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Friday, March 30, 2007

Embraer Posts $3.8 Billion in Net Sales for 2006

Embraer (ERJ) recorded fourth quarter 2006 net sales of US$1,084.1 million and net sales for fiscal year 2006 of $3,807.4 million. Net income for the fourth quarter and full-year totaled $124.4 million and $390.1 million. The firm order backlog as of December 31, 2006, increased 11.3 percent over the previous quarter totaling $14.8 billion, a record high.
Calyon Securities Analyst Ray Niedl estimated the backlog has grown almost 50 percent since the second half of 2006, reflecting at least three years of revenue. Embraer also noted a significant amount of sales activity currently in the market. Production slots for 2007 are filled and nearly 80 percent for 2008 are already committed. He also said the company reiterated its objective of reaching 30 percent gross margins by the fourth quarter of this year adding that at a recent industry conference, Embraer said that it has largely overcome challenges in the ERJ 190/E195 production and is currently producing 11 aircraft per month, and wants to go up to 14 by year-end.
“We continue to believe that Embraer has strong competitive positioning and remains years ahead with its E-Jet family,” he said. “With 50-seaters devoted more for the hub-and-spoke system, Embraer's ERJ 190 and 195 jets fly more point-to-point. Thus far, the orders for these aircraft have come from low-cost and network carriers. The larger jets also have the comparable comfort level of narrowbodies, in seats and overhead bins, enabling smaller carriers to offer a similar product with a lower number of seats. In the regional market, we also believe the trend is for network carriers to fly the larger regional jets in the 61- to 90-seat range. Embraer does not anticipate a meaningful replacement cycle in the 50-seat aircraft category to be underway until the 2017-2026 timeframe.”
In the fourth quarter of 2006, Embraer announced 75 new firm orders for the Commercial Aviation segment and achieved more than 225 new firm orders in 2006. New customers such as Northwest (NWACQ), Virgin Blue in Australia, Sirte Oil in Libya, Air Caraibes and Kenya Airways were added to the order book in the last quarter. Sales for the executive jets segment continue to grow, especially for the Phenom family with more than 350 firm orders as of December 31, 2006. The ERJ170/190 E-jets currently have 619 firm orders and 568 options booked.
The difficulties with the production ramp-up of the ERJ 190 and 195 aircraft, especially those related to their wing assembly and supply chain delays, have largely been resolved but resulted in deliveries of 37 aircraft in the last quarter and totaled 130 aircraft delivered in 2006.
Net revenues for the fourth quarter of 2006 were US$1,084.1 million, compared to net revenues of US$1,189.9 million in 2005. Net revenues for fiscal year 2006 totaled US$3,807.4 million, compared to US$3,829.9 million in 2005. The decrease is mainly related to the number of aircraft delivered due to the reported production ramp-up difficulties the company faced during 2006. The gross margin was 27 percent in the fourth quarter of 2006, compared to 28.2 percent in the same period last year and for fiscal year 2006 the results were 28.1 percent compared to 30.2 percent in 2005.
Income from operations reached $76.3 million in the fourth quarter of 2006, 33.3 percent down from the $114.4 million recorded in the same period last year. This decrease is owing to the lower number of deliveries in the quarter and higher operating expenses as reported in the past quarters. In 2006, income from operations totaled $307.7 million, showing a decrease compared to $507.8 million in 2005, for the same reasons.
The decrease in operating results led to lower levels of net income and net margin, which were US$124.4 million and 11.5 percent in 4Q06 compared to $156.0 million and 13.1 percent in 4Q05, respectively. When it compared fiscal year results, net income increased from $445.7 million in 2005 to $390.1 million in 2006, and net margins represented 11.6 percent and 10.2 percent respectively. For the year ended December 31, 2006, the company maintained its high level of liquidity totaling a net cash1 position of $416.0 million.
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