Pessimistic about Embraer

Last week, Empresa Brasileira de Aeronautica S.A. (ERJ - Analyst Report) reported results for the third quarter of 2009.

During the quarter, Embraer delivered 57 jets to the commercial aviation, executive aviation and defense segments, compared to 48 jet deliveries in the third quarter of 2008. The company's firm order backlog on September 30, 2009, totaled US$18.6 billion.

Despite a higher number of deliveries, net revenues for the quarter totaled US$1,246.0 million, or a 19.4% decrease from the US$1,546.0 million in net revenues of the same period in 2008. The decrease was basically due to the poor product mix in the quarter, which included 22 Phenom 100 jets delivered. The considerable strain on the Brazilian airport infrastructure will certainly impact the company's local sales in the coming months.

Income from operations totaled US$68.0 million, a 32.3% decrease compared to US$100.5 million recorded for the same period of last year. The decrease is due to a lower gross profit in the quarter. The operating margin was 5.5% from 6.5% in the third quarter of 2008.

After a US$13.0 million income tax benefit, net income attributable to Embraer was US$57.7 million, flat from the same quarter of previous year. The net margin was 4.6% in better than the 3.7% in the third quarter of 2008.

The company's high concentration for some models, with primary focus on American airline companies, exposes it to considerable risks. However, lower oil prices compared to 2008 and the support of the Brazilian Government appear to be encouraging. We also remain optimistic about the strength in the company's aircraft family.

Moreover, the international economic environment remains an issue, considering the company's exposure to the U.S. and Europe .