What's that in the sky? Is it a bird? Is it a comic-book superhero in tights? No, it's Brazilian plane-builder Embraer (NYSE:ERJ), preparing to land tomorrow afternoon with a cargo of Q2 2006 earnings news.

What analysts say:

  • Buy, sell, or waffle? Nine analysts still track Embraer, one less than last quarter. Five of them rate the stock a buy, and four a hold.
  • Revenues. On average, analysts are looking for 21% year-over-year improvement in sales, to $981 million.
  • Earnings. At $0.64 per ADS, profits are predicted to rise 36%.

What management says:
Between Q1 2005 and Q1 2006, Brazil's currency, the real, increased in value nearly 18% against the U.S. dollar. In the Q1 2006 earnings report, Embraer's management blamed that appreciation of the real, as well as its own "learning curve" in building the new family of Embraer 170/190 jets, for depressing profit margins last quarter. The firm also incurred markedly higher selling costs (further depressing operating margins) as it promoted its new Phenom 100 and 300 jets, and higher costs to support Embraer 190 buyers.

In happier news, the company reported delivering its 275th jet to its biggest customer, America's ExpressJet (NYSE:XJT), this quarter. It also booked at least 35 aircraft sales in the quarter, including five Phenom 100s sold to Gold Aviation Services, and 30 Embraer 175 sales to Republic Airways (NASDAQ:RJET).

What management does:
Last quarter's results took a real toll on Embraer's rolling margin tallies, cutting the average gross margin over the last 12 months down to just more than half what it was 18 months ago. But as you can see, each of the gross, operating, and net margins had been trending downwards for some time, even before the disappointing March quarter's results were factored in.

Margins %

12/04

3/05

6/05

9/05

12/05

3/06

Gross

32.4

34.6

34.4

32.9

22.8

17.7

Op.

17.2

14.4

14.7

15.3

8.9

1.8

Net

12.5

10.4

10.9

10.4

7.8

7.2
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
 Motley Fool Stock Advisor co-analyst David Gardner recommended the stock to our subscribers back in November 2004. He's been proven right thus far; Embraer's stock has outperformed the S&P 500 by 16 percentage points since. (To see what other Stock Advisor picks have gone on to beat the market, try the premium newsletter service free for 30 days.) David, the consummate "big picture" guy, remains unworried by the recent problems, and reminds Foolish investors that "we're seeing a continuing trend toward the use of smaller, cheaper, and more efficient aircraft over the behemoths favored in the past." Embraer is one of the firms best positioned to benefit from this trend, dominating as it does its niche of small passenger jets -- a segment that Boeing (NYSE:BA) and Airbus have largely ignored.

Competitors:

  • General Dynamics (NYSE:GD)
  • Lockheed Martin (NYSE:LMT)
  • Northrop Grumman (NYSE:NOC)

Thinking of flying with Embraer? Don't forget to read your Foolish flight manuals:

Fool contributor Rich Smith does not own shares of any company named above.