(Recasts with outlook, adds comments by CEO)
By Brad Haynes
SAO PAULO, Nov 6 (Reuters) - Brazilian planemaker Embraer SA could miss a delivery target for larger business jets this year, but new models and stronger demand in Europe and the United States should boost private jet sales next year.
Chief Executive Frederico Curado told analysts on a Thursday earnings call that strong interest in the new mid-size Legacy 500 should generate firm orders in the next few months, and a recovery in developed economies was brightening prospects.
“On business jets, we see some reduction of activity in Brazil and China, but on the other hand we are seeing an increasing level of activity in Europe, believe it or not, and the United States,” Curado said.
That should boost sales of Embraer’s growing private jet portfolio, which skewed to smaller, less-profitable models in the third quarter, leading to an operating loss in the segment.
Embraer posted a quarterly net loss of $11 million on Thursday, hurt by weak commercial and executive jet sales and a rising tax bill. Curado reiterated that strong year-end deliveries would help the company hit 2014 revenue and profit margin targets as they have in recent years.
Third-quarter results fell from a $53 million profit a year earlier, missing an average forecast for a profit of $49 million in a Reuters survey of analysts.
The defense segment surged to 28 percent of Embraer’s revenue in the quarter and Curado said the division could surpass its 2014 revenue target, making up for executive aviation revenue at the lower end of the official forecast.
Still, Curado said Embraer is unlikely to raise its defense revenue target for 2015 when it releases new forecasts in early March. Commercial jet production is also likely to remain steady “with a possibility of a slightly higher number,” he said.
The outlook for solid demand next year and a more favorable currency helped investors look past the tough quarter, lifting Embraer’s stock 0.6 percent in choppy Sao Paulo trade.
Shares of Embraer, Brazil’s leading industrial exporter, have climbed to record highs in recent months as the local currency has hit its weakest levels since 2005.
About 90 percent of Embraer’s revenue is pegged to the U.S. dollar, while around a quarter of costs are denominated in Brazilian currency - especially labor.
The exchange rate has helped offset climbing labor costs in Brazil, where workers are pushing for salary increases above nearly 7 percent annual inflation.
A metalworkers union in Sao Jose dos Campos declared an indefinite strike late on Wednesday, blocking access to Embraer’s biggest factory to demand a 10 percent wage hike.
Curado said on the earnings call that a local industry association was negotiating with the union, but the offer of a salary raise just over 7 percent was Embraer’s “final offer.”
The planemaker has “some slack” in its production so far this year to hit 2014 delivery targets even if the strike continues for “a few days,” Curado said. (Reporting by Brad Haynes; editing by Matthew Lewis)