Empresa Brasileira de Aeronautica S.A. (ERJ) reported improved results for the fourth quarter and full year 2009. Quarterly net sales decreased 11.5% and reached $1,609.9 million from $1,818.4 million in the year-ago quarter. Net revenue for 2009 fell 13.7% to $5,466.3 million from $6,335.2 million in 2008. 

During the quarter, net revenues in the commercial aviation segment decreased 41.1% year-over-year, revenues in executive aviation increased 67.1%. Revenues in the defense and aviation services segment rose 47.0% and 7.2% respectively.
In 2009, net revenue in all the segments decreased except the executive aviation segment, where revenues rose 2.6% year over year. Revenues in the commercial aviation, defense, and aviation services fell 20.5%, 1.1%, and 2.5% respectively.
Embraer’s operating income was $65.8 million in the quarter, with an operating margin of 4.1%, compared to $274.6 million and 15.1%, respectively, in the same period last year. The decrease is due to the lower gross margin and higher operating expense in the quarter. 

During 2009, operating income was U$335.6 million, down from $537.0 million in the previous year. Margin also dropped from 8.5% to 6.1% in the fiscal. 

Net income came in at $146.4 million during the quarter, up from $111.7 million in the prior year quarter. EPADR increased to 81 cents from 62 cents during the same period of 2008. Reported EPADR was much above the Zacks Consensus Estimate of 53 cents. 

Net income in 2009 reached $248.5 million, down from $388.7 million in 2008. EPADR decreased from $2.14 to $1.37. However, it surpassed the Zacks Consensus Estimate of $1.17.
Higher net income was driven by increased jet deliveries in the quarter. Embraer delivered 91 aircraft compared to 57 deliveries in the previous quarter. The company delivered a total of 244 aircraft in 2009, above management expectation of 242 deliveries. 

Embraer’s firm order backlog, including the Commercial Aviation, the Executive Aviation and the Defense and Government segments totaled $16.6 billion. It was down from $18.6 billion in the previous quarter. The decrease in firm order backlog was due to the economic downturn. 

As on Dec 31, 2009, Embraer’s cash and cash equivalents and temporary cash investments totaled $2,546.2 million from $2,081.2 million at the end of the previous quarter. 

On the same date, short and long-term loans totaled $2,042.9 million from $2,009.8 million at the end of the previous quarter. As a result, the company had a net cash position of $503.3 million at the end of the fourth quarter compared to $71.4 million at the end of the third quarter. 

Embraer expects to generate revenues of $5 billion and deliver 227 jets during fiscal year 2010 almost flat compared to 2009. The Airline industry is expected to show some improvements in 2010. However, it will take years for the industry to revive. Thus, we reiterate our Neutral recommendation on the company.
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