Panama Jack
17th Mar 2005, 19:44
Embraer Profit Growth Probably Slowed on Currency (Update1)
March 17 (Bloomberg) -- Empresa Brasileira de Aeronautica SA, the world's fourth-biggest aircraft maker, probably had its smallest profit growth in three quarters as a stronger Brazilian currency eroded revenue from exports.
Sao Jose dos Campos, Brazil-based Embraer will report fourth- quarter net income rose 19 percent to 334 million reais ($122 million), or 46 centavos per share, from 280 million reais, or 55 centavos as share, a year earlier, according to the median estimate of eight analysts surveyed by Bloomberg. Embraer is scheduled to release earnings after the market's close today.
The Brazilian real's 7.7 percent rise against the U.S. dollar in the fourth quarter undermined Chief Executive Mauricio Botelho's effort to boost earnings with a new line of jets, said Elaine de La Rocque, an equity analyst at Rio de Janeiro-based BES Securities. Embraer, Brazil's second biggest exporter, delivered 42 aircraft in the fourth quarter compared with 30 a year earlier.
``The company delivered more planes in the quarter but the appreciating currency will end up having a stronger effect on their bottom-line,'' de La Rocque said in a telephone interview. ``The situation will only start to improve in the second quarter when the real is expected to begin weakening.''
Embraer's preferred shares fell 20 centavos, or 0.9 percent, to 21.6 reais at 9:55 a.m. New York time. The stock has dropped 2.3 percent in the past year compared with 26 percent gain in the Bovespa benchmark index.
The shares will perform in line with the Bovespa benchmark index this year, de La Rocque said.
Rising Deliveries
Deliveries have risen since the company won authorization from international regulators in February 2004 to sell its 70- seat plane, the EMBRAER 170, the first in a new group of four bigger jets. Botelho, 62, is pushing sales of the planes to help Embraer expand beyond the market for 50-seat jets it shares with Montreal-based Bombardier Inc.
Ten of the 42 aircraft delivered in the fourth quarter were EMBRAER 170s, the company said. The plane has a list price of $22 million compared with $19 million for the 50-seat ERJ 145, said Alexandre Garcia, an equity analyst at Agora CTVM, a Rio de Janeiro-based brokerage.
Embraer will post a record annual profit of 1.3 billion reais in 2004, compared with 588 million in 2003, because of the increased deliveries, according to the survey. Embraer delivered 148 aircraft last year compared with 101 units in 2003 -- almost a third the 70-seat jets.
Embraer's $3 billion in exports last year accounted for about 3 percent of the country's $96 billion of sales abroad, Brazil's development and trade ministry said on its Web site.
Margins
Net revenue will rise 34 percent in the quarter to 2.59 billion reais from 1.93 billion reais a year earlier, the survey said. Earnings before interest, tax, depreciation and amortization, or Ebitda, will rise 35 percent to 513 million reais from 381 million reais, according to the survey.
Embraer may squeeze less gross profit from its sales because of new jet development costs, said Ricardo Fernandez, an equity analyst for ING Bank NV in Sao Paulo. The strengthening currency will also reduce margins because it will boost the value in dollars of salaries denominated in reais, said Fernandez.
``Embraer is taking more time to build the bigger jets than the small jets because they are still in the learning curve,'' said Fernandez, who has a ``buy'' rating on the stock.
Analysts in the survey expect gross margins to shrink to as much as 30 percent in the fourth quarter compared with 36.2 percent a year earlier.
Cash Flow
Losses facing some customers, such as US Airways Group Inc., which filed for bankruptcy protection on Sept. 11, will force Embraer to continue financing part of its sales, which may reduce its cash flow, Agora's Garcia said. Larger inventories of parts, required for assembly of the bigger regional jets, may also cut into cash flow, Garcia said.
``Airline companies need Embraer jets to cut costs and end their crisis,'' said Garcia, who has a hold rating on the stock. ``But on the other hand, those airlines have cash flow problems and can't get financing to buy the planes.''
The company's receivables are expected to be around $500 million (1.36 billion reais) in the fourth-quarter, Garcia said. Embraer said in March last year it expected its receivables to fall to between $300 million and $400 million in 2004.
Embraer had a debt of 3.3 billion reais in the third quarter and cash and financial investments in the amount of 3.97 billion reais.
Embraer expects to get certification for its two other bigger jets, the EMBRAER 175 and EMBRAER 190, in the second quarter and third quarter, respectively.
'Perfect Storm'
The company last year cut its 2005 commercial aircraft delivery forecast to 145 jets from 170 after US Airways suspended deliveries and other customers canceled orders. More than half of sales this year will come from planes seating 70 people or more compared with 31 percent in 2004, the company said on Feb. 28.
``I don't see our sales jumping as fast as it happened with the ERJ 145,'' said Frederico Curado, Embraer's executive vice president of commercial aircraft sales in an interview last week. ``The economies are recovering but we are still in the middle of a perfect storm. We're ready to grow fast but we don't expect that to happen.''
To contact the reporter on this story:
Romina Nicaretta in Sao Paulo at at [email protected]
To contact the editor responsible for this story:
Laura Zelenko at [email protected]
Last Updated: March 17, 2005 11:50 EST
Link to Bloomberg.com article (http://www.bloomberg.com/apps/news?pid=10000086&sid=a67NLBrJZnNs)
March 17 (Bloomberg) -- Empresa Brasileira de Aeronautica SA, the world's fourth-biggest aircraft maker, probably had its smallest profit growth in three quarters as a stronger Brazilian currency eroded revenue from exports.
