Bom­bardier ‘turn­around’ shows in re­sults

Quar­terly profit im­proves 55% on last year

National Post (National Edition) - - FINANCIAL POST - ALICJA SIEKIERSKA Fi­nan­cial Post

Bom­bardier Inc. re­ported an ad­justed quar­terly profit on Fri­day, driven by im­prove­ments in its trans­porta­tion di­vi­sion, as the com­pany con­tin­ues on a five-year turn­around plan and pur­sues “mul­ti­ple op­tions” for its rail busi­ness.

The Mon­treal-based com­pany’s ad­justed earn­ings be­fore in­ter­est and taxes (EBIT) came in at US$164 mil­lion in the three months end­ing June 30, an im­prove­ment of 55 per cent from the same time last year. The bet­ter-thanex­pected re­sults prompted Bom­bardier to slightly ad­just its full-year EBIT guid­ance, from the $530 to $630 mil­lion range to $580 to $630 mil­lion.

At the same time, the Que­bec-based com­pany saw its net loss nar­row, from $490 mil­lion last year to $296 mil­lion, largely due to re­struc­tur­ing costs. As part of its five-year turn­around plan, the com­pany is re­or­ga­niz­ing its op­er­a­tions glob­ally, in­clud­ing job cuts in Ger­many, Switzer­land and Bel­gium, which it said in­volve $181 mil­lion in sev­er­ance pay­ments and $32 mil­lion in as­set write downs.

“We had a very strong first half of the year and our turn­around plan is in full-mo­tion,” chief ex­ec­u­tive Alain Belle­mare said in a con­fer­ence call with an­a­lysts Fri­day.

“We are con­fi­dent that we will be able to de­liver on all of our com­mit­ments.”

Rev­enues fell five per cent from the same time last year, drop­ping from $4.3 bil­lion to $4 bil­lion. Free cash flow us­age was $570 mil­lion for the quar­ter.

Bom­bardier said its trans­porta­tion di­vi­sion saw rev­enue in­crease slightly from $1.96 to $1.98 bil­lion. Chief fi­nan­cial of­fi­cer John Di Bert said strong mar­gins in the sec­tor ben­e­fited from a favourable mix and im­prov­ing cost struc­ture.

The com­pany said trans­porta­tion is in line to reach US$8.5 bil­lion in rev­enue by the end of the year and in­creased its EBIT mar­gin for the trans­porta­tion di­vi­sion from 7.5 per cent to eight per cent.

Bom­bardier is re­port­edly in the fi­nal stages of dis­cus­sions to merge its rail op­er­a­tions with Ger­many’s Siemens in a bid to com­pete with Chi­nese rail gi­ant CRRC. Ac­cord­ing to Reuters, sev­eral sources fa­mil­iar with the talks said the deal would cre­ate two sep­a­rate joint ven­tures for their sig­nalling and rolling-stock di­vi­sion, and that it could be an­nounced as early as Au­gust.

Belle­mare re­mained tight lipped about the po­ten­tial joint ven­ture, but said the firm has been closely watch­ing rail gi­ant CRRC Corp., which re­sulted from a merger be­tween two firms in 2015.

“As a re­sult of this, we have been look­ing at what the real strate­gic op­tions to make our rail busi­ness strong mov­ing for­ward from a scale stand­point, from an ef­fi­ciency stand­point, and from a tech­nol­ogy stand­point,” Belle­mare said.

“We feel we have mul­ti­ple op­tions in front of us and we will con­tinue to pur­sue them.”

RCB Cap­i­tal Mar­kets an­a­lyst Wal­ter Sprack­lin said in a note to clients that he ex­pected the broad-based na­ture of the bet­ter-thanex­pected re­sults to be well re­ceived.

“Im­por­tantly, the re­sults here were driven by mar­gin im­prove­ment, which is ex­actly the area where man­age­ment is cur­rently fo­cused as part of its five-year turn­around plan,” Sprack­lin wrote. “As a re­sult, we be­lieve in­vestor con­fi­dence will con­tinue to build as this man­age­ment team ex­e­cutes and de­liv­ers on its tar­gets.”

Bom­bardier’s stock jumped fol­low­ing the re­lease of the quar­terly earn­ings, in­creas­ing 5.4 per cent to $2.54 as of 1 p.m. Fri­day. The stock closed at $2.52.

In fu­ture, Sprack­lin noted that share price per­for­mance will be driven by C Se­ries or­ders, busi­ness jet re­cov­ery and con­tin­ued ex­e­cu­tion on cost re­struc­tur­ing.

Bom­bardier said the C Se­ries has de­liv­ered bet­ter than ex­pected re­sults in its first year of ser­vice, and that the com­pany is on track to de­liver 30 jets by the end of the year. Alain Belle­mare, chief ex­ec­u­tive of Bom­bardier, said the com­pany’s turn­around plan is “in full-mo­tion.” The Que­bec-based com­pany saw its net loss nar­row to $296 mil­lion.

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