Bombardier Limits Cash Burn, Sees Profit Near Top of OutlookBy
Company says 2017 Ebit will be in upper half of previous range
Surprise profit tops estimates in second quarter, sales fall
Bombardier Inc. burned through less cash than expected in the second quarter and said pretax earnings this year will be in the top half of a previously disclosed range, as Chief Executive Officer Alain Bellemare forges ahead on his turnaround plan.
Free cash flow usage in the period ended June 30 was $570 million, Bombardier said in a statement Friday. That was less than the $580 million average of analysts’ estimates compiled by Bloomberg. In addition, the company raised the floor of its forecast for this year’s earnings before interest and taxes by $50 million.
The cash results and strengthened outlook bolster Bellemare’s efforts to halt two years of revenue declines and three straight annual losses. Bombardier is pressing ahead with two major aircraft programs, the $6 billion C Series jetliner and the Global 7000, the manufacturer’s largest-ever private plane.
“Management continues to deliver results ahead of expectations,” Benoit Poirier, an analyst at Desjardins Capital Markets, said in a note to clients. He cited profit margins that surpassed expectations in the business-jet and rail divisions.
The widely traded B shares jumped 6.2 percent to C$2.54 at at 9:32 a.m. in Toronto after advancing as much as 6.6 percent for the biggest intraday gain in two months. Bombardier rose 11 percent this year through Thursday, compared with a decline of less than 1 percent for Canada’s benchmark S&P/TSX Composite Index.
Bombardier reported a surprise adjusted profit of 2 cents a share for the quarter. That beat the 1 cent loss that was the average of analysts’ estimates compiled by Bloomberg. Revenue dropped 5 percent to $4.09 billion, while analysts had projected $4.17 billion.
Earnings before interest, taxes and special items in 2017 will be $580 million to $630 million, Bombardier said. That compared with a range of $530 million to $630 million that the company had set in December.
Bombardier reaffirmed its other full-year targets, which include a “low single digit” increase in revenue, and cash flow use of $750 million to $1 billion.
“The reshaping of our organization is on plan, on track,” Chief Financial Officer John Di Bert said on a conference call with analysts. “The margins reflect that.”
With Bombardier’s shares dropping to a 26-year low in 2016, Bellemare announced about 14,500 job cuts to contend with cost overruns and a delay of more than two years in developing the C Series. The single-aisle plane is an effort to break into a market dominated by Boeing Co. and Airbus SE.
C Series production is ramping up to support about 30 aircraft deliveries this year, the company said, at the low end of the previously disclosed target of 30 to 35. That implies a major increase in the second half after the Montreal-based company shipped seven of the planes in the first six months.
Canada’s biggest aerospace company is embroiled in a trade battle with Boeing, which is accusing Bombardier of selling the C Series in the U.S. at “absurdly low” prices, while benefiting from unfair government subsidies. The biggest customer of the plane is Delta Air Lines Inc. with 75 firm orders.
“We disagree with the assertions and are responding to the petition proceedings,” Bombardier said in the statement, adding that it expects the U.S. Department of Commerce to issue its preliminary decisions on applicable duties -- if any -- this fall. Final determinations would likely come during the first half of 2018, Bombardier said.
The company said its biggest business jet, the Global 7000, remains on track to enter service in the second half of next year.
Asked about the possibility of teaming up with Germany’s Siemens AG in rail, Bellemare said Bombardier is pursuing “multiple options” to strengthen its trainmaking business. He didn’t identify potential partners or refer specifically to the Munich-based manufacturer.
“We will do what is right to keep on growing the great franchise that we have,” Bellemare said on the conference call.
Siemens and Bombardier are exploring options including two joint ventures as part of a potential train-equipment combination, people familiar with the matter told Bloomberg News last month. The companies are making progress on one joint venture for their rolling stock operations, which would be controlled by Bombardier, and another for signaling, in which Siemens would have a majority, the people said.