Bombardier Slumps After Profit Misses EstimatesFrederic Tomesco
Bombardier Inc. tumbled the most in more than four years after posting a quarterly profit that missed analysts’ estimates as the world’s third-largest planemaker delivered fewer aircraft and collected less revenue.
Third-quarter earnings excluding some costs and gains were 9 cents a share, trailing the 10-cent average of 21 estimates compiled by Bloomberg. The widely traded Class B shares plunged 10 percent to C$4.74 in Toronto, their biggest drop since March 2009.
“It’s fair to say the numbers were a disappointment,” Cameron Doerksen, a National Bank Financial analyst in Montreal, said by telephone. With profit margins in the plane and trainmaking units still short of 2014 targets, the Montreal-based company has “work to do,” said Doerksen, who lowered his rating on Bombardier to sector perform from outperform after the earnings report.
Bombardier’s timeline for delivering the first CSeries jet, its biggest plane ever, is now being evaluated along with the schedule for flight tests. An update will be provided “in the coming months,” Bombardier said today, after three delays in the first flight imperiled the goal of a 2014 commercial debut.
Sales slid 3.6 percent to $4.06 billion, short of analysts’ $4.56 billion average projection. Adjusted profit fell 4.6 percent to $165 million. Including the effect of financing costs and interest-rate changes, net income dropped to $147 million, or 8 cents a share, from $172 million, or 9 cents.
Pretax profit as a share of sales fell in both the aviation and rail units. Earnings before interest and taxes in the trainmaking business was 6 percent of revenue, down from 6.3 percent, while profit in the aerospace division dropped to 4.3 percent from 5.2 percent, Bombardier said.
On the same basis and excluding one-time items, Bombardier said in May it was targeting profit of 6 percent in aerospace by 2014. For the train unit, the goal is 8 percent.
Beaudoin said on a conference call that Bombardier is “actively addressing” what he called “execution issues” on some train-equipment contracts. He declined to identify the clients in question.
Bombardier delivered 45 planes in the quarter, 12 fewer than a year earlier. The tally was 36 business jets, such as the Global 5000 and the Challenger 300, and nine commercial aircraft, such as the Q400 turboprop. Orders dropped to 26 in the period from 83 a year earlier.
Nine-month aircraft deliveries totaled 155 as Bombardier works toward its Feb. 21 forecast for a full-year tally of 245, a goal that Beaudoin reaffirmed today. He said he is “confident” the company can make up a two-week delay in business-jet shipments that was caused by the U.S. government shutdown earlier this month.
The last three months of the year are “a big quarter of deliveries,” Beaudoin said on the call. Bombardier’s projection called for handing over 190 business jets and 55 regional planes in 2013. That compared with 233 for 2012.
Bombardier is still 123 firm orders short of a target of 300 by the time the CSeries enters service. Beaudoin reaffirmed that sales goal today for the plane, which he has said he expects to be pivotal in helping almost double annual revenue in the next decade, garnering $5 billion to $8 billion a year. Bombardier last month raised the CSeries program cost estimate by about 15 percent to $3.9 billion.
Yesterday, Bombardier completed the jet’s fourth flight as part of a 2,400-hour testing program, after trials began with the first flight on Sept. 16. A second CSeries prototype will take off in the next few weeks, Beaudoin said, declining to be more specific.
“The pace of testing is obviously going to have to pick up,” said National Bank Financial’s Doerksen, who expects Bombardier to miss its goal of having the jet in service a year after its first flight. “As an outsider, it does appear to be relatively slow so far, at least compared to other new aircraft programs.”
Bombardier used $522 million of free cash flow in the quarter, more than double the $187 million it used a year earlier. Most of the spending, or $406 million, occurred in the aerospace unit, while the trainmaking unit used $5 million and the company paid $111 million in interest and taxes.
The company is investing about $2 billion in new aircraft programs for a second straight year in 2013 and predicted in March that the figure will drop to $1 billion in 2015. Along with the CSeries, Bombardier is developing planes such as the Learjet 85, Global 7000 and Global 8000 business aircraft.