MONTREAL – Bombardier Inc.’s chief executive says the aerospace and rail equipment manufacturer is on a path to improved results in coming years but acknowledged Thursday that its fourth-quarter results were weak and margins in the coming year won’t be as robust as previously thought.
“Our results in 2012 are not reflective of our potential as we faced some execution issues,” CEO Pierre Beaudoin said Thursday during a conference call to discuss the Montreal-based company’s latest financial report.
Beaudoin said Bombardier is at a “turning point” and “forging ahead with breakthrough products and expanding our reach in pivotal growth markets.”
He pointed to a drop in transportation revenue generated from China, a traditionally strong market that he said will significantly increase in 2013.
Beaudoin said the company had nearly US$67 billion of orders booked at the end of 2012 that will translate into revenue growth for years to come.
“These are exciting times at Bombardier and we’re on the cusp of generating significant revenue growth.”
However, he told analysts that margins and aircraft deliveries will be weaker than thought in 2013 and only recover in 2014.
Bombardier’s net income for the fourth quarter fell by US$200 million in 2012 to just US$14 million for the three months ended Dec. 31 — mostly due to weak results from its rail division.
The weak results caused the company’s shares to close down more than nine per cent, losing 39 cents to C$3.89 in Thursday trading on the Toronto Stock Exchange.
The 2012 fourth quarter included a US$119-million charge for restructuring related to the closure of a Bombardier Transportation plant in Aachen, Germany, and the previously announced reduction of 1,200 employees worldwide.
Bombardier (TSX:BBD.B), which reports in U.S. dollars, said its adjusted profit, which excludes the restructuring and other special items, was also down year-to-year but less dramatically.
Adjusted earnings were down $39 million or 17 per cent to $188 million or 10 cents per share. Bombardier’s rail division was responsible for most of the decline.
Analysts had expected Bombardier to earn 10 cents per share in adjusted profits in the quarter, according a consensus estimate compiled by Thomson Reuters.
The adjusted earnings excluded seven cents per share in restructuring charges, and two cents per share in other special charges that were included in the net income results.
Overall revenue for the quarter rose to $4.7 billion from $4.3 billion a year earlier, all due to Bombardier Aerospace.
Revenue at Bombardier Transportation fell from a year earlier to $2.16 billion from $2.3 billion in the fourth quarter of 2011.
For the full year, it earned $598 million or 32 cents per share on $16.8 billion of revenue, down from $837 million on $18.4 billion of sales in 2011. On an adjusted basis, profits dropped 20 per cent to $692 million or 38 cents per share.
Cameron Doerksen said the weak fourth-quarter margins in both divisions is disappointing but nonetheless raised his rating and target price by 50 cents to C$4.75 per share as he looks to improved results in 2014 and beyond.
While its 2013 results will likely be similar to 2012, margins at both divisions should improve.
He wrote in a report that cash flows will improve as development spending declines and it delivers the first CSeries and LearJet aircraft.
“We believe that investor focus will now turn to the CSeries program and to 2014 results,” said Doerksen.
With the first CSeries test vehicle nearing completion, he said Bombardier is on track or even ahead of schedule to meet its first flight target date by the end of June.
“While risks will remain on the program, first flight is a key milestone and risk-mitigating event and we expect that the stock will react positively if the target is met,” he said, adding that it could be a trigger point to more sales.
Beaudoin said the company expects to ramp up over about 3 1/2 years to produce about 120 CSeries aircraft annually.
Bombardier expects to deliver 245 planes in 2013, including 190 business jets, 55 regional planes, lower than his expectations of 254 deliveries (183 business jets, 67 regional planes and four amphibious planes).
The company also says aircraft program development costs will decline from $2 billion in 2013 by $500 million in 2014 and another $500 million in 2015.
Asked about a potential stretch version of its Q400 turboprop, Beaudoin said: “We have enough airplane programs in development right now so we don’t have additional ones to announce this morning.”
While it says the CSeries is on schedule, the company has delayed the entry into service of the composite Learjet 85 by about six months to mid-2014.
Bombardier has 33,600 employees and production facilities in 24 countries. It is the world’s third-largest commercial aircraft manufacturer, largest maker of business jets and trains.