26 de febrero de 2014 / 20:15 / en 4 años

Embraer seeks to maintain profit margin on stronger business jets

SAO PAULO (Reuters) - Brazil’s Embraer SA (EMBR3.SA), the world’s No. 3 commercial planemaker, said on Wednesday it was aiming for stable profit margins in 2014 as better pricing on executive jets should offset deep discounts on big regional jet orders.

Embraer shares rose as much as 6 percent on Wednesday, their best session in eight months, as the company issued a steady outlook after better-than-expected earnings.

The planemaker’s outlook reinforced the advantages of an increasingly diversified revenue stream, which now depends on airlines for just half of sales.

“The major headwind we have in 2014 is ... the reduction in gross margins on the commercial jets, which remain our main business. So we intend to compensate that with better margins in executive aviation and hopefully also in defense,” Chief Executive Frederico Curado told analysts in Sao Paulo.

A handful of blockbuster contracts from major U.S. airlines last year replenished Embraer’s depleted order backlog, but raised concerns of deep discounting to win the deals. Curado said a more favorable exchange rate and signs of a recovery in the business jet market could offset the pressure.

Executives also sounded confident of new deals. Curado mentioned “strong order momentum” for commercial jets and promised at least one new aircraft order for every plane delivered in 2014, helping to bolster Embraer’s order backlog.


The bullish order outlook and nearly stable forecasts for revenue, production and profit margins followed a rush of aircraft deliveries at the end of last year that helped Embraer meet its 2013 targets.

Embraer’s fourth-quarter profit more than doubled from a year earlier to $265 million, beating an average forecast of $213 million in a Reuters survey of analysts.

Earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as EBITDA, rose 75 percent to $544 million, beating an outlook of $361 million.

EBITDA equaled 16.1 percent of revenue in 2013, far above Embraer’s EBITDA margin target of 13-14 percent. Another gauge of operating profit including depreciation and amortization, known as EBIT, came to 11.4 percent of revenue, well above its EBIT margin forecast between 9 percent and 9.5 percent.

Earnings were boosted by a favorable resolution of the American Airlines (AAL.O) bankruptcy, which allowed Embraer to roll back the provisions it had set aside for a potentially messy restructuring of a major customer. But even without that one-time effect the company said it would have hit its 2013 targets.

Embraer’s delivery outlook for commercial jets in 2014 rose slightly to 92-97 aircraft, after the planemaker hit the bottom of its 90-95 jet forecast for 2013.

The company’s revenue target also edged up to $6 billion to $6.5 billion after 2013 revenue of $6.235 fell comfortably within its target of $5.9 billion to $6.4 billion, due to strong demand for its business jets.

Embraer nearly exceeded its 2013 target for executive jet deliveries, but held the same forecasts for this year, aiming for 80-90 light aircraft and 25-30 big private jets in a sign of caution over a delicate executive aviation recovery.

The breakdown of revenue between Embraer’s divisions is not expected to change significantly in 2014, with 53 percent coming from commercial aviation, 26 percent from executive aviation and 20 percent from the defense and security unit.

Embraer plans to invest $650 million this year, up from a 2013 investment plan of $580 million, as it ramps up development of a military cargo jet and next-generation regional aircraft.

Curado said investments would likely be of a similar scale in 2015. He added that the executive jet business should improve by then, helped by new mid-size Legacy jets.

Commercial jet production should be stable in coming years as several airlines are likely to exercise purchase options for new planes, he said, offering some possibility of upside.

Embraer shares pared gains in afternoon trading but were still up 3.9 percent at 20.71 reais in Sao Paulo.

Editing by Jane Merriman and Matthew Lewis

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