April 1, 2010 / 10:53 AM / 8 years ago

UPDATE 3-Bombardier profit clipped by soft aerospace market

* Q4 EPS $0.10 vs analyst forecast $0.11

* Revenue down more than 1 pct at $5.35 bln

* Shares down 7.4 pct at C$5.77 on TSX (Adds details; in U.S. dollars unless noted)

By John McCrank

TORONTO, April 1 (Reuters) - Bombardier Inc (BBDb.TO) earnings fell in the latest quarter due to the weak business jet market, and the plane and train maker warned that profitability in its transportation segment would be less than expected this year, sending its stock down over 7 percent.

The world’s No. 3 civil aircraft maker said the lingering effects of the economic downturn would still be felt this year. It reiterated its outlook for a 15 percent drop in business jet deliveries and 20 percent fewer commercial aircraft.

Guy Hachey, head of Bombardier’s aerospace division, said decisions still had to be made on production rates for regional jets, orders of which have been few and far between.

“Over the next month and a half, we will have to make a decision that depends on the campaigns that we are able to win on the market,” he said on a conference call. “There might be a reduction in personnel, but we are going to try, obviously, to avoid that if we can.”

Last year, Montreal-based Bombardier slashed nearly 5,000 jobs as it cut aircraft production.

The company, which is also the world’s No. 1 passenger train maker, earned $179 million, or 10 cents a share, in the fourth quarter, versus $312 million, or 17 cents, a year ago.

Analysts had expected earnings of 11 cents a share.

Revenue fell to $5.35 billion from $5.43 billion, in line with expectations.

The biggest hit to revenue came on the business jet side. In the last fiscal year, ended Jan. 31, Bombardier had 101 business jet orders, not nearly enough to cover the 186 cancellations it recorded.

Pricing has also been weak as used aircraft that companies let go of during the recession crowd the market.

“Until that’s burned through, we are probably going to be faced with a tough market environment,” said Hachey. He added the that pricing had stabilized, though at a lower level.

Revenue from the aerospace unit was $2.7 billion, down from $2.8 billion a year earlier.

Many in the aerospace industry see 2010 as a year of global economic recovery, 2011 as a year of recovery in profits for airlines, and 2012 as the year airlines will have the capital to put in orders to build or refurbish their fleets.

Bombardier said it is in discussions with over 60 airlines on its new C-Series narrow body 100- to 150-seat planes, which are set to hit the market in 2013. It has so far recorded 90 firm orders and has booked options for an another 90.


Bombardier’s passenger train segment had a strong quarter, with revenues flat from a year earlier at $2.7 billion and a higher profit margin. But the company said both revenue and margin would be flat for the year, surprising some analysts.

“That part of the business is doing well. It’s just that people’s expectation was that it would be perhaps a little bit more profitable than what it is going to actually end up being,” said Cameron Doerksen, an analyst at Versant Partners in Montreal.

“Basically, what they’re saying for this year is that they are going to consolidate what they have done already and then resume improving beyond this current year.”

The company expects the transportation segment to generate 8 percent earnings before interest and taxes within four years, up from 6.8 percent now.

I would say at 8 percent, that was toward the lower end of the range we thought,” said Nicholas Heymann, an analyst for Sterne Agee in New York.

A number of major multibillion-dollar contracts in the past year for future work in places like Canada, France and China, helped fuel expectations for the trains segment.

China is seen also seen as a major growth area for aerospace.

On Tuesday, Bombardier signed a memorandum of understanding with China’s CDB Leasing Co on financing co-operation for up to $3.85 billion to aid Chinese and international purchases of its aircraft.

“We view the China market as a very significant market for us,” said Chief Executive Pierre Beaudoin.

He said China is expected to buy about 2,100 airplanes in the 20- to 149-passenger segment over the next 20 years, representing 17 percent of global aircraft orders.

“The market is not only there from a commercial standpoint, but we also see a huge opportunity from a bizjet standpoint as well,” he said. “We are just starting to see the makings of a large market as wealth is created there.”

Bombardier’s stock was down 46 Canadian cents, or 7.4 percent, at C$5.77 on the Toronto Stock Exchange on Thursday afternoon.

$1=$1.01 Canadian Additional reporting by Ashutosh Joshi and Bhaswati Mukhopadhyay in Bangalore; editing by Rob Wilson

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