Bombardier Inc. fell the most in almost three years after predicting lower profitability in its aerospace unit in 2012 amid a fifth consecutive annual drop in total aircraft deliveries.
Bombardier said today it expects earnings before interest and taxes at its aerospace unit to fall to 5 percent of revenue this year from 5.8 percent in 2011. Chief Executive Officer Pierre Beaudoin said “current economic conditions” prompted the manufacturer to abandon a target of boosting the aerospace margin to 10 percent of sales by 2013.
“Given the business aircraft and regional jets have not come back in volumes that we had expected, we decided that it was prudent to stay with guidance only for 2012,” Beaudoin said today on a conference call. “When the market comes back, when the economy comes back, we will decide if we should give longer-term guidance.”
Bombardier fell 9.5 percent to C$4.30 at 4 p.m. in Toronto, the biggest decline since March 5, 2009. Before today, the stock had gained 17 percent this year.
“The outlook was weak in our view,” particularly in aerospace margins, Tim James, an analyst at TD Securities in Toronto, said today in a note to clients. He cut his rating on Bombardier to “hold” from “buy” after the earnings report.
Net income in the fourth quarter declined to $214 million, or 12 cents a share, from $295 million, or 16 cents, a year earlier, Bombardier said in a statement. Analysts had projected profit of 12 cents a share, excluding some items.
Fourth-quarter results included only two months of operations in the aerospace unit as Bombardier switched to calendar-year reporting from a fiscal year that ended Jan. 31.
The third-largest commercial jetmaker faced strengthening competition last year for small commercial plane sales from Brazilian jetmaker Embraer SA and Avions de Transport Regional, the turboprop-plane venture of European Aeronautic, Defence & Space Co. and Finmeccanica SpA known as ATR.
“The environment remains challenging” even after orders for both CRJ regional jets and Q400 turboprops during the past few months, Hamzah Mazari, a Credit Suisse Group AG analyst in New York, said in a note to clients. Strong competition from Embraer “is unlikely to change, leading to additional pressures on future discounting,” said Mazari, who rates the shares “outperform.”
To boost future revenue, Bombardier plans to spend $1.5 billion this year on equipment, property, plants and new products such as the CSeries -- its largest-ever jet. Cash flow from operations will be sufficient to “substantially” fund investment in new programs of about $2 billion this year, the company said in a presentation on its website.
‘Spend the Most’
“This is the year where we spend the most,” Beaudoin said. “It’s a large expense. I do expect it to be a peak.”
Revenue of $4.32 billion companywide trailed the average analysts’ estimate of $4.74 billion. Bombardier said the shorter reporting period affected the aerospace unit’s results, not the train-making division.
Aerospace deliveries in the two-month period ended Dec. 31 fell to 60 planes from 100 in the three months through January 2011. The decline in shipments paced a 35 percent drop in quarterly revenue at the unit, which fell to $2 billion. Sales in the train-making business fell 7.8 percent to $2.3 billion.
Bombardier expects to deliver 235 aircraft in 2012, 4.1 percent less than a year ago. The company plans to book more regional-aircraft and business-jet orders than deliveries this year, Chief Financial Officer Pierre Alary said on the call.
Faced with shrinking demand among North American and European carriers, Bombardier has expanded its sales force to focus on emerging markets, and last month announced plane sales to airlines in Indonesia and Ethiopia.
Prospects for future jet and turboprop orders in Asia and elsewhere are encouraging, Beaudoin said, adding that the company has no current plans to cut output.
“There is a good pipeline for both CRJs and Q400 in emerging markets,” Beaudoin said. “We can be competitive in these bids.”
After cutting production of its smaller CRJ regional jets last year, Bombardier is working to meet a 2013 target for the commercial debut of the CSeries, which is costing about $3.5 billion to develop. The first test flight for the CSeries is planned near the end of the year, the company said today.
“We feel quite enthusiastic about 2012” as components such as the cockpit and wing advance, Beaudoin said. “That gives us confidence that we’re making the right progress. What we have to do this year is very complex because all these parts have to come together, they have to work together. We are going to need to follow it day by day.”
Rail Unit Profitability
Business jets will make up the bulk of 2012 aircraft deliveries with 180 units shipped this year, up from 153, Bombardier said.
The stock may struggle to break out of its current trading range until Bombardier books additional regional-jet or CSeries orders, Cameron Doerksen, an analyst at National Bank Financial in Montreal, said in a note to clients. He cut his rating today to “sector perform” from “outperform.”
Bombardier’s companywide backlog climbed 2.3 percent to $53.9 billion as of Dec. 31. The aerospace business accounted for $22 billion, compared with $31.9 billion for rail.
Fourth-quarter Ebit in the rail unit declined to 7.2 percent of revenue from 8.2 percent a year earlier, Bombardier said. The train business “keeps on working toward its Ebit margin target” of 8 percent of revenue by 2013, the company said.