Embraer Earnings Solid Despite Production Glitch

As was discussed previously, business and regional jet maker Embraer (ERJ) had production glitches that limited its sales in the last quarter of 2006. While the problem affected sales, earnings came in well ahead of analyst estimates.

Embraer Announces Fourth Quarter and Fiscal Year 2006 Results in US GAAP

Embraer (ERJ), the world’s leading manufacturer of commercial jets up to 120 seats, recorded fourth quarter 2006 net sales of US$1,084.1 million and net sales for fiscal year 2006 of US$3,807.4 million. Net Income for the fourth quarter of 2006 and full-year totaled US$124.4 million and US$390.1 million, equivalent to diluted earnings per ADS of US$0.6698 and US$2.1006 respectively. The firm order backlog as of December 31, 2006, increased 11.3% over the previous quarter totaling US$14.8 billion, a record high.

The consensus estimate was for $0.60 in EPS on sales of $1.22 billion for the quarter and $2.06 per share on $3.89 billion for the year.

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 in the USA, Virgin Blue in Australia, Sirte Oil in Libya, Air Caraibes in Guadeloupe and Kenya Airways were added to our firm order backlog in the last quarter of 2006. 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 EMBRAER 170/190 E-jets currently has 619 firm orders and 568 options booked.

Due to difficulties with the production ramp-up of the EMBRAER 190 and EMBRAER 195 aircraft, especially those related to their wing assembly and supply chain delays, 37 aircraft were delivered in the last quarter of the year, and totaled 130 aircraft delivered in 2006. In light of the actions taken to solve these problems and the solutions pursued, Embraer revised its delivery forecast from 150 to 165-170 aircraft in 2007.

As long as the company can make up for the delay in short order, it should continue to benefit from the strong trend toward smaller jets serving smaller markets.

ERJ 1-yr chart: