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Embraer warns of weaker 2018 due to E2 transition

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Embraer warns of weaker 2018 due to E2 transition

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SAO PAULO (Reuters) – Brazilian planemaker Embraer SA <EMBR3.SA> said on Friday that revenue and profits could suffer next year during the transition to a new generation of commercial aircraft, known as E2, which is likely to slow deliveries and consume cash. Embraer’s first 2018 performance outlook came as the company reported third-quarter net income of $110 million(£83.99 million), beating a Thomson Reuters consensus of $72 million. Earnings recovered from a net loss of $34 million a year earlier, when the company booked one-time costs related to staff cuts, used aircraft writedowns and a corruption settlement in the United States and Brazil. The world’s third-largest commercial planemaker said its earnings before interest, taxes, depreciation and amortisation more than doubled to $140 million, falling short of an average estimate of $184 million. The challenging outlook for 2018 highlights how much is riding on Embraer’s re-engined family of 70- to 130-seat passenger jets, the largest of which will face down a new Airbus SA <AIR.PA> and Bombardier Inc <BBDb.TO> joint venture selling the rival CSeries. “Embraer expects 2018 to be a transition year due to the entry into service of the first E2 model, the E190-E2,” the company said in its earnings release, adding that the market for executive jets and defence products looked to be “flattish.” The company projected stable business jet demand would result in another 105 to 125 deliveries in 2018. Embraer forecast a slip in commercial jet deliveries to between 85 and 95 aircraft, down from 97 to 102 commercial jet deliveries forecast this year. The additional cost of ramping up output of a new model is also seen weighing on profitability, Embraer said, forecasting earnings before interest and taxes (EBIT) would equal between 5 percent and 6 percent of revenue in 2018. This year’s so-called EBIT margin is forecast between 8 percent and 9 percent. Embraer said it expects to burn as much as $150 million of cash this year, in line with its 2017 outlook.

(Reporting by Brad Haynes; editing by Jason Neely and Adrian Croft)
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