Embraer SA (ERJ)

Q1 2012 Earnings Call

April 27, 2012 09:30 a.m. ET


André Gaia – Head, Investor Relations

Frederico Curado – President, Chief Executive Officer


Noah Poponak – Goldman Sachs

Cai von Rumohr – Cowen & Company

Ray Neidl – Maxim Group

Myles Walton – Deutsche Bank

Joseph Nadol – JP Morgan

Nicolai Sebrell – Morgan Stanley

Milan Posarac – Scotiabank

Stephen Trent – Citigroup

Alexander Amson – Santander



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Good morning, ladies and gentlemen and welcome to the Audio Conference that will review Embraer’s First Quarter 2012 results. Thank you for standing by. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions to participate will be given at that time. (Operator Instructions). As a reminder this conference is being recorded and wecasted at ri.embraer.com.br.

This conference call includes forward-looking statements, or statements about events or circumstances which have not occurred. Embraer has based these forward-looking statements largely on its current expectations and projections about future events and financial trends affecting the business and its future financial performance. These forward-looking statements are subject to risks and uncertainties and assumptions, including among other things, general economic, political and business conditions in Brazil and in other markets where the company is present.

The words believes, may, will, estimates, continues, anticipates, intends, expects, and similar words are intended to identify forward-looking statements. Embraer undertakes no obligations to update publicly or revise any forward-looking statements because of new information, future events, or other factors.

In light of these risks and uncertainties, the forward-looking events and circumstances discussed on this conference call might not occur. The company’s actual results could differ substantially from those anticipated in the forward-looking statements.

Participating on today’s conference call are Mr. Frederico Curado, President and CEO; Mr. André Gaia, Head of IR; and Mr. Rodrigo Rosa, Controller. I would like to now turn the conference over to Mr. Frederico Curado. Please go ahead, sir.

Frederico Curado

Good morning, everyone from a very rainy and dark snowfall. So few words about the quarter, we delivered 21 E-jets and we also sold 12 new aircraft, 10 for Azul, one for BA, and for 1 for Japan Airlines.

With those orders, we have a total of 1,063 aircrafts sold in the E-jets family, this comprises 60 campaigns in 42 counties. So because of they keeps expanding, last two editions as operators of Bulgaria Air and Estonian Air, which are – falls into the capillarity and the liquidity of our assets, of our aircraft.

And as far as the executive jets we have 13 delivers this quarter of those 12 are Phenom’s and 1 Legacy. Importantly we keep in developing the Legacy 500 in every pass within the four flights for this initial flight that’s, which was happened in the third quarter. So even time for that. So low speed taxi and high speed taxi and also (inaudible) signal vibration plus all going well so far.

As far as deliveries, we got 13 deliveries, we’ve reached 300 Phenom’s delivered to the market, to the worldwide market and we have also brought to the market 100 business jets and Embraer business jets in Brazil. It’s a very important march for us.

Doing business, that’s our dealer customer Minsheng, in China which has an important legacy order also ordered the Lineage 1000, so we announced three aircrafts recently for the same customer which elevates the strength of the Chinese market in particular and their going presence in that market. We obviously continue to invest in our global support network as that it grows, we continue to invest and step out in our new service centers and according to the plan.

Shifting gears to defense and security, we – this business is growing as predicted, it’s showing the robustness in its growth. So in this quarter, it went 20% of the revenues of the company and our outlook for the year is 16%. So it’s probably going to stay between 15% and 20% throughout the year, this is our expectation. We have the first flights of the second AEW 145 for Indian aircraft of the three so the performances keep moving.

We also announced during the Dubai Air Show, three new customers for the Super Tucano all of them in Africa. And also I think important to emphasize, we acquired participation of EADS has in OGMA. So by taking OGMA in Portugal now with 65% remaining 35 in the hands of the Portuguese Government.

So a bigger bounce here about financials, we have slight deflection in our backlog and our revenues, we reached $1.16 million two-thirds of that coming from the area of commercial aircraft business, 20% to France and 13% business to US. Our gross margin is more or less where we thought, it should be, now at 23% showing a consistent behavior as for as last two quarters.

With that, we also really achieve in operating margin of 7.4% which is $86 million result is 1.15 revenues. Our SG&A is going back to life, our SG&A, we broke that the trends which are throughout last year in our growth, in our increasing of cost in SG&A. So we are able to reduce both in riyals

and US dollars and this is clearly a focus for us not to allow you to keep growing but rather stable or in more and more efficient as we go.

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