Embraer's profits slide

 - August 5, 2008, 11:16 AM

Brazil’s Embraer saw its net income for this year’s second quarter plummet to $4.9 million from $36.9 million during the same period a year earlier, as changes in the exchange rate between the U.S. dollar and Brazilian real continue to strongly influence the company’s balance sheets. Although Embraer reported just a modest decline in aircraft deliveries (28 jets compared with 30) and revenue ($567 million versus $589.7 million), increased expenses related to aircraft financial guarantees and related sales items (33.1 percent), research and development for the Embraer 170/190 program (45.4 percent) and employee profit sharing all contributed to a drop in operating margin from 20.3 percent to 12.3 percent. Embraer traces most of the rise in expenses to the increasing strength of the real against the dollar, the currency in which the Brazilian company conducts most of business. In October last year, the real-dollar exchange rate peaked at 3.9552 to $1, falling to 3.5333 to $1 by the end of the year, then to 2.8720 to $1 as of June 30.