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Friday, May 18, 2007

Record Net Sales for Embraer, Net Income More than Halved

Embraer (ERJ) recorded net sales which were up 4.3 percent to $843.4 million, in the first quarter 2007 (1Q07) but net income was more than halved to $26.2 million compared to US$65.3 million reached in 1Q06. The company cited supply chain difficulties for the ERJ 170/190 family, for delivering only 25 aircraft during the first quarter, down from 27 in the previous Q1, but said it was on track to deliver 165-170 E-Jets for the year now that it is producing the 190 wing. Furthermore, the company's industrial costs, including the development of the wing assembly, increased as a result of longer production lead time and higher man/hour labor costs in its production process, including those related to overtime work, in order to achieve the scheduled deliveries.
The company hired 2,000 employees in January which negatively impacted its margins. It posted a net margin of 3.1 percent versus a net margin of 8.1 percent in the year-ago period. However, despite gross margins moving to 25.7 percent from 28.7 in the first quarter of 2006, it is on track to be 30 percent by year end. The hiring, with an additional 1,500 later this year, will meet the production ramp-up in the coming quarters. Most of the new employees will be working a third shift, to be fully implemented during the third quarter. It expects to deliver 38 to 40 aircraft in the second quarter with 60 percent of deliveries for the year occurring in the second half.
The company said the actions regarding the supply chain and industrial processes for wing assembly of the ERJ 190 and ERJ 195 are beginning to show results in increasing capacity in the second quarter. In addition to the new employees, the company has intensified its approach to, and increased its base of, sub-contracted suppliers. The company continues to expand its industrial capabilities, adding heavy tooling for the wing assembly and the production of fuselage sections, as well as increasing the number of final assembly bays of the ERJ 170/190 family.
During 1Q07, Embraer announced 11 firm orders for E-Jets for the Commercial Aviation Market, including options that were exercised with two new European customers, Swiss' M1 Travel Ltd. and Italy's Alpi Eagles. Furthermore, the confirmation of options for three ERJ 170 and three ERJ 190 BYS Australia's Virgin Blue, represent an important endorsement for the E-Jets in the Asia and Pacific region.
Executive jet sales also performed well during the quarter for all of the models. The Phenom 100 and Phenom 300 are nearing 400 firm orders. At the end of the quarter, Embraer's firm order backlog had reached a record high $15.0 billion.
In 1Q07, operating expenses reached $211.7 million, representing an increase of 8.3 percent compared to $195.4 million in the same quarter of 2006.
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