Embraer Tumbles Most Since 2001 After Surprise Loss, Outlook Cut

  • Outlook for business-jet sales is weakening, planemaker says
  • Company sets aside $200 million in connection with U.S.probe

Embraer SA plunged the most since the aftermath of the Sept. 11 terrorist attacks, after the planemaker reported a surprise loss and cut its sales forecast because of a diminished outlook for business-jet deliveries. 

Revenue this year is likely to total between $5.8 billion and $6.2 billion, down from a previous forecast range of $6 billion to $6.4 billion, the Brazilian planemaker said in a statement Friday. The company posted a second-quarter loss of $99.4 million after setting aside $200 million in connection with a probe under the U.S. Foreign Corrupt Practices Act.

Deliveries of new business jets are under pressure from rising numbers of used aircraft for sale and sharpened competition from other manufacturers, Embraer said. Weakness in the market may linger two to three years, Chief Executive Officer Paulo Cesar de Souza e Silva said on a conference call with investors and analysts.

“A persistently challenging outlook for executive jets is not only weighing more than expected on operating results, but has also triggered a relevant” cut to financial forecasts, Renato Mimica, an analyst at BTG Pactual, said in a report to investors. He lowered his recommendation on Embraer to hold from buy.

Embraer fell 14 percent to 15.08 reais at 4:02 p.m. in Sao Paulo after dropping as much as 16 percent for the biggest intraday decline since Sept. 20, 2001. The tumble was the biggest on the benchmark Ibovespa index.

Corruption Probe

Talks with U.S. authorities concerning an investigation of aircraft sales outside Brazil have progressed “significantly,” the manufacturer said. In addition to the provision for possible fines, a settlement with the Justice Department is likely to include a deferred prosecution agreement and the imposition of an independent monitor to assess compliance, Embraer said.

Embraer said it was cooperating with authorities.

“It is very important that we are getting to the end of this case,” said Silva, “so we can turn this page.” He took over as CEO following last month’s announcement that Frederico Curado would step down.

Second-quarter sales fell 9.7 percent to $1.37 billion. That fell short of the $1.44 billion average of 10 analyst estimates compiled in dollars by Bloomberg. Adjusted earnings before interest, taxes, depreciation and amortization dropped 14 percent from a year earlier to $152.3 million.

Cost Focus

The planemaker maintained a forecast for 105 to 110 deliveries of commercial jets. Deliveries of light business jets will total 70 to 80, down from a previous projection of 75 to 85. Large business jets are seen at 35 to 45 instead of 40 to 50. The revenue outlook for the defense and security business was unchanged.

The manufacturer will focus on cutting costs as it contends with lower sales, Silva said. Embraer’s backlog of firm orders was $21.9 billion in the second quarter, little changed from its level in the first three months of the year and down from $22.9 billion a year earlier.

“There are good opportunities for us to improve our margins,” he said. “We have to concentrate now in our cost side, in becoming more efficient and adjusting the company in a way we can deliver a better margin.”

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