Embraer forecasts sky-high profit after cost cuts

The Brazilian plane maker forecasts a strong increase in earnings this year after quarterly net income rose by more than three quarters in the fourth quarter.

The Embraer regional jet E-175, in Sao Jose dos Campos, north of Sao Paulo. The plane maker has seen profits surge. Paulo Whitaker / Reuters

Brazil’s Embraer expects surging operating profit this year despite a drop of as much as 10 percent in commercial jet deliveries, as the plane maker focuses on tight cost controls after a challenging 2016.

Embraer forecast net revenue this year between US$5.7 billion and $6.1bn, down from $6.2bn in 2016, according to a securities filing on Thursday. Yet the company forecast 2017 earnings before interest and taxes (ebit) between $450 million and $550m, up sharply from $206 m last year.

The world’s third-largest commercial plane maker booked heavy provisions last year to settle a six-year corruption probe and pay for voluntary employee buyouts. The lean cost structure yielded better fourth-quarter earnings, also reported Thursday.

Quarterly net income jumped 76 per cent from a year earlier to $195m, beating an average analyst estimate of $132m according to Thomson Reuters data.

Ebit rose four-fold to $277m from a year earlier, when Embraer booked a $101m provision due to a bankruptcy filing by Republic Airways. Embraer transferred orders for 24 E175 jets from Republic to United Airlines in November, part of a $52m boost in the fourth quarter that Embraer attributed to negotiations with Republic.

Ebitda, a gauge of operating profit which also discounts depreciation and amortisation, more than doubled to $379m in the quarter, beating an average forecast of $260m.

Improving the efficiency of Embraer’s executive jet production, which is migrating from Brazil and China to an assembly line in Melbourne, Florida, helped to lift the company’s gross margin to 20.1 per cent from 16.9 per cent a year earlier.

Embraer shares are up 17 per cent this year after tumbling 47 per cent in 2016, when a strengthening Brazilian currency sapped the profitability of its export-focused business.

For 2017, Embraer maintained its annual delivery target of 105 to 125 executive jets but cut its outlook for commercial jet deliveries to between 97 and 102 aircraft, down from 108 commercial jets delivered last year.

Embraer is a year away from bringing its re-engined E190-E2 into service, so the company said most commercial aircraft deliveries this year will come from its smaller and less profitable E175, destined mainly for US regional carriers.

* Reuters

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