Bombardier Net Falls as Sales Decline in Train Division

Bombardier Inc. (BBD/B) profit dropped 14 percent in the second quarter as lower sales of locomotives and rail cars eroded growth generated by the aerospace business.

Net income dropped to $182 million, or 10 cents a share, Bombardier said in a statement. Sales of $4.17 billion trailed analysts’ average estimate of $4.6 billion as transportation revenue fell 30 percent.

Bombardier blamed the decline in that business on the completion of some contracts, mostly in the Asia Pacific region and Europe. Quarterly orders tumbled 26 percent to $2.9 billion, and the business’s backlog slipped to $31.7 billion from the end of last year as the U.S dollar strengthened against the Brazilian real and the euro.

“Several new rolling stock contracts remained in the lower margin and revenue conversion start-up phase,” Walter Spracklin, an analyst with RBC Capital Markets in Toronto, said in a note to clients. Bombardier is still winning “sizable follow-on and new contracts” and benefiting from “resilient” rail-industry markets, he said.

Chief Executive Officer Pierre Beaudoin cited a “good level of activity” with orders, especially in North America and Europe, in the statement.

Companywide profit matched the 10-cent average of 21 analysts’ estimates compiled by Bloomberg, and Bombardier maintained its full-year sales forecast as revenue climbed in its aerospace business, the world’s third-largest plane maker.

CSeries Schedule

Bombardier is working toward the entry into service late next year of its largest jet, the CSeries, which will cost about $3.5 billion to develop. Guy Hachey, who runs Bombardier’s aerospace unit, said in an interview last month that the goal of a first flight this year was at risk as the company struggles with developing electronic flight controls.

“The main risk on Bombardier shares is the company’s ability to meet its tight development schedule for the CSeries,” Cameron Doerksen, an analyst at National Bank Financial with an outperform rating on the shares, said in a July 24 note. “A delay of up to three to six months is certainly possible, but would by no means be a major issue for the long-term success of the program.”

Bombardier declined 2.4 percent to C$3.67 at 4 p.m. in Toronto, trailing a gain in the S&P Toronto Stock Exchange Composite Index. The shares previously fell 7.4 percent this year.

Aircraft Deliveries

The company said today that the CSeries is making “good progress” toward entry into service at the end of 2013. Substantially all the main systems are up and running on Bombardier’s on-the-ground test and certification craft, the company said, allowing workers to ensure aircraft testing and validation on the ground.

Revenue in aerospace climbed to $2.3 billion as total aircraft deliveries increased 11 percent to 62. The division’s backlog advanced 15 percent from the end of 2011 to $25.2 billion, Bombardier said.

Customers including Warren Buffett’s NetJets Inc. placed 146 net orders, up from 86 a year earlier. NetJets’ order for 100 Challenger aircraft has a catalog value of $2.6 billion, which would increase to $7.3 billion if all options are exercised, Bombardier said.

Bombardier switched to calendar-year reporting in 2011 from a fiscal year that ended Jan. 31. That means this year’s second quarter ended on June 30, while the year-earlier period ran from May 1 through July 31, 2011.

To contact the reporters on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net; Andrea Rothman in Toulouse at aerothman@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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