Shares of Embraer S.A. (NYSE:EMBJ) rallied 5.7% to $77.17 by late Monday morning, following the release of second-quarter results that showcased record revenue and a sharply improved profit forecast. The Brazilian aerospace manufacturer's American depositary shares traded between $73.80 and $79.90 during the session, reflecting strong investor enthusiasm.
The company reported adjusted earnings before interest and taxes (EBIT) of $296.9 million for the quarter, a 55% year-over-year jump, with the adjusted EBIT margin expanding to 13.3% from 10.5%. Revenue surged 23% to $2.235 billion, a second-quarter record. The performance was bolstered by a one-time tax credit and direct benefits from U.S. tariff exemptions, which together accounted for the bulk of the improvement in the company's full-year guidance.
Embraer raised its 2026 adjusted EBIT margin forecast to a range of 10.0% to 10.6%, up from the previous 8.7% to 9.3%. The midpoint increase of approximately $110 million was driven overwhelmingly by a $68 million tax credit and $38 million in direct U.S. tariff exemption benefits, representing 96.4% of the total. Only $4 million, or 3.6%, was attributed to a stronger underlying business outlook.
"The exceptional support did not overshadow a solid operational quarter," the company noted, as revenue across all business units grew. Executive Aviation led with a 32% revenue increase to $725 million and an adjusted EBIT margin of 23.4%, which included a $60 million tax credit. Defense & Security posted the fastest growth at 38%, with revenue reaching $304 million and a margin of 11.9%. Services & Support rose 24% to $565 million, while Commercial Aviation grew 8% to $625 million but saw its margin contract to 2.9% from 4.3%, pressured by customer mix in legacy contracts.
Adjusted net income increased 38% to $218.6 million, and basic earnings per ADS nearly tripled to $1.1880. Adjusted free cash flow, excluding Eve Holding (NYSE:EVEX), swung to a positive $401.0 million from a negative $161.6 million a year earlier, aided by customer prepayments and the tax credit. Contract liabilities rose by $299.7 million during the quarter, mainly in the Defense & Security segment.
The company's backlog reached an all-time high of $34.5 billion, up 16% year-over-year. Deliveries totaled 65 aircraft—20 commercial jets and 45 executive jets—up from 61 in the prior-year period. Chief Executive Francisco Gomes Neto expressed optimism about production stability, stating, "We expect that in 2027 we'll see a much better performance in terms of production leveling," which should enhance productivity and efficiency.
For the full year, Embraer maintained its delivery and revenue forecasts, but doubled its minimum adjusted free cash flow target to $400 million or more, excluding Eve. The company also reiterated its expectations for approximately $12 million in annual indirect U.S. tariffs.
Analyst sentiment remains largely positive, with 94% of recommendations rated Buy and no Sell ratings, according to Embraer's investor relations page. The average price target of $81 implies about 5% upside from Monday's intraday price. However, the guidance bridge highlights the reliance on tax and tariff relief, and risks remain from continued margin pressure in Commercial Aviation and potential production setbacks.
