What's happening: Shares of Brazilian plane maker Embraer (ERJ 10.57%) plunged as low as 10% on Thursday after its quarterly results and outlook disappointed Wall Street.
Why it's happening: Embraer shares have slumped over the past year on sharp defense spending cuts, and today's Q2 results -- net income sank 10% -- coupled with downbeat full-year guidance suggests that the trend isn't slowing anytime soon. In fact, Embraer said it now plans to deliver its first KC-390 cargo aircraft to the Brazilian Air Force in 2018 rather than at the end of 2016, prompting analysts to quickly recalibrate their valuation models. In addition to the slowdown in defense spending, a weaker Brazilian currency continues to weigh heavily on results, giving short-term-oriented traders seemingly far too many headwinds to handle at this point.
Management lowered its full-year revenue outlook to $5.8 billion-$6.3 billion from $6.1 billion-$6.6 billion. "The decline in revenue guidance for the year is due to a $300 million reduction in expected revenues in the defense and security segment, which Embraer now expects to end 2015 within $800 [million]-$950 million," said the company. "A combination of the impact of continued devaluation of the Brazilian real versus the U.S. dollar and a slower pace of development work on certain Defense & Security contracts led to the revised expectations."
