SAO PAULO Brazil's Embraer (EMBR3.SA), the world's largest maker of regional jets, will likely report its strongest quarterly profit in almost two years on Tuesday, but weak sales and slow deliveries may spark concerns about its ability to meet full-year targets.
Embraer is expected to book net income of $103 million for the third quarter, according to a Reuters poll of eight analysts, up from a year earlier, when a currency tumble wiped out earnings.
A stable, more favorable exchange rate in the most recent quarter likely resulted in the strongest net income since a $105 million profit in the first quarter of 2011.
Still, analysts say upside for Embraer shares will depend on new demand for its regional E-Jets from a major U.S. airline, allowing the planemaker to rebuild its order backlog from a six-year low and maintain production levels in the years ahead.
Embraer's backlog - orders that are now representing about two years of future revenue - has been drained by weak demand and canceled jet orders as a fragile global economy undermines business confidence.
Without a major U.S. sales coup, Embraer will likely miss its target of booking a new E-Jet order for each delivery this year. Some analysts say it may have to cut back the pace of production next year, dragging on revenue.
This year's delivery targets also depend on Embraer having a blockbuster fourth quarter, after deferrals and cancellations dragged on output through September. Embraer forecast between 195 and 215 deliveries of commercial and executive jets this year, but delivered just 129 in the first nine months.
Last week, Chief Executive Frederico Curado reaffirmed forecasts for deliveries and revenue this year. He said Embraer is not considering reduced production levels.
One bright spot for Embraer is its defense unit, which will likely generate revenue near $1 billion in 2012, the division's top executive told Reuters last week, beating an annual target of $900 million to $950 million. The unit contributes about 15 percent of revenue.
But Embraer continues to face headwinds in the commercial aviation segment, which makes up about 60 percent of revenue and where some analysts warn that profitability may have dipped in the third quarter due to a possible provision.
Embraer said last month it was working with U.S. carrier Chautauqua Airlines, a subsidiary of Republic Airways Holdings Inc (RJET.O), to ease leasing costs for a fleet of regional jets on which the planemaker had offered financial guarantees.
(Additional reporting by Cesar Bianconi; Editing by Gerald E. McCormick)