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Strong dollar helps Embraer, but may boost taxes
July 24, 2013 / 11:45 PM / 4 years ago

Strong dollar helps Embraer, but may boost taxes

SAO PAULO (Reuters) - Earnings at Brazilian planemaker Embraer SA (EMBR3.SA) are likely to reflect the advantages of a stronger dollar on operations, according to analysts in a Reuters survey, although some warned of a one-time tax impact on its bottom line.

The average forecast of seven analysts in the poll pointed to a 61 percent increase in net income from a year earlier when Embraer reports second-quarter earnings late on Thursday.

Brazil’s currency, the real, depreciated nearly 10 percent in the second quarter, easing the burden of local wages that make up nearly a quarter of Embraer’s production costs. About 85 percent of revenue comes in U.S. dollars.

The more favorable exchange rate has helped Embraer to weather a stretch of sluggish production due to weak demand last year, before a burst of recent orders from U.S. regional carriers replenished its order book.

Still, not all analysts’ estimates have considered the accounting impact of a larger deferred tax bill due to the currency swing. JPMorgan analysts led by Joseph Nadol told clients in a recent note that the accounting effect could more than halve net profit in the second quarter.

Embraer delivered 13 fewer commercial aircraft in the quarter than it did a year earlier, dragging on revenue as well as earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as EBITDA.

The more favorable currency should support EBITDA as a share of revenue, a measure of profitability known as the EBITDA margin, at around 14.4 percent of revenue, well above Embraer’s target range of 12.5 percent to 13.5 percent for this year.

Reporting by Brad Haynes and Roberta Vilas Boas; Editing by Bernard Orr

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