Embraer stock jumps on upbeat margins, sales view


Shares of Brazilian planemaker Embraer surged as executives reinforced an improved outlook for margins and sales this year after booking solid second-quarter profits.

Chief Executive Frederico Curado told analysts on a call that an improved 2011 operating margin forecast reflected sustainable improvements in productivity, and second half sales are set to match a strong first half.

Shares of Embraer had their best day since January, jumping around 9 percent in intraday trade from 11-month lows, Reuters reports

Embraer, the world’s largest producer of regional jets, has already sold 62 commercial aircraft this year, with 42 jets pending final terms, executives said on the conference call.
“Given the volume of deals we’re engaged in discussing at this stage, we think we can more or less keep up the pace of the first semester,” Curado said. “We feel very comfortable about this $200 million extra (forecast) in revenue.”

In a securities filing, Embraer raised its target for net revenue this year to $5.8 billion from $5.6 billion previously, and lifted the forecast for earnings before interest and taxes, or EBIT, to $465 million from $420 million.

The more confident guidance suggests an improved outlook for the world’s third-largest commercial planemaker, even as it confronts industry leaders targeting its core market to offset declining orders for larger aircraft.

Executives said scaled back investments in 2011 product development to $160 million from $210 million resulted from increased investment by partners, and Embraer’s development budget should remain above $200 million in coming years.

However aviation analyst Stephen Trent of Citigroup Global Markets expressed reservations in a note to clients.
“We continue to be concerned that the company’s reduced R&D bill reflects management’s quandary as to how to respond to deeper, long-term commercial aerospace competition,” Trent said.

Last week Boeing (BA.N) said it would upgrade its 737 regional jet with a new engine offering greater fuel economy, just as archrival Airbus (EAD.PA) is doing for its A320neo and Canada’s Bombardier Inc (BBDb.TO) has done with its new C-Series.

Embraer executives said they had not made a final decision on whether to offer an upgraded regional jet with a new engine or introduce a new family of commercial aircraft.