UPDATE 2-Embraer shares tumble on modest profit outlook
* Embraer shares down 11 pct, biggest drop in more than 4 years * EBIT margin target 8-8.5 pct; BTG Pactual forecast 10 pct * Q4 profit misses expectations on Republic charge (Updates with share performance) By Brad Haynes SAO PAULO, March 3 (Reuters) - Shares of planemaker Embraer SA tumbled on Thursday after the company offered more modest profit targets than many analysts expected, deflating hopes that a strong U.S. dollar meant easy profits for Brazil's biggest industrial exporter. Embraer fell more than 11 percent in midday Sao Paulo trading, on track for the biggest drop in over four years. Operating profit targets for 2016 released with the company's fourth-quarter earnings report fell short of expectations among Itaú BBA analysts, for example, and they downgraded their recommendation on the company to "market perform." "Our disappointment with Embraer's 2016 guidance stems from a challenging outlook for the executive jet market and the company's inability to translate a weaker Brazilian currency into higher operating margins," they said in a note to clients. Embraer shares have flirted with all-time highs in recent months, with many analysts flagging the stock as a rare example of a Brazilian company able to skirt the local recession due to a more favorable exchange rate for its export-focused portfolio. Yet double-digit inflation in Brazil has driven up labor costs and the fourth-quarter earnings showed Embraer has been forced to offer bigger discounts on executive jets as it tries to grow in a sluggish and highly competitive market. Embraer still forecast gradual sales growth this year due to solid demand for its regional jets and new executive aircraft. Net revenue should rise to between $6 billion and $6.4 billion from $5.9 billion last year despite weaker sales from its defense division, Embraer said on Thursday, when it also reported a higher fourth-quarter profit. The outlook reflects Embraer's confidence in a solid order backlog for the current generation of its regional E-Jets before their re-engined replacements start entering service in 2018. The company also said it expected its new mid-size Legacy 450/500 jets to boost the executive aviation division's sales despite a weak recovery in the global market for private jets. Embraer reported fourth-quarter net income of $111 million, up 22 percent from a year earlier. The company benefited from a more profitable sales mix and a strong U.S. dollar, which reduces the impact of labor and administrative costs denominated in Brazilian reais. However, the results missed the average estimate of $162 million from a Reuters poll as Embraer set aside money to cover potential losses from the Chapter 11 filing of major client Republic Airways Holdings. Below are Embraer's 2016 targets, along with 2015 results: 2016 2015 Commercial jet deliveries 105-110 101 Light exec jet deliveries 75-85 82 Mid/large exec jet deliveries 40-50 38 Defense revenue $700-750 mln $811 mln Net revenue $6-6.4 bln $5.9 bln EBITDA margin 13.3-13.7 pct 10.9 pct EBIT margin 8.0-8.5 pct 5.6 pct Investment $650 mln $288 mln Free cash flow >$-100 mln $178 mln (Reporting by Brad Haynes; Additional reporting by Priscila Jordao and Paula Laier; Editing by Lisa Von Ahn and Dan Grebler)
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