August 31, 2011 / 11:09 AM / in 6 years

UPDATE 5-Bombardier stock sinks on dim regional jet outlook

* Shares off lows but still down nearly 6 pct

* May announce regional jet production cuts in fall

* May be tough to meet 2011 commercial jet delivery f‘cast

* Cash flow usage $1.05 bln vs $562 mln a year ago

* Q2 EPS $0.12 vs $0.07 year ago; ahead of expectations

(Recasts with comments from conference call, more analyst comment. Amounts in U.S. dollars unless noted)

By Nicole Mordant and Bhaswati Mukhopadhyay

VANCOUVER/BANGALORE , Aug 31 (Reuters) - Bombardier Inc BBDb.TO sketched a gloomy outlook for its regional jet business on Wednesday as a weaker global economy sapped demand, causing its shares to sink despite strong profit numbers.

The world’s No. 3 commercial planemaker burned through cash at a much higher rate than the market had expected in the second quarter as aircraft orders, and the accompanying customer deposits that top up Bombardier’s cash flow, dried up.

Bombardier said it may have to curb production of its CRJ fleet of regional commercial aircraft if orders do not pick up. It could make an announcement on output cuts in the fall. This follows a small cut to its Q400 turboprop output last quarter.

“It is at the point now that the backlogs are extremely, extremely thin, where you start questioning the forward outlook,” said PI Financial analyst Chris Murray.

“I was actually somewhat surprised that they maintained their production line rate.”

By mid-afternoon, Bombardier’s shares were off their lows but still down 29 Canadian cents, or 5.7 percent, on the Toronto Stock Exchange. Analysts said the slide may be exaggerated as the stock jumped 5 percent on Tuesday ahead of the results.

The stock initially opened more than 2 percent higher, lifted by a higher-than-expected second-quarter net profit of $211 million, or 12 cents a share.

But the rally fizzled as the market digested the fact that Montreal-based Bombardier drew $1.07 billion from free cash flow in the quarter, nearly double the rate of a year earlier.

The company also said it expects economic uncertainty in the United States and Europe -- traditionally its biggest and strongest markets -- to keep a lid on customer deposits on commercial aircraft for the rest of the fiscal year.

“We had anticipated that the regional market would pick up faster. It has not happened. There is still a lot of uncertainty in the marketplace,” Guy Hachey, president and chief operating officer of Bombardier’s aerospace unit said.

He was concerned that Bombardier would “most likely” have to make production cuts on its CRJ regional jets in the fall, Hachey said on a conference call with analysts and reporters.

It may also be tough to meet its forecast of delivering 90 commercial aircraft this year although the company was working hard to drum up business in emerging markets -- regions it had not targeted strongly before.

However, its business jet unit was performing well and was on track to deliver or beat the 150 deliveries it has forecast for 2011, Hachey said.

C-SERIES ON TRACK

Hachey said Bombardier expects a steady flow of orders in the months to come for its new C-Series jet, the company’s biggest aircraft yet. It will compete head-on with the smaller suite of aircraft manufactured by industry leaders Boeing Co BA.N and Airbus EAD.PA.

He said interest in the 110- to 135-seater has not abated even though Boeing announced plans to outfit its smaller, competing aircraft with a new engine.

The $3 billion C-Series jet program suffered a blow last week with the surprise announcement that Gary Scott, the head of the planemaker’s commercial plane division, would retire in October for personal reasons. [IDnN1E77N0BY]

The C-Series has 133 firm orders on its books but orders have been sporadic, raising concerns about customer appetite.

RESULTS BETTER THAN EXPECTED

Lower-than-normal taxes and strong train division sales lifted Bombardier’s second-quarter profit, which came in two cents above analysts’ average forecasts for 10 cents a share.

Revenue rose 17 percent to $4.74 billion, ahead of analysts’ forecasts of $4.49 billion.

Bombardier’s transportation division, which is the world’s biggest train maker, reported a 29 percent jump in revenue to $2.7 billion, allaying fears about the company’s high exposure to troubled European markets.

Revenue at the aerospace division, which manufactures business, commercial and amphibious aircraft, increased 11 percent to $2.1 billion.

Overall, Bombardier’s plane and train order backlog rose to $56.9 billion at the end of July from the $55.1 billion on April 30.

Editing by Frank McGurty and Janet Guttsman

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