Brazilian regional jet manufacturer Embraer (NYSE:ERJ) also weighed on returns as the real’s appreciation presented a headwind for the company, which derives the majority of its sales outside Brazil. Moreover, Embraer’s 2015 earnings indicated margin compression and the company issued guidance that was lower than market expectations. Pressure on the defense segment also hurt performance.
The margin compression was not surprising to us given the product transition that is underway in Embraer’s commercial aircraft division. With regard to the defense segment, we see the issue astemporary as it is driven by a cut in the Brazilian defense budget and we believe Embraer will generate more defense revenue from abroad over the longer term. Accordingly, it is our view that the long-term investment thesis for Embraer remains compelling.
From Brandes Global Equity Fund first quarter 2016 commentary.
