Embraer (NYSE: ERJ) on Thursday reported that a planned January shutdown of its production to accommodate its commercial aviation segment’s system and legal reintegration caused lower revenue in the first quarter this year.
The company took in $600.9 million in revenue during Q1. That’s a 26 percent reduction in business activity compared to the same quarter last year amid a surge in business jet travel. Even with that slowdown, the company said it ended this quarter with a $17.3 billion firm-order backlog, the highest for the company since the second quarter of 2018.
However, higher services and support activity offset the overall revenue slide. That division reported revenue of $271.2 million, an 8 percent year over year growth. This was the result of increasing commercial airline travel after the slowdown from the early days of the pandemic. Furthermore, the service and support improved its gross margin to 26.5 percent from 24.6 percent last year.
Overall, while the company reaffirmed its full-year forecast to deliver as many as 180 jets, it posted a quarterly loss of $78.5 million. However, that’s an improvement from the $95.9 million the company lost in the first quarter of last year.
CEO Francisco Gomes Neto highlighted Embraer’s innovative investments during Thursday’s earnings call, citing the partnership with Zanite Acquisition Corp. (NASDAQ: ZNTE, ZNTEU, ZNTEW), a special purpose acquisition company (SPAC) in the final stages of taking Embraer’s Eve UAM, an eVTOL public. Pending a positive shareholder vote on May 6, Eve will become a publicly traded company on the New York Stock Exchange by May 9. Embraer would retain approximately 80 percent of the company.
Neto was optimistic about the company’s path forward, which included growing revenue and improving efficiency.
“We have the potential to double the company’s revenues in five years from now. We are pushing a lot for…internal programs to increase efficiency,” Neto said.
Commercial aviation revenue fell 38 percent year over year, recording just $169.2 million as a result of lower aircraft deliveries in the quarter thanks to the January shutdown. Embraer delivered four E-175s to Skywest (Alaska) and two 195-E2 aircraft to Aircastle (KLM). The company will also enter the air freight market with the E190F and E195F passenger-to-freight conversions (P2F) launch, set for early 2024.
Executive aviation revenue dropped 48 percent year over year, but the Phenom 300 continues to be the best-selling executive light jet in the past 10 years. Embraer Executive Jets delivered eight aircraft (six light and two midsize jets). Last week, Embraer announced it would hire 150 workers at its Melbourne, Florida, location to support growth in its executive division.
In defense and security, due to no sales of KC-390s, year over year revenue fell 47 percent to $68.3 million in the first quarter. However, earlier this month, Embraer signed two contracts with the Brazilian Army, the first for the Army’s acquisition of four additional SABER M60 radar units and the second for the development and deployment of phase two of the Army’s Strategic Program for the Integrated Border Monitoring System (SISFRON).
Finally, in the services and support division, Embraer signed a long-term contract extension with German Airways’ around the Embraer Pool Program, which allows airlines to minimize their upfront investment in high-value repairable inventories and resources and take advantage of Embraer’s technical expertise and its vast component repair service provider network. Currently, Embraer’s pool program supports more than 50 airlines worldwide.
Following the call, Embraer was trading up 7 percent at $11.65.