April 27, 2010 / 9:19 PM / 7 years ago

PREVIEW-UPDATE 1-Embraer likely returned to profit on costs

 * What: Embraer first-quarter results
 * When: April 29 after markets close
 * Drop in cost, expense helped reverse year-ago loss  (Updates shares to close)
 By Guillermo Parra-Bernal
 SAO PAULO, Brazil, April 27 (Reuters) - Embraer, the world's third-largest aircraft manufacturer, probably returned to profit in the first quarter as management continued to trim costs and expenses to counter a slump in revenue.
 Embraer, based in the Brazilian city of Sao Jose dos Campos, likely earned a profit of $45 million for the quarter, compared with a net loss of $23 million a year earlier, according to the average forecast of six analysts polled by Reuters on Tuesday.
 The results, which will be released on Thursday after markets close, should shed light on Embraer's ability to control costs as the deepest crisis in commercial aviation in decades hampers revenue.
 Chief Executive Frederico Curado is protecting profits by slashing expenses as a tumble in jet deliveries hampers Embraer's sales mix. Expenses fell from a year earlier, when management executed a $50 million layoff plan to weather a decline in firm orders.
 "Cost cutting initiatives undertaken throughout last year should also help margins," Nicolai Sebrell, an analyst with Morgan Stanley, said in a research note.
 Banco Bradesco analysts Edigimar Maximiliano and Luiz Pecanha said first-quarter results should have "a neutral impact" on Embraer's shares. The stock, which traditionally has traded at a discount to rivals Boeing Co (BA.N) and Bombardier (BBDb.TO), is priced about 23 percent above 2011 earnings estimates, Sebrell said.
 Embraer's common shares (EMBR3.SA) fell 1.7 percent on Tuesday to 10.03 reais. The company's American depositary receipts (ERJ.N) shed 4 percent to $22.81.
 Embraer likely did not apply tax credits in the quarter, limiting the rise in its profit, analysts said. Net sales in the quarter probably slipped 13 percent to an average of $1 billion from a year earlier, they added.
 On the revenue side, weak deliveries, which slumped 34 percent in the quarter, and a stronger Brazilian real BRBY slashed export receipts, the analysts said.
 Some analysts including Ronald Epstein of Bank of America Merrill Lynch have said that the currency's 28 percent gain in the past 15 months should at some point limit cost savings and crimp revenue this year. About 40 percent of Embraer's total costs increase automatically when the real strengthens.
 Earnings before interest, taxes, depreciation and amortization, known as EBITDA, on average are expected to have doubled to $91 million, compared with $47 million a year earlier, the poll showed.
 Net income probably declined 69 percent from the fourth quarter of 2009 due to a 38 percent drop in revenue and higher tax payments.
 Earnings estimates for Embraer were calculated based on U.S. accounting guidelines. Following is a table with the estimates for Embraer first-quarter earnings in U.S. dollars. ===============================================================
                   Q12010         Q12009        PCT CHANGE =============================================================== Net revenue          $1.00 bln      $1.15 bln      - 13.4 pct EBITDA               $91 mln        $47 mln        + 94.4 pct EBITDA margin        9.1 pct        4.1 pct           n.a. Net income           $45 mln        -$23 mln          n.a. ===============================================================  (Editing by Richard Chang and Matthew Lewis)   

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