Bombardier (TSX:BBD.B) shares are up today on news that it has signed a deal to supply its new generation Movia metro vehicles to the city of Stockholm.
The order is for 96 Movia vehicles with an option for 80 more and is valued at about $771 million.
This sounds like a pretty big number, but let’s see how it stacks up relative to Bombardier’s current backlog, revenues, and operating profit.
At the end of Q1’13, Bombardier’s total backlog stood at $63 billion. Adding another $771 million to this figure is certainly nice, but accounts for just a 1.2% bump. Not overly meaningful.
It’s impossible to accurately predict when this $771 million is going to be recognized on BBD’s financials, however, if we take a rudimentary approach and simply compare it to where revenues and operating profit currently sit, we can at least gauge its impact on these metrics.
The company’s Transportation division generated revenues of $8.1 billion in 2012 and operating profit of $453 million. This represents an operating margin of 5.6%.
If we assume this $771 million order generates a similar margin, over the course of the next few years, the deal could add a total of $43 million in operating profits to the Transport division. For a company that had a total operating profit (Aerospace + Transportation) of $835 million in 2012, this $43 million hardly moves the needle.
Foolish Takeaway
This deal probably means more to the sentiment that surrounds the Bombardier story vs. the actual bottom line impact. Bombardier’s leading technology is highlighted as well as Europe’s push to improve its rail technologies. Longer term, the combination of these two variables could have a much greater impact on BBD’s bottom line than this isolated deal.
Bombardier’s history is peppered with many deals just like this one, however, the long-term returns achieved by the company’s shares indicate an inability to translate these wins into significant gains for shareholders. In contrast, the Motley Fool’s Special Free Report “3 U.S. Companies That Every Canadian Should Own” profiles 3 companies that have translated their market dominance into huge returns for long-term holders. And most importantly, promise to continue to do so! To find out who these companies are, download this report at no charge by simply clicking here.
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Fool contributor Iain Butler does not own shares in any of the companies mentioned in this report at this time. The Motley Fool has no positions in the stocks mentioned above.
