The world’s fourth-largest airplane manufacturer on Wednesday reported a 49% drop in net profit for its second quarter due to efforts to increase production capacity, rising labor costs and a 9.4% appreciation of the Brazilian real against the dollar.
The poor report led Calyon Securities analyst Christine Min to lower her earnings estimates and price target for the Brazilian company, but over the next 12 months, she believes it “will convert its strong orders and backlog into earnings growth.”
Embraer (nyse: ERJ - news - people ) American depositary receipts plunged as low as $ 35.59 on Thursday amid a broad market sell-off, but a late-day upswing left it with a gain of 0.3%, or 11 cents, to $42.00.
For the third quarter of 2007, Min expects the company to earn 56 cents per share, down from her previous estimate of 74 cents per share.
For the 2007 fiscal year, she expects the company will post EPS of $1.86, 44 cents lower than her previous estimate of $2.30, and for the 2008 fiscal year, she expects $3.08 per share, down from her prior prediction of $3.70.
Min lowered her 12-month price target on the stock to $48 from $56.
On Wednesday the company’s shares dropped 9.4% on the heels of its second-quarter results, which fell short of Wall Street expectations. (See: “Embraer Tries Its Investors’ Patience”)
Embraer specializes in regional commercial jets with 30 to 120 seats -- a niche in which neither Boeing (nyse: BA - news - people ) nor European Aeronautic Defense and Space (other-otc: EADSF - news - people ) unit Airbus competes -- and is also expanding sales of its executive jets. Its main competitor is Canada´s Bombardier (other-otc: BDRAF - news - people ).
The company´s 70-seat to 120-seat planes are key to its future, with those planes taking over regional and commuter routes that often don´t justify the use of larger jets. Carriers now often use smaller 30- to 50-seat regional jets on these routes.