Sao Jose dos Campos, Brazil-based Embraer will report fourth- quarter net income rose 19 percent to 334 million reais ($122 million), or 46 centavos per share, from 280 million reais, or 55 centavos as share, a year earlier, according to the median estimate of eight analysts surveyed by Bloomberg. Embraer is scheduled to release earnings after the market's close today.
The Brazilian real's 7.7 percent rise against the U.S. dollar in the fourth quarter undermined Chief Executive Mauricio Botelho's effort to boost earnings with a new line of jets, said Elaine de La Rocque, an equity analyst at Rio de Janeiro-based BES Securities. Embraer, Brazil's second biggest exporter, delivered 42 aircraft in the fourth quarter compared with 30 a year earlier.
``The company delivered more planes in the quarter but the appreciating currency will end up having a stronger effect on their bottom-line,'' de La Rocque said in a telephone interview. ``The situation will only start to improve in the second quarter when the real is expected to begin weakening.''
Embraer's preferred shares fell 20 centavos, or 0.9 percent, to 21.6 reais at 9:55 a.m. New York time. The stock has dropped 2.3 percent in the past year compared with 26 percent gain in the Bovespa benchmark index.
The shares will perform in line with the Bovespa benchmark index this year, de La Rocque said.
Rising Deliveries
Deliveries have risen since the company won authorization from international regulators in February 2004 to sell its 70- seat plane, the EMBRAER 170, the first in a new group of four bigger jets. Botelho, 62, is pushing sales of the planes to help Embraer expand beyond the market for 50-seat jets it shares with Montreal-based Bombardier Inc.
Ten of the 42 aircraft delivered in the fourth quarter were EMBRAER 170s, the company said. The plane has a list price of $22 million compared with $19 million for the 50-seat ERJ 145, said Alexandre Garcia, an equity analyst at Agora CTVM, a Rio de Janeiro-based brokerage.
Embraer will post a record annual profit of 1.3 billion reais in 2004, compared with 588 million in 2003, because of the increased deliveries, according to the survey. Embraer delivered 148 aircraft last year compared with 101 units in 2003 -- almost a third the 70-seat jets.
Embraer's $3 billion in exports last year accounted for about 3 percent of the country's $96 billion of sales abroad, Brazil's development and trade ministry said on its Web site.
Margins
Net revenue will rise 34 percent in the quarter to 2.59 billion reais from 1.93 billion reais a year earlier, the survey said. Earnings before interest, tax, depreciation and amortization, or Ebitda, will rise 35 percent to 513 million reais from 381 million reais, according to the survey.
Embraer may squeeze less gross profit from its sales because of new jet development costs, said Ricardo Fernandez, an equity analyst for ING Bank NV in Sao Paulo. The strengthening currency will also reduce margins because it will boost the value in dollars of salaries denominated in reais, said Fernandez.
``Embraer is taking more time to build the bigger jets than the small jets because they are still in the learning curve,'' said Fernandez, who has a ``buy'' rating on the stock.
Analysts in the survey expect gross margins to shrink to as much as 30 percent in the fourth quarter compared with 36.2 percent a year earlier.
Cash Flow
Losses facing some customers, such as US Airways Group Inc., which filed for bankruptcy protection on Sept. 11, will force Embraer to continue financing part of its sales, which may reduce its cash flow, Agora's Garcia said. Larger inventories of parts, required for assembly of the bigger regional jets, may also cut into cash flow, Garcia said.
``Airline companies need Embraer jets to cut costs and end their crisis,'' said Garcia, who has a hold rating on the stock. ``But on the other hand, those airlines have cash flow problems and can't get financing to buy the planes.''
The company's receivables are expected to be around $500 million (1.36 billion reais) in the fourth-quarter, Garcia said. Embraer said in March last year it expected its receivables to fall to between $300 million and $400 million in 2004.
Embraer had a debt of 3.3 billion reais in the third quarter and cash and financial investments in the amount of 3.97 billion reais.
Embraer expects to get certification for its two other bigger jets, the EMBRAER 175 and EMBRAER 190, in the second quarter and third quarter, respectively.
'Perfect Storm'
The company last year cut its 2005 commercial aircraft delivery forecast to 145 jets from 170 after US Airways suspended deliveries and other customers canceled orders. More than half of sales this year will come from planes seating 70 people or more compared with 31 percent in 2004, the company said on Feb. 28.
``I don't see our sales jumping as fast as it happened with the ERJ 145,'' said Frederico Curado, Embraer's executive vice president of commercial aircraft sales in an interview last week. ``The economies are recovering but we are still in the middle of a perfect storm. We're ready to grow fast but we don't expect that to happen.''
To contact the reporter on this story:
Romina Nicaretta in Sao Paulo at at [email protected]
To contact the editor responsible for this story:
Laura Zelenko at [email protected]
Last Updated: March 17, 2005 11:50 EST
Link to Bloomberg.com article (http://www.bloomberg.com/apps/news?pid=10000086&sid=a67NLBrJZnNs)