Embraer SA Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Commercial Aviation: New orders for Avelo (50 E195-E2s + 50 options) and LATAM (24 E195-E2s + 50 options); backlog at $15.2 billion with a 2.7:1 book-to-bill ratio.
• Executive Aviation: Record third quarter revenues ($580M), delivered 2,000th business jet; backlog $7.3 billion, 2.4:1 book-to-bill.
• Defense & Security: Portugal confirmed purchase of 6th KC-390 with additional options; A-29 Super Tucano agreements with Panama and Sierra Nevada; backlog $3.9 billion, 1.3:1 book-to-bill.
• Services & Support: Signed maintenance agreement with CommuteAir; launched Starlink connectivity for Praetor and Legacy operators.
• Operational Initiatives: Completed over 800 Kaizen projects, 16% increase in aircraft deliveries, production lead time reduced (e.g., Praetor 40%, KC-390 33%, E-Jets 27% vs 2021), investments in facilities in U.S. and Brazil, supply chain management 2.0 with AI and digital tech.

Segment Performance

• Commercial Aviation: Revenues increased 31% due to better product mix, higher volumes, and prices. Adjusted EBIT margin improved from -4.8% to +1.3%. Backlog stands at $15.2 billion with a 2.7:1 book-to-bill ratio.
• Executive Aviation: Third quarter revenues reached approximately $580 million (all-time high). Delivered the 2,000th business jet; backlog is $7.3 billion with a 2.4:1 book-to-bill ratio. Revenues rose 4%, but adjusted EBIT margin decreased 4.2 percentage points due to product mix, U.S. tariffs, and higher costs.
• Defense & Security: Revenues grew 27% because of higher KC-390 volumes and a one-off positive contract-related adjustment. Backlog is $3.9 billion with a 1.3:1 book-to-bill ratio. Adjusted EBIT margin improved from 7.2% to 12.9% due to operating leverage and client mix.
• Services & Support: Revenues rose 16% driven by higher volumes and the ramp-up of the OGMA GTF engine shop. Backlog is $4.9 billion with a 1.8:1 book-to-bill ratio. Adjusted EBIT margin decreased 5 percentage points because of services and materials delays.

Guidance

• Operational: Expect 77-85 Commercial Aviation aircraft deliveries and 145-155 Executive Aviation deliveries.
• Financial: Expect $7 billion to $7.5 billion in revenues, 7.5% to 8.3% adjusted EBIT margin, and over $200 million in adjusted free cash flow. Confident in meeting full-year guidance despite Q4 supply chain risks.

Risks

• Supply Chain: Continued supply chain risks, though considered in guidance for Q4.
• Tariffs: U.S. import tariffs impact margins, with efforts underway to reduce exposure.
• Market Uncertainties: Potential delays or cancellations of orders due to tariffs or market conditions.

Question and Answer

• Q: Thoughts on future returns to shareholders (buybacks, dividends)? A: Antonio Garcia said they are evaluating capital structure, not ruling out buybacks but no firm decision yet.
• Q: State of Pratt GTF engines for E2 vs A220? A: Francisco Neto said E2's PW1900G engine has upgrades, less demand, better performance than A220's PW1500.
• Q: U.S. tariff impact on coming quarters? A: Guilherme Paiva said original full-year guidance for tariffs was $60 million to $65 million, $27 million already recognized, $35 million left in Q4, efforts to reduce exposure.
• Q: Profitability of Services division? A: Antonio Garcia said Q3 Services margin impact was due to timing of bad and good debts; Francisco Neto said long-term growth expected with investments in MRO facilities.
• Q: KC-390 campaign in India? A: Unknown Executive said India project moving forward, partnership with Mahindra, 50% local origination, tests in Brazil.