Embraer SA Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Strong Q2 Performance: Embraer achieved highest second quarter revenue of $1.8 billion, adjusted EBIT margin 10.5%, backlog reached $29.7 billion (all-time high), deliveries up 30% YOY, and book-to-bill ratio ~2:1 across business units.
• Commercial Aviation: SAS ordered 45 E195-E2s with 10 options, SkyWest purchased 60 E175s with 50 options; backlog $13.1 billion, book-to-bill 1.8:1 over 12 months.
• Executive Aviation: Record Q2 revenue ~$550 million, backlog $7.4 billion, book-to-bill 2.4:1 over 12 months.
• Defense & Security: Portugal confirmed 6th KC-390 purchase (10 options), Lithuania selected KC-390; backlog $4.3 billion, book-to-bill 3.6:1 over 12 months.
• Service & Support: Signed 8 New Pool contracts, expanded MRO capabilities, full-flight simulator partnerships with CAE in Canada and Spain.
• Production-Leveling Initiatives: Improved efficiency in operator and KC-390 production lines.
• Tariffs: U.S. tariffs remain a concern, but progress in negotiations with upside if tariffs return to 0.

Segment Performance

• Commercial Aviation: Revenues increased 4%, adjusted EBIT margin flat at 4.3%. Backlog grew 16% to $13.1 billion, with a 1.8:1 book-to-bill over the last 12 months.
• Executive Aviation: Revenue soared 64%, adjusted EBITDA margin 14.5%, backlog at $7.4 billion with a 2.4:1 book-to-bill over 12 months.
• Defense & Security: Revenues grew 18%, adjusted EBIT margin 9.2%, backlog doubled to $4.3 billion with a 3.6:1 book-to-bill over 12 months.
• Service & Support: Revenues rose 13%, adjusted EBIT margin 15.5% (slightly down due to credit provisions), backlog $4.9 billion with a 2:1 book-to-bill over 12 months.
• Revenue Contribution: Commercial and Executive Aviation combined for over 60% of revenue, Service & Support 25%, Defense & Security 12%.

Guidance

• Revenue: $7 billion to $7.5 billion.
• Adjusted EBIT Margin: 7.5% to 8.3%.
• Adjusted Free Cash Flow: Over $200 million.
• Operational: Deliver 77-85 Commercial Aviation aircraft and 145-155 Executive Aviation aircraft.
• Cautious Outlook: Second half challenges from inflation, foreign exchange rate volatility, and ongoing U.S. tariffs, with guidance maintained but cautious due to uncertainties.

Risks

• Tariffs: Uncertainty in negotiations impacting results.
• Inflation: Pressure on margins.
• Foreign Exchange Volatility: Impact on financial performance.

Question and Answer

• Q: Regarding the outlook for the second half, how big could the challenge be? A: Antonio mentioned 20% of the tariff impact year-to-date, with the remaining 80% expected in the second half, plus inflation and FX volatility. Guidance remains safe but waiting for more information to revise.
• Q: How are conversations with U.S. customers regarding tariffs? A: Francisco said they've been working to mitigate impact for customers, focus on restoring 0 tariff, happy with E175 orders but no new big orders expected for E175 this year.
• Q: Within Defense, why would the performance continue? A: Antonio stated Defense & Security is on a path to higher margins due to POC completion and shift to export contracts, with clear progression in margin improvement.
• Q: Update on Eve's maiden flight? A: Francisco said Eve's first flight is planned for December 2025.
• Q: Potential room for working capital optimization? A: Antonio mentioned continuing efforts to reduce inventory and improve inventory turn, aiming to increase inventory turn from 1.6x to ~3x in 3 years, releasing ~$1 billion from inventory.