Bombardier, Inc. (TSX:BBD.B) rallied 4.56% Friday following the release of its second-quarter results. Results surprised many, with adjusted profit of $39 million, or $0.02 per share, which was much better than the $83 million loss during the same quarter last year, and crushed analyst expectations of a $0.01 per share loss. Bombardier has been bleeding cash for quite some time now, so to have adjusted profit in the green is a breath of fresh air for investors who have remained confident that the management team could turn things around.
The company is in the midst of its five-year turnaround plan, and there are signs of fundamental improvements. CEO Alain Bellemare stated, “We are improving our operating margins, transforming our operations and executing on our growth programs, which will allow us to deliver long-term sustainable value to our customers and shareholders.”
Bombardier delivered 20 commercial jets in the second quarter, six of which were CSeries jets. The CSeries project has been quite the disaster up until now, as the project was delayed over two years and went over budget by $2 billion up front. The management team did an abysmal job with this project, which led to controversial loans issued by the Canadian government. There was a lot of backlash over the last loan, and going forward, if the management team can’t prove themselves by meeting deadlines and staying on budget, then it’s unlikely that the company will be able to rely on the government for funding.
The latest quarter had some promising improvements, but I’m not sure if the company’s next big project will free from budget and deadline issues that have plagued the company many times in the past.
One of the biggest things to look for when deciding whether or not to invest in a company is the quality of a management team. While the management team claims it’s making improvements to its operations, I’m skeptical as to whether the company can provide more accurate estimates with regards to the budget and timeline for a new project. If Bombardier repeats the same mistakes it made with the CSeries program, then it’s likely that more prospective clients will avoid Bombardier because of its history of delays.
The Global 7000 luxury jet program is currently under development and has already been delayed by two years because of the CSeries program. The Global 7000 is expected to enter service next year, and we’ll have to wait and see if the management team can prove themselves and not have a repeat of what happened during the CSeries project.
Bottom line
While the latest quarter was a surprise, I would be cautious if you’re thinking about buying Bombardier for the long term, as any slip ups going forward could result in a plunge to new lows.
I believe the strong second-quarter rally was warranted and could be the start of a sustained move higher over the short term. However, over the long term, it really comes down to whether or not you believe the management team has learned from their mistakes.
If you’re confident they’ve cleaned up their act, then it may be time to start buying shares as they could easily double from here. Make sure you don’t bet the farm on it though, since an investment in Bombardier is still a very risky proposition.
Stay smart. Stay hungry. Stay Foolish.
