Company News

UPDATE 2-Embraer warns of weaker 2018 due to E2 ramp-up

(Adds share reaction, CFO comments)

SAO PAULO, Oct 27 (Reuters) - Brazilian planemaker Embraer SA said on Friday that revenue and profits could suffer next year during the transition to a new generation of commercial aircraft, known as E2, which is likely to slow deliveries and consume cash.

Embraer shares fell nearly 4 percent on the preliminary 2018 performance outlook, which overshadowed the company’s earnings report booking third-quarter net income of $110 million, above a Thomson Reuters consensus of $72 million.

The challenging outlook for 2018 highlights how much is riding on Embraer’s re-engined family of 70- to 130-seat passenger jets, the largest of which will face down a new Airbus SA and Bombardier Inc partnership selling the rival CSeries.

Chief Financial Officer Jose Filippo told journalists that the weaker outlook for next year was unrelated to the new joint venture, adding that Embraer’s forecasts are still based on the CSeries facing steep tariffs in the U.S. market.

Filippo said the inefficiency of parallel assembly lines for current- and next-generation aircraft would push up costs and slow production of commercial jets, while the market for executive jets and defense products looked basically stable.

The company projected steady business jet deliveries of 105 to 125 aircraft in 2018, but Filippo highlighted signs of higher pricing and better gross margins on Embraer’s executive jets in recent quarters.

Embraer forecast a slip in commercial jet deliveries to between 85 and 95 aircraft, down from 97 to 102 commercial jet deliveries forecast this year.

The additional cost of ramping up output of a new model will also hurt profitability, Embraer said, forecasting earnings before interest and taxes (EBIT) would equal between 5 percent and 6 percent of revenue in 2018. This year’s so-called EBIT margin is forecast between 8 percent and 9 percent.

Embraer said it expects to burn as much as $150 million in cash next year, in line with its 2017 outlook.

The third-quarter profit marked a sharp rebound from a net loss of $34 million a year ago, when the company booked one-time costs from layoffs, used plane writedowns and a corruption settlement in the United States and Brazil.

Embraer’s bottom line last quarter was helped by an exchange rate swing that eased its deferred tax bill.

The world’s third-largest commercial planemaker said its quarterly earnings before interest, taxes, depreciation and amortization (EBITDA) more than doubled to $140 million, falling short of an average estimate of $184 million.

$1 = 3.29 reais Reporting by Brad Haynes; editing by Adrian Croft and Nick Zieminski