Embraer Profit Falls; Year Sales Forecast Boosted

Empresa Brasileira de Aeronautica SA, the world’s fourth-largest planemaker, reported second-quarter profit fell almost 79 percent and boosted its year sales forecast on rising orders and the aviation sector’s improvement.

The Sao Jose dos Campos, Sao Paulo-based company reported net income fell to 101.7 million reais ($58.1 million) compared with 475.3 million reais a year earlier, Embraer said in a regulatory filing. Sales fell to 2.44 billion reais, compared with 3.03 billion reais a year earlier. The company’s shares declined 2.5 percent to 11.32 reais in Sao Paulo trading at 9:15 a.m. New York time.

The results were slightly above an estimate by Bradesco Corretora of 109 million reais. The company delivered 69 aircraft in the quarter, compared with 54 during the same period last year. Its backlog was at $15.2 billion at the end of June.

Embraer boosted its year sales forecast 5 percent to $5.25 billion from $5 billion as the recovering market has presented opportunities for the company, particularly in commercial aviation, according to the release. It also boosted its operating margin forecast to 6.5 percent from 6 percent, and Ebitda margin to 8 percent from 7.5 percent.

Credit Suisse SA CTVM upgraded Embraer to “outperform” from “underperform,” according to an e-mail to clients on Aug. 1. “As air traffic continues to accelerate globally, we also see Embraer well positioned to benefit from an expanding backlog,” analysts Luiz Octavio Campos, Taryn Silvestre and Natalia Lacava wrote in the note.

Scale Gains

“In this new cycle, we think Embraer is better positioned to bear the benefits of scale gains after improve efficiency in its production facilities and reduce general and administrative expenses,” the analysts said in the note. “We see potential for positive earnings surprise in 2010 and 2011 driven by both stronger revenues and better operating margins.”

Embraer recently announced it signed pacts that could mean sales of 160 aircraft for about $5.84 billion at the recent Farnborough Air Show in England. On July 21, the company reported a pact with a Republic Airways Holding Inc. unit for the sale of 24 E-190 jets for $960 million. Embraer also said Brazil’s Air Force plans to buy 28 KC-390 cargo airplanes the company. Embraer’s shares have risen 22 percent since the start of the year, while the Bovespa index fell 0.1 percent.

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