Embraer S.A. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Top Line: Delivered highest Q1 revenue ($1.1B) and adjusted EBITDA margin (almost 10%) in 90 years; backlog $26.4B, marginally up. Deliveries up 30% YOY. Resumed regular dividends.
• Executive Aviation: Solid performance with highest Q1 revenue since 2014 and $7.6B backlog.
• Defense and Security: Sweden, Slovakia, Uruguay, Panama selected KC-390 or A29; backlog $4.2B.
• Commercial Aviation: ANA ordered 15 E190-E2; E195-E2 from Helvetic Airways set record for London City Airport.
• Service and Support: Pratt & Whitney engine shop at OGMA in Portugal entered next industrialization stage.
• Production Leveling: Plan since 2023 to improve efficiency and cash flow; first results seen in 2023, expecting stable production from 2026.
• U.S. Tariffs: Q1 results not impacted; initial analysis shows limited impact, with efforts to minimize effects and call for zero tariffs.

Segment Performance

• Commercial Aviation: Revenues stable; adjusted EBIT margin improved due to product and customer mix. Delivered 7 aircraft, 9% of full-year guidance. Backlog decreased 10% but ANA ordered 15 E190-E2 to be included in H2.
• Executive Aviation: Revenues expanded 35% due to higher volumes and product mix; adjusted EBIT margin increased. Delivered 23 jets, highest Q1 revenue since 2014 with $7.6B backlog.
• Defense and Security: Top line grew 72% due to stronger KC-390 revenues recognition, customer mix, and product stage; backlog $4.2B, stable.
• Service and Support: Revenues increased 16% mainly due to OGMA GTF ramp-up; adjusted EBIT margin decreased due to product mix and North American Executive MRO ramp-up. Backlog $4.6B, stable.

Guidance

• Reiterated 2025 guidance with double-digit growth in aircraft deliveries and revenue.
• 2025 to be decisive for EVE with first flight of full-scale prototype and first firm orders.
• Initial estimate of U.S. tariffs negatively impacting EBITDA margin by 90 basis points in 2025, but company confident in delivering guidance.

Risks

• U.S. tariffs could negatively impact EBITDA margin by 90 basis points in 2025.
• Supply chain bottlenecks, though progress made but still moving from one product to another.
• Pratt strike potential impact on service, but not enough info to measure yet.

Question and Answer

• Q: Comment on potential one-time impact from supplier credit in commercial. A: Antonio Carlos Garcia mentioned it was 30 basis points.
• Q: Tariff color, U.S. Airlines accepting 175s. A: Antonio Carlos Garcia said 90 basis points impact, highly concentrated in executive aviation and service, confident in commercial.
• Q: KC-390 updates on India, Saudi Arabia, Poland; bundling. A: Francisco Gomes Neto said working on campaigns, India project moving, no direct bundling yet.
• Q: Pratt strike impact on service. A: Francisco Gomes Neto said no enough info to measure.
• Q: U.S. tariffs mitigation initiatives. A: Antonio Carlos Garcia said internal cost measures, SG&A cost lower, waiting to see impact.
• Q: China suspension of point deliveries, Latin American market. A: Francisco Gomes Neto said working on E2 introduction in China, no new news in Latin America, Mexico: E2 delivery to Mexicana by end of July.
• Q: KC-390 U.S. market strategy. A: Francisco Gomes Neto said showcasing in U.S., working on strategy, KC-390 with 57% U.S. content, could be assembled in U.S. with large order.
• Q: Commercial segment delivery issues. A: Antonio Carlos Garcia said bureaucracy, paperwork issues for two aircraft, not big issue.
• Q: Wing development, GTF engine issues. A: Francisco Gomes Neto said working on new technologies, GTF deliveries improving, working closely with Pratt.
• Q: Latin American market, C-390 in Mexico. A: Francisco Gomes Neto said no new news in Latin America, Mexico: E2 delivery to Mexicana, working on C-390 in Mexico.