Embraer reports 3Q2009 net profit up, revenue down – Suppliers Share Wrap

Revenue at Embraer dropped by nearly 20% year-on-year, from USD1,546 million in 3Q2008 to USD1,246 million in 3Q2009. The USD300 million revenue shortfall was felt by all business segments. Commercial aviation, responsible for approximately two thirds of revenue at the manufacturer, shrank from USD998 million in 3Q2008 to USD824.1 million in 3Q2009, a decline of 16.5%.

Despite the fact that commercial aircraft deliveries fell from 37 in the previous quarter to 29 in the latest quarter, the commercial aviation unit has not been hit as hard as some other segments. Defence revenues fell by over 40%, dropping from USD135.3 million to USD70.8 million. Executive Aviation and Aviation Services have been less severely impacted, with quarterly revenue declining 10% and 15.8% respectively.

The manufacturer has however covered much of the revenue shortfall through cost cutting. Overall costs were down by just under USD200 million (a 16.7% reduction), as the company cut staff numbers and renegotiated supplier agreements. General operating expenses were down 29.7% and selling expenses fell 28.4%. The manufacturer reduced R&D expenditure from USD77.5 million in 3Q2008 to USD43.4 million in 3Q2009.

Even with the cost reductions, operating profit at Embraer declined by 30.5% year-on-year, to USD233.7 million. EBIT was down 16.7% (to 47.5 million) due to a more favorable USD14.6 million interest gain, compared to a USD102 million interest loss in the previous corresponding period. This more favourable result was obtained by reducing the cost of funds in other currencies from 5.22% to 3.88% and by improving returns on financial assets. A USD35 million loss was registered due to foreign exchange.

Net profit was up marginally (+2.2%), to USD60.6 million, mostly due to a modest income tax benefit.

Embraer delivered 29 commercial aircraft in the quarter (3Q2008: 37), as well as a single defence aircraft and 27 executive aircraft (3Q2008: 9). There were 22 deliveries of the manufacturer’s new Phenom 100 very light jet, but these were unable to compensate for the lower commercial, defence and larger executive aircraft deliveries.

Big drop in order book value

The value of Embraer’s firm order backlog declined substantially over the quarter, falling to USD18.6 billion, compared to USD19.8 billion as of 30-Jun-2009 and USD20.9 billion at the beginning of 2009.  The company’s firm orders for commercial aircraft stood at 306 at the end of the quarter.

Embraer has maintained its full year revenue guidance of USD5.5 billion. It expects to deliver 115 commercial aircraft, 17 large executive aircraft and approximately 100 very light aircraft for the year. Due to the strong appreciation of the Brazilian Real against the US dollar, the manufacturer forecasts an operating margin of approximately 7%.

The better than expected operating result, almost triple some forecasts and well ahead of market consensus, saw the company’s shares rise 3.6% on Thursday.

Elsewhere, Boeing advanced 3.4% while EADS rose 0.9%.

Selected Aviation suppliers’ daily share price movements (% change): 29-Oct-09