‘No systemic problems,’ Bombardier says as it downplays train delays
CEO Bellemare points to progress in four-year corporate turnaround
Bombardier Inc. chief executive Alain Bellemare downplayed problems with a handful of rail projects on Thursday, attributing delays to “normal” technical issues that he said the company knows how to fix as it enters the fourth year of its five-year turnaround plan.
Bellemare addressed the transportation delays on a conference call with analysts after the Montreal-based train and plane manufacturer, which reports its results in U.S. dollars, posted a quarterly profit of US$55 million for the three months ended Dec. 31, beating analysts’ expectations with a turnaround from a Us$188-million loss in the same period a year prior.
The results sent Bombardier’s stock soaring more than 18 per cent by mid-day on the Toronto Stock Exchange. They ended the day at $2.51, up 23.04 per cent.
Despite the promising results, particularly with its new business jet the Global 7500, analysts from Credit Suisse and BMO Capital Markets questioned whether structural issues remain in the transportation division given a leadership change in early February and high-profile problems with the double-decker trains Bombardier is making for Swiss Federal Railways.
“Let me be very clear again, there’s no systemic issue at (Bombardier Transportation),” Bellemare told analysts.
The Swiss project is facing normal technical issues related to early in-service introduction, he said, adding there’s nothing abnormal about having “very minor” redesign issues for the complex project.
“I understand that it’s creating disappointment, we get that, but we understand the issues we’re facing,” he said. Swiss railways have suspended deliveries while Bombardier fixes the problems, such as malfunctioning doors and software.
Bombardier announced this month that Laurent Troger, who had been the head of the train unit since 2015 was leaving, and was being replaced by Danny Di Perna, who joined the company in September.
Bombardier is making progress on all five rail projects it flagged as challenging at an investor day in December, Bellemare said, including projects in New York, London, Germany and Switzerland. It aims to complete the three projects in New York and London this year.
“What we’re talking about here is a handful of projects that have been a drag. These projects date back from 2010, 2011, 2012,” he said. “I understand there’s a lot of noise around the train business, but I want to assure you we feel very strongly about this franchise.”
The transportation unit reported a backlog of US$34.5 billion as of Dec. 31 and margins of 8.4 per cent in the fourth quarter. Bombardier expects pressure on its margins and cash flow in the first half of 2019 as it ramps up production and spends to fix the problems associated with the tardy train projects.
Chief financial officer John Di Bert said to expect the majority of Bombardier’s revenue in the second half of the year when it expects to deliver finished products, particularly the new Global 7500 plane that is sold out for the next two years.
The executives said the company is on track to meet its guidance for 2019 and achieve its turnaround goals by 2020.
“As we begin the fourth year of our turnaround journey, Bombardier is a much stronger company,” Bellemare said. “Our major program risks are retired, our heavy investment cycle is behind us and our franchises are well positioned for growth.”
The latest results look encouraging, Citi analyst Stephen Trent noted to clients.
“With another successful year under its belt, Canadian plane- and train manufacturer Bombardier looks set to continue building on its turnaround,” Trent wrote.
Ongoing debt reductions could create opportunities for the company as the Global 7500 looks set to improve earnings, he said.
Despite the improvements since Bombardier started its turnaround efforts four years ago, its shares continue to trade below levels seen in early 2015, National Bank analyst Cameron Doerksen noted to clients.