Bombardier Inc. (BBD/B) tumbled the most in almost a year after pushing back initial deliveries of its Learjet 85 business aircraft and saying its train unit wouldn’t meet a 2013 profit target.
The Learjet 85 will debut in “summer 2014” instead of this year and the rail unit’s earnings before interest and taxes won’t reach the goal of 8 percent of sales until next year, the Montreal-based company said today. Its widely traded Class B shares fell 9.1 percent to C$3.89 at the close in Toronto for their biggest decline since March 1.
The plane is Bombardier’s latest offering in a business- aircraft lineup that the company projects will account for more than three-quarters of shipments in its aerospace business this year. Bombardier predicts 2013 aircraft deliveries will rise 5.2 percent to 245, of which 190 would be business jets.
“This is a program that has a lot of new technology” because of the complexity of developing the company’s first all- composite airplane, Chief Executive Officer Pierre Beaudoin told analysts and reporters on a conference call. “I don’t want to say that challenges are completely behind us. There will be additional challenges but I think we understand very well the work that needs to be done.”
Bombardier’s new schedule for the Learjet 85 follows its Nov. 7 disclosure of a six-month postponement in the first flight of its CSeries airliner, its largest jet ever. Benoit Poirier, a Desjardins Securities Inc. analyst in Montreal, had predicted in a Feb. 19 note that the Learjet 85 delay might be as long as nine months.
The company gave the aircraft and train projections as it posted a fourth-quarter profit excluding some costs and gains of 10 cents a share, trailing the 12-cent average of 21 analyst estimates in a Bloomberg survey. Profit fell 17 percent to $188 million from $227 million, or 13 cents a share.
Bombardier in annual filing today said “execution issues” in its rail unit in 2011 spilled into 2012, damping profit.
Beaudoin also cited “circumstantial” events such as temporary drop in rail revenue from China, which has traditionally been a “strong” market for the company. Bombardier is now “back to normal, and we expect to see a significant increase in business” from China in 2013, he said.
“We don’t see much to cheer for in these results,” Turan Quettawala, an analyst at Scotia Capital in Toronto, said in a note to clients. “Ebit missed in both segments mainly due to weaker margins.” Quettawala rates the shares sector perform.
Earnings before interest and taxes for the transportation unit amounted to 3.6 percent of revenue in 2012, compared with 4.7 percent for the aerospace division. Aerospace profit will be “at a similar level” this year and climb to 6 percent of revenue by 2014, Bombardier said.
“Longer-term” objectives such as the 2014 aerospace and train profit goals are “more encouraging, but investors will likely view these targets with a healthy degree of skepticism, at least for now,” Joe Nadol, a JPMorgan analyst in New York, said in a note to clients. He rates Bombardier neutral.
The Class B shares had gained 14 percent this year through yesterday, beating the 2.3 percent gain of the Standard & Poor’s/TSX Composite Index.
The fourth-quarter results included $119 million in costs to cut about 1,200 jobs in the company’s train division and close a plant in Germany. Bombardier announced the cutbacks with its third-quarter results in November.
Including the restructuring costs, fourth-quarter net income dropped to $14 million, or zero cents a share, from $214 million, or 12 cents, Bombardier said. Revenue increased 10 percent to $4.76 billion, the company said, trailing the average analysts’ estimate of $4.99 billion.
Bombardier said that rail-unit revenue excluding currency effects will probably climb less than 10 percent this year from its 2012 level of $8.1 billion. The division had a record backlog of $33.7 billion in future orders as of Dec. 31.
The unit, which also makes signaling equipment, counts New York’s Metropolitan Transportation Authority and San Francisco’s Bay Area Rapid Transit among its clients. It had 36,000 employees at the end of last year.
Bombardier said its total backlog at the end of 2013 rose to a record $66.6 billion from $55.8 billion a year earlier.
Bombardier is proceeding with development of the CSeries after the November postponement, which it blamed on unspecified issues with suppliers. Beaudoin reiterated today that the plane is on schedule to fly by the end of June. The jet is slated to enter service in 2014.
Profits in the aerospace unit will be crimped by expenses related to the CSeries in 2014 and 2015, Chief Financial Officer Pierre Alary said on the call, citing startup production costs and the discounts typically offered to so-called launch customers. The new plane will start contributing to earnings thereafter, he said.
Bombardier plans to invest about $2 billion on new airplane programs this year, unchanged from 2012, Alary said. Spending on property, plants and equipment will probably drop by $500 million in both 2014 and 2015, Beaudoin said.
“This will bring us to a more normal and sustainable level of investment in aircraft programs,” he said.
Along with the CSeries and the Global 7000/8000 business aircraft, the Learjet 85 is one of three planes that Bombardier is developing by 2017. Bombardier said today its aerospace unit will probably use about $600 million of free cash flow on new- plane development in 2013.
Bombardier announced its intention to build the Learjet 85 in October 2007. The plane will be capable of flying as many as eight people at a cruising speed of Mach 0.82. It will have a maximum range of 3,000 nautical miles, or 5,556 kilometers. Bombardier hasn’t said how much developing the plane will cost.
Beaudoin said AMR Corp.’s American Airlines, SkyWest Inc. (SKYW) and United Airlines may all order regional jets this year. He welcomed the proposed merger between American and US Airways Group Inc., saying their networks are “very complementary. In the end it will be good for the RJ market. I expect a good level of orders in RJs this year.”
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