SAO PAULO: Brazilian planemaker Embraer SA is likely to report a solid quarterly profit on Tuesday, according to a survey of analysts, but a tumbling local currency could hurt its bottom line.
Embraer is expected to post third-quarter net income of $55 million, based on the average estimate of six analysts in a Reuters survey. The world's third-largest commercial planemaker recorded a net loss of $11 million in the same period of 2014.
Earlier this month, Embraer reported a jump in aircraft deliveries during the quarter, when it delivered two additional regional jets to airlines and doubled its executive jet deliveries with a flurry of sales for its Legacy jets.
"The surprise came from six deliveries of Embraer's Legacy 650 which has struggled with new sales and low production rates at its plant in China," wrote RBC Capital Markets analyst Derek Spronck in a note to clients. "The key will be to what extent has management maintained pricing."
Higher volumes and a more favorable exchange rate for exports probably boosted operational profits by about 20 percent from a year ago, according to analysts' estimates of earnings before interest, taxes, depreciation and amortization.
The sharp depreciation in Brazil's currency, the real , has boosted the long-term profitability of Embraer's export-focused business, with revenue overwhelmingly in dollars and costs such as labor denominated in reais.
In recent quarters, however, the short-term accounting impact of the weakening currency has been to drive up Embraer's deferred tax bill and wipe out net income, an effect rarely reflected in analysts' models.
In the first quarter, when the Brazilian real lost 17 percent against the dollar, Embraer's surging tax bill reduced earnings by $110 million. The real lost 22 percent in the third quarter.
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