Transport unit elevates profit for Bombardier

Turnaround plan gaining some traction with better-than-expected results

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-than-expected results prompted Bombardier to slightly adjust its full-year EBIT guidance, from the $530 million to $630 million range, to $580 million to $630 million.

At the same time, the firm 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 involves $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 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 billion 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 rollingstock division, and that it could be announced as early as August.

Bellemare remained tight lipped about the potential joint venture, but said the company 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.”

RBC Capital Markets analyst Walter Spracklin said in a note to clients that he expected the broadbased nature of the better-than-expected 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 4.56 per cent to close at $2.52 Friday.