August 3, 2010 / 4:56 PM / 8 years ago

Embraer sees shrinking margins in 2010 second half

* Increased sales of executive jets to squeeze margins

* EBIT earnings likely to decline

By Cesar Bianconi

SAO PAULO, Aug 3 (Reuters) - Embraer (ERJ.N) will probably report narrower profit margins in the second half of 2010 as sales of its more expensive jets recover slowly, company executives said at a conference call on Tuesday.

Earnings before interest and taxes as a proportion of total revenue, the so-called EBIT margin, will likely decline from the first half, reflecting a less favorable sales mix dominated by pricier aircraft like executive jets, said Chief Financial Officer Luiz Carlos Aguiar.

The company, which vies with Canada’s Bombardier Inc for the No. 3 slot in commercial aircraft manufacture, reported an EBIT margin of 8.2 percent on Monday.

Aguiar said that most of the planes that will be delivered through the end of the year are executive jets that are less profitable than commercial aircraft. But he sees a gradual increase in sales, underscoring an improvement in demand for commercial aircraft.

“We are still quite close to our customers ... purchases are slowly resuming,” he told analysts on the call.

The company raised its estimate for net revenue in 2010 to $5.25 billion from $5 billion previously. In addition, it boosted its forecast for operational margins to 6.5 percent of total revenue, compared with a 6 percent margin previously.

Part of the additional revenue will come from a pickup in sales of commercial aircraft, Chief Executive Frederico Curado said on the call.

Embraer earned 101.7 million reais ($58 million) in the quarter under international accounting standards, compared with 475.3 million reais a year earlier, according to a securities filing posted late on Monday. Net income more than doubled from 44 million reais in the first quarter of 2010, suggesting a gradual recovery in jet deliveries.

New delivery contracts could be signed in a few weeks, Aguiar said.

The company will also decide whether it will revamp its 70-seat to 120-seat family of planes or start a new model for commercial aviation. The company ruled out plans for developing a turboprop jet.

American depositary receipts of Embraer fell 1.8 percent to $26.59 in New York on Tuesday. Common shares of Embraer (EMBR3.SA) shed 0.4 percent to 11.56 reais. (Writing by Guillermo Parra-Bernal, editing by Leslie Gevirtz)

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