Bombardier turns annual profit for first time in five years as train woes persist
Despite issues in its transportation division, business jet sales are strong for the plane and train maker
MONTREAL—Bombardier Inc. turned a profit in 2018 for the first time in five years as its business jet unit delivered, catapulting its share price despite several train project derailments and weak transportation results.
The plane-and-train maker said it pocketed a net income of US$318 million in 2018, compared to annual losses that ranged from US$525 million to US$5.34 billion in the four preceding years.
The business jet division saw its earnings margin before interest and taxes spike to 8.6 per cent from eight per cent, maximizing its one per cent nudge in revenue to US$4.99 billion.
Chief executive Alain Bellemare said Thursday the overall improvement comes as the company is nearing the end of its five-year turnaround plan that saw it add new business jets, sell two commercial aircraft programs and streamline costs by reducing the number of employees.
Bombardier said it is still on track to deliver between 50 and 60 of its flagship Global 7500 in the next two years, with the goal of pushing up business aircraft revenues more than 40 per cent to about US$8.5 billion in 2020.
With 137 deliveries last year—down from 138 in 2017—and an order backlog of US$14.3 billion, the business jet division aims to send up to 155 more planes to customers in 2019, including the US$73-million Global 7500, that entered into service in December.
“In the long-term, this program is set to represent an important growth vector for the aerostructure division,” wrote analyst Benoit Poirier of Desjardins Securities in an investor note, highlighting opportunities for repair and parts replacement.
The Montreal-based company’s shares leaped 23 per cent to close at $2.51 Thursday, though they still sat below July levels.
“There was something of a relief rally in the stock, really driven by the free cash flow performance,” said National Bank Financial analyst Cameron Doerksen in an interview.
Free cash flow hit US$1.04 billion in the fourth quarter, rising 19 per cent to top the consensus of US$890 million, he said.
In July, Bombardier sold a majority share of its C Series commercial aircraft program to Europe’s Airbus. That shrunk commercial plane unit losses to US$157 million in 2018 from US$381 million in 2017, in terms of earnings before interest, tax and special items.
However, Bellemare acknowledged there are a half-dozen train projects “that have been a drag,” but said that “there’s no systemic issue here.”
“I understand it’s creating disappointment,” he added.
Bombardier’s train unit raked in US$8.9 billion of the company’s US$16.2 billion in revenues in 2018, with a margin of 7.7 per cent on earnings before interest and tax, below last year’s 8.4 per cent.
Fourth-quarter rail revenues dropped 10 per cent to US$2.16 billion from a year ago.
The drab rail results triggered a decrease in Bombardier’s stake of its train business by 2.5 per cent to 70 per cent. That means “there’s no immediate urgency” to buy back the Caisse de depot’s now-30 per cent stake—valued at more than US$2 billion—in the rail segment, said chief financial officer John Di Bert.
Delays and repair problems have plagued Bombardier train contracts over the past decade.
Earlier this month, Metrolinx announced it would impose financial penalties on the company after it delivered only half of a promised six vehicles for Toronto’s Eglinton Crosstown LRT by deadline.
Last month, three international public transit agencies in New York, Switzerland and France opted to stop taking trains from the company until it fixes the ones already in service.
Bombardier announced a leadership shakeup at the troubled train unit last week, naming Danny Di Perna as the new head to replace Laurent Troger, who took on the role in December 2015.
The abrupt announcement came as Bombardier enters the final two years of a five-year turnaround begun in 2015 that zeroes in on higher-yielding business jets as demand for the jetliners gains elevation.
The Global 7500, along with the new Global 5500 and 6500, come partly as a response to products from rival business jet manufacturer Gulfstream Aerospace Corp.
Bombardier, which keeps its books in U.S. dollars, said it earned a fourth-quarter profit of $55 million or two cents per diluted share for the quarter ended Dec. 31. That compared with a loss of $188 million or nine cents per share a year ago.
Revenue totalled $4.3 billion for the last three months of 2018, down from $4.61 billion in the final quarter of 2017.
On an adjusted basis, Bombardier said it earned five cents per share for the quarter compared to an adjusted loss of two cents per share a year ago.
Analysts on average had expected a profit of two cents per share for the quarter, according to Thomson Reuters Eikon.