Bombardier, Inc.: Investors Are Confident After a Solid Quarter

Bombardier, Inc. (TSX:BBD.B) encouraged investors with recent results. This turnaround appears to be working.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Quietly amid all the chaos of Donald Trump’s surprise victory, Bombardier, Inc. (TSX:BBD.B) released quarterly earnings on Thursday.

Results were much better than expected. The company lost $0.04 per share, but that number was closer to break even on an adjusted basis. That beat analyst expectations of a loss of $0.03 per share. Revenue was down approximately 10% compared with the same quarter last year, but that was expected.

What really excited investors was the company’s outlook. It told the market that earnings before interest and taxes for the year would be between US$350 million and US$400 million–in the upper range of its previous guidance, which was between US$200 million and US$400 million.

Revenue guidance wasn’t quite as robust; that number was projected to come in at US$16.5 billion, which is in the bottom part of the previous guidance range.

Although the company cut its remaining CSeries production target from 15 to seven in 2016 because of shortages from its engine supplier, it remains on track to hit 2017 production guidance, which calls for it to build 30-35 CSeries jets.

In short, it was a solid quarter and good guidance from a company that could desperately use a little good news. That made investors happy, who responded by sending shares soaring nearly 10%.

The bigger picture

Bombardier took on a ton of debt when it built out the CSeries program. It currently owes nearly US$9 billion to creditors–a massive amount for a company projected to only earn $400 million in earnings before interest and taxes this year.

And remember, the company did recently get a cash injection from the Quebec government for US$2.5 billion.

The good news is that the days of Bombardier burning large amounts of cash each quarter appear to be over. It ended the second quarter with US$3.81 billion in the bank. After the third quarter, it had $3.77 billion in cash. Debt even went down during the same period, dropping from $9 billion to $8.96 billion.

That’s what investors want to see, even if it does appear to just be baby steps.

There’s even the possibility of it starting to generate some free cash flow in 2017. The company is halfway through an ambitious cost-cutting program, which will eliminate some 15,000 jobs and save it between US$500 and US$600 million per year. Bombardier has small margins at the best of times, so anything that can save it money will really help.

In short, Bombardier has promised investors it would turn things around, and it looks like the plan is working.

A word of caution

There are plenty of reasons to be bullish on Bombardier, but to borrow a baseball analogy, we’re in about the third inning of a turnaround.

It has a long way to go. While initial reports from CSeries customers are good, Bombardier still needs to ramp up production to compete with its larger rivals–30 to 35 jets per year isn’t going to impress big customers.

Both its business jet and transportation divisions are experiencing some difficulties, including an issue with Metrolinx, the Ontario government’s transportation agency, which said it intends to cancel a $700 million rail contract.

Debt also remains a huge issue. The company must pay down its debt and improve its credit rating. If it can get its interest rate down just 1%, that translates into annual savings of close to $100 million. If the debt remains high, so does the risk of bankruptcy.

The bottom line

Investors should be encouraged by Bombardier’s recent results. The cash burn was nonexistent, guidance was good, and cost cuts are proceeding nicely.

But we still need to be cautious. The company is on the right track. But it’s not out of the woods yet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith has no position in any stocks mentioned.

More on Investing

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Stocks for Beginners

New Investors: Follow the KISS Model With These 3 TSX Stocks

These TSX stocks keep it super simple for new investors. You'll need each of these services over the next decade…

Read more »

stock research, analyze data
Dividend Stocks

RRSP Investors: 1 Cheap TSX Dividend Stock to Buy Now and Own for 35 Years

RRSP investors can still find top TSX dividend stocks to buy at discounted prices.

Read more »

A airplane sits on a runway.
Investing

Why Did Bombardier (TSX:BBD.B) Stock Surge Over 75% in a Month?

Bombardier (TSX:BBD.B) stock has surged over 75% in last 30 days after strong second-quarter earnings. Is it a buy at…

Read more »

financial freedom sign
Stocks for Beginners

Millennials: Pay Down Debt and Get Rich in Just 1 Decade

Millennials continue to have huge debt on their hands, but they can pay it off and become rich by getting…

Read more »

Cogs turning against each other
Dividend Stocks

2 of the Safest Stocks (With Dividends) to Buy in Canada Now

Here are two of the safest stocks investors in Canada can buy now.

Read more »

Money growing in soil , Business success concept.
Tech Stocks

Got $1,000? Buy These 3 Top Growth Stocks

These three Canadian growth stocks could deliver superior returns over the long run.

Read more »

edit Businessman using calculator next to laptop
Dividend Stocks

2 Top Canadian Value Stocks Worth Buying Right Now

Here's why Alimentation Couche-Tard (TSX:ATD) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD) are two top value stocks to consider right now.

Read more »

A worker wears a hard hat outside a mining operation.
Metals and Mining Stocks

Ivanhoe (TSX:IVN) Had a Record Quarter: Should You Buy the Stock Today?

Ivanhoe Mines Ltd. (TSX:IVN) delivered record profits in its Q2 2022 earnings, which should spur investors to look hard at…

Read more »