Bombardier Jumps as ‘Vastly Improved’ Cash Flow Buoys Revamp

(Bloomberg) -- Bombardier Inc. jumped the most in almost three months after the company surpassed analysts’ expectations for cash flow and reaffirmed its 2019 forecast, steadying the outlook after a disastrous earnings report three months ago.

Free cash flow reached $1.04 billion in the fourth quarter, Bombardier said in a statement Thursday. That exceeded the $890 million average of estimates compiled by Bloomberg. The maker of planes and trains also stood by its financial targets for this year, which include sales of at least $18 billion and break-even free cash flow, plus or minus $250 million.

“The company’s cash flow performance is vastly improved,” Cam Doerksen, an analyst at National Bank Financial in Montreal, said in a note to clients. Pretax profit “has essentially doubled, and the risk around key program development has largely been retired over the past four years.”

Bombardier’s report stands to boost Chief Executive Officer Alain Bellemare in his effort to regain investor confidence as the company enters the fourth year of a five-year turnaround plan. As Bombardier exits a heavy investment phase in aircraft programs that left it deeply in debt, Bellemare now is attempting to overcome a series of stumbles on high-profile train projects in France, Switzerland, Toronto and New York.

The company’s Class B shares soared 24 percent to C$2.52 at the close in Toronto for the biggest gain since Nov. 19. Bombardier has yet to regain the C$3.19 level it had on Nov. 7, the day before it issued its third-quarter earnings report and a weaker outlook.

The latest quarterly results likely will help Bombardier refinance debt that’s due next year, especially as conditions on the bond market have improved recently, Desjardins Capital Markets analyst Benoit Poirier said in an investor note.

Bombardier has $850 million of debt that matures in March 2020. Chief Financial Officer John Di Bert reaffirmed that the company would like to refinance the bonds early. Bombardier had about $9 billion of long-term debt as of Dec. 31.

Earnings Relief

The fourth quarter is typically Bombardier’s best for cash-flow generation because that’s when a majority of plane and rail-equipment deliveries occur. Still, the results provided a respite from the third quarter, when a weaker outlook prompted the biggest selloff in the stock since 2015.

Bombardier swung back to a profit in the fourth quarter, with adjusted earnings of 5 cents a share. That topped the 3 cent average of analyst estimates. Revenue fell 6.7 percent to $4.3 billion, short of expectations for $4.53 billion.

Business-jet deliveries will probably rise to as many as 155 this year, up from 137 last year, Bombardier said. Demand is benefiting from the December debut of the Global 7500, the company’s biggest-ever luxury plane. Revenue from private aircraft is likely to climb to about $6.25 billion this year from $5 billion in 2018, the company said.

Rail Expectations

Bombardier also said Thursday that it expects to recover working capital through 2019 and “substantially complete” deliveries on most of the rail projects that have resulted in delays. The Montreal-based company is counting on rail, its largest business, to contribute half of the $20 billion in sales targeted for 2020.

Laurent Troger stepped down last week as head of Bombardier Transportation after 15 years with the company. He was succeeded by Danny Di Perna, a former executive at General Electric Co. and United Technologies Corp. who joined Bombardier in August as operating chief for aerospace.

Bombardier’s stake in the rail unit dropped to 70 percent for the year that began Feb. 12, from 72.5 percent a year earlier, because the division fell short of previously agreed performance targets. Caisse de Depot et Placement du Quebec owns a minority of the business under an agreement that adjusts the shareholdings annually depending on performance.

To contact the reporter on this story: Frederic Tomesco in Montreal at tomesco@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Tony Robinson

©2019 Bloomberg L.P.