Bombardier Inc.’s fourth-quarter results are unlikely to supply much comfort to investors still hanging on after the shares’ plunge into penny-stock territory last month.
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Analysts believe the company could report a “significant” decline in year-over-year aircraft deliveries and net orders if this releases earnings on Wednesday, missing its very own guidance as it struggles with a weak market for business jets as well as an ongoing order drought for its CSeries jetliner.
And Bombardier’s outlook for 2016 isn’t expected to be much better. The organization acknowledged at its investor day in November that this year would be a “transition year,” with lower revenue and earnings because the company begins an extensive cost-cutting program.
As an effect, the business’s liquidity levels is going to be “the key metric for that quarter,” RBC analyst Walter Spracklin said in a recent note to clients.
Since it last reported earnings, Bombardier has secured two cash injections which will bolster its balance sheet as it struggles to find buyers for that beleaguered CSeries.
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The Quebec government invested US$1 billion in the CSeries in exchange for a 49.5 percent stake in the program, while the province’s pension fund purchased a 30 per cent stake in the company’s train-making business for US$1.5 billion.
The authorities can also be mulling over a request additional educational funding, but no decision has been created.
These investments can help boost Bombardier’s liquidity position to US$6.2 billion, based on Spracklin, but the company is constantly on the burn through cash because it ramps up manufacture of the CSeries. Simultaneously, a slowdown in demand for business jets is weighing on revenue and margins, and also the company hasn’t booked a brand new firm order for the CSeries in several months and a half.
Macquarie Research analyst Konark Gupta said his firm’s proprietary studies show that Bombardier delivered a total of 75 aircraft within the fourth quarter, well underneath the company’s guidance of 99 deliveries.
“If our tracking turns out to be accurate, there could be material downside risk to the (fourth quarter) revenue and EBIT margin estimates,” Gupta said in a note to clients.
The company also cancelled 24 business jet orders in the quarter, worth US$1.75 billion, with the hope of reselling them in a higher margin.
For investors, this may be a red alert so far as in-production aircraft is concerned.
As a result, Gupta expects that Bombardier recorded zero net aircraft orders in the fourth quarter, causing its backlog for in-production aircraft to fall 34 percent “even just in the best-case scenario.”
“For investors, this could be a red alert so far as in-production aircraft is concerned,” he wrote.
Possibly the only real tailwind in the quarter can come from the weak loonie, according to National Bank analyst Cameron Doerksen. Since the company’s aerospace revenue is principally in U.S. dollars and its costs are mostly in Canadian dollars, “an inadequate Canadian dollar is clearly positive,” he wrote.
Doersken estimates that Bombardier’s aerospace costs will fall by US$288 million in 2016 if the current exchange rate holds.
However, before the company can book more orders the share price continues to languish, Spracklin said.
“Bombardier shares continue being overwhelmed due to the lack of visibility – both in relation to end-market demand and strategic direction of the company,” Spracklin wrote.
“This has created a disconnect between the current share price and the fundamental value of Bombardier’s base business.”
kowram@nationalpost.com
Twitter.com/kristineowram
