Why Embraer SA (ADR) Shares Plunged 12% Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of aircraft manufacturer Embraer SA (ADR) dropped as much as 12% today after revealing that they're having trouble collecting on some government debts.

So what: After the market closed yesterday, Embraer reported fourth-quarter revenue of $2.05 billion and net income of $91.4 million, or $0.50 per ADS. But the market's focus was on the fact that cash flow was negative because Embraer hasn't been able to collect on unpaid accounts from the Brazilian government.

Last month, Embraer executives said they expected the government payments in early 2015 but they're still waiting.

Now what: Brazil has been in turmoil over state-run companies that have diverted millions of dollars to government officials in a generally corrupt business environment. Embraer may be a casualty of the government's crackdown but in time it looks like they will be able to collect on the debts.

In the meantime, investors can sleep easier knowing that Embraer ended 2014 with $2.4 billion in cash and net debt of just $84.5 million. That should provide some cushion until the Brazil situation that's hampering the stock today is resolved.

The article Why Embraer SA (ADR) Shares Plunged 12% Today originally appeared on Fool.com.

Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Embraer-Empresa Brasileira. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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