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TORONTO (Reuters) - Bombardier Inc posted a 22 percent drop in quarterly profit on Wednesday on weakness in its profitable business jet segment, but its stock rallied as results topped analysts' forecasts and the company said the business aircraft market appeared to be stabilizing.
The world's No. 3 commercial aircraft maker and No. 1 train maker said it had 80 cancellations of business jets in the quarter ended July 31, compared to 27 new orders.
The cancellations included a firm order for 25 Learjet aircraft from private upstart Jet Republic, which declared insolvency in August.
"We did see a slowing down of cancellations as the quarter progressed," Guy Hachey, president of Bombardier Aerospace, said in a conference call.
The new business jet orders were nearly double those of the previous quarter and most came toward the end of the period. Hachey said the trend was continuing into the current quarter.
"There is stabilization and we're seeing that at the industry level," he said, echoing recent statements by rivals Textron Inc and General Dynamics.
Shares of the Montreal-based company were up 32 Canadian cents, or 8.4 percent at C$4.15 on the Toronto Stock Exchange on Wednesday afternoon. The shares have risen nearly 90 percent since hitting a yearly low in March.
National Bank Financial upgraded Bombardier to "outperform" from "sector perform" and raised its price target to C$5.50 from C$4.25 after the results were released.
"Overall, it is clear Bombardier is managing through the downturn quite well and with signs of stabilization, has compelled us to take a more positive stance on the stock," David Newman, an NBF analyst, said in a note to clients.
Versant Partners raised its target to C$4.25 from C$3.90, but kept a neutral rating on the company, saying that while the business jet market may have bottomed, a real rebound in sales may not happen any time soon.
Overall, Bombardier Aerospace recorded a net loss of 38 orders during the quarter, compared with a net gain of 175 orders during the same period a year earlier.
It received 15 new orders for commercial aircraft.
Bombardier's transportation segment, which supplies rail equipment and services, said new orders in the quarter rose to $3 billion from $2.1 billion a year earlier, helped by infrastructure spending projects.
The company said its balance sheet remains solid with $2.8 billion in cash and $760 million in invested collateral.
Bombardier also said on Wednesday that it secured a $500 million revolving credit facility.
"In the current economic environment, cash is king," said Hachey.
Pierre Beaudoin, Bombardier's chief executive, said on the call that the company wanted to ensure has all the flexibility it needs going forward, regardless of how the economy fares.
"We have two very large airplane developments going on ... we do not have an intention of using the revolver, but having that insurance while we have these big capital investments in new airplanes I think is a prudent thing."
Bombardier earned $202 million, or 11 cents a share, in the second quarter of its 2010 fiscal year. That was down from $259 million, or 14 cents a share, a year earlier, but above analysts' average forecast of 10 cents a share.
Revenue at Bombardier, which was founded as a snowmobile manufacturer in 1942, was $4.9 billion, unchanged from a year earlier. Analysts on an average were expecting $4.6 billion, according to Reuters Estimates.
Free cash flow in the quarter totaled $18 million, compared with $99 million a year earlier.
At July 31, Bombardier's consolidated order backlog stood at $47.5 billion, down from $48.2 billion on January 31.
Additional reporting by Euan Rocha in Toronto and Krishna Chaithanya in Bangalore; Editing by Jeffrey Hodgson