | N/A |
| Total Revenue | 5,800 - 6,200 | N/A |
Profitability and Investment
- EBIT Margin: 8% to 8.5%.
- EBITDA Margin: 11.5% to 12.5%.
- Total Investments: US$650 million (US$100M Research, US$350M Product Development, US$200M CAPEX).
- Cost Pressures: Operating expenses expected to increase due to a ~10% wage settlement and increased marketing efforts.
- Exchange Rate Assumption: Average Real to Dollar rate assumed stable compared to 2011.
Material Changes and Strategic Notes
- Risk Sharing Partners: In 2011, Embraer received approximately US$70 million in risk-sharing partner contributions, reducing product development costs. Fewer contributions are expected in 2012 as most were received in 2009-2011.
- Product Strategy: Increased investment required for Legacy 450 and 500 programs nearing final development stages. Continued R&D for E-Jets evolution.
- CAPEX: Industrial facilities in Evora, Portugal, remain on track to commence operations in 2012.
Investor Verification Checklist
- Verify the impact of the 10% wage increase on the projected 8-8.5% EBIT margin.
- Monitor the recovery status of the Executive Aviation market, which remains volatile.
- Confirm the timeline for the Evora, Portugal facility operations and associated CAPEX spend.
- Track the reduction in risk-sharing partner contributions and its effect on 2012 product development costs.
- Assess the stability of the Brazilian Real against the US Dollar, as the guidance assumes parity with 2011 rates.