Bombardier expected to post ‘solid results’ in third quarter

Share

Bombardier Inc.'s push to get its C Series program back on a smooth flight path, improved operations in the rail division and other factors point to third-quarter earnings that could beat expectations.

The Montreal-based plane and train maker, scheduled to report third-quarter results Thursday, appears to be making good progress in C Series flight testing. Last month, the company got a big boost with a 40-plane order from the leasing arm of Australia's Macquarie Group Ltd. and is now just 57 units shy of its target of 300 firm orders by the time of anticipated entry-into-service in the second half of 2015.

Problems in the execution of major rail-equipment contracts are being addressed. And the outlook for the business-jet sector – a big part of Bombardier's bread and butter – is brightening.

However, concerns over the company's cash requirements remain; the C Series program alone is about $1-billion (U.S.) over budget and there have been delays in some of the business-jet platforms, notably the new Learjet 85.

The "focus (and sentiment) remains on liquidity and Bombardier still remains in a high [capital expenditure] spend (and high development risk) period which we see limiting the near-term upside in the [Bombardier] shares," RBC Dominion Securities analyst Walter Spracklin said in a recent preview note.

Still, third-quarter earnings could top the consensus analysts' estimate of 10 cents per share, helped by better-than-expected earnings margins at the rail division resulting from new contracts and better execution on existing ones, he said.

"With still deep negativity surrounding the [Bombardier] shares, a third quarter earnings beat would help with positive near-term momentum, in our view."

But he adds: "Investors appear to be unwilling to fully step in front of recent positive developments with the still present cash burn risk coming from new program costs."

David Newman of Cormark Securities sees the third quarter delivering "solid results."

"Stronger aircraft deliveries, [favourable foreign exchange], and operational improvements are expected to drive margins," he said in his preview.

Among positive signs at Bombardier are a good order intake, a recovering business-jet cycle, a currency tailwind, improving liquidity, the resumption of C Series flight testing last month after an engine fire in May, and new products to drive long-term growth, Mr. Newman said.

Mr. Spracklin says entry-into-service of the C Series by the end of 2015 is "theoretically achievable, barring any other unforeseen development issues."

More progress on flight testing over the next six or so months is needed, he said.

Mr. Newman is looking for third-quarter earnings per share of nine cents, up from eight cents in the year-earlier period, while Mr. Spracklin anticipates EPS of 10 cents.