(Updates with downgrades from S&P and Moody's, details on
CSeries flight tests, stock movement)
By Susan Taylor
TORONTO Feb 13 Bombardier Inc
reported a quarterly profit that fell well short of expectations
on Thursday and cut its 2014 earnings forecast as it spends
heavily on developing its new CSeries jetliner, news that
spurred downgrades of its credit rating and pushed its shares
The Montreal-based plane and train maker is spending
billions to develop the CSeries, a high tech narrow-body plane
that will compete with smaller passenger jets made by Boeing Co
and Airbus Group, but the program has been
delayed four times and costs are rising.
Bombardier said on Thursday it was increasing the price tag
for the CSeries by $1.05 billion from its original estimate of
$3.4 billion: $750 million for tooling and $300 million in
As well as the CSeries costs, fourth-quarter results at
Bombardier's plane division were weighed down by tough
competition in the commercial jet market and sales of low-margin
sales business jets, executives said on a conference call.
RBC Capital Markets analyst Walter Spracklin said the
quarter was weak "on many different levels," with free cash flow
and spending in the aerospace unit of particular concern.
Fadi Chamoun, an analyst at BMO Capital Markets, also raised
a flag about cash resources, which he said were "not at a
comfortable level" at around $3.4 billion.
"Although expectations were muted going into the quarter
and the stock has sold off in recent weeks, we expect Bombardier
to come under pressure today," he wrote in a note.
Bombardier shares, which fell nearly 15 percent during the
trading session, closed down 8.9 percent at C$3.68 on the
Toronto Stock Exchange, their lowest level since December 2012.
Moody's Investors Service downgraded its rating on the
company's debt to "Ba3" from "Ba2", while Standard & Poor's
downgraded its rating to "BB-" from "BB" as a result of
Bombardier's higher than expected cash consumption.
S&P noted Bombardier's negative free operating cash flow of
about $1 billion in 2013 and said it expected the negative flow
to persist in 2014.
The company's fourth-quarter revenue rose 15 percent to
$5.32 billion, ahead of analysts' average estimate of $5.05
billion, according to Thomson Reuters I/B/E/S.
However, a 16 percent increase in the cost of sales cut
gross margins to 11.8 percent from 12.4 percent a year earlier.
Bombardier reported net income of $97 million, or 5 cents
per share, for the quarter ended Dec. 31. In the year-before
quarter it posted a loss of $4 million, or 1 cent a share,
mainly due to a charge of $119 million related to a plant
closure and jobs cuts in its rail business.
Excluding items, the company earned 7 cents a share in the
latest quarter, below analysts' average estimate of 11 cents.
Bombardier said it expects margins on earnings before
financing expenses, financing income and income taxes (EBIT) for
its aerospace division to be 5 percent in 2014, down from its
previous target of about 6 percent.
Capital spending in the aerospace division will be in a
range between $1.6 billion and $1.9 billion this year and $1.2
billion and $1.5 billion in 2015, Bombardier said.
The company said it expects an EBIT margin of about 6
percent in its rail unit in 2014, but will keep an 8 percent
target, though it did not set a timetable for reaching that
Bombardier said it expects a mid-single digit percentage
growth in the rail unit's revenue, excluding currency impact, in
2014. Revenue at the rail unit rose 12.6 percent in 2013.
The company said initial ground- and flight-test performance
results for the CSeries were in line with the company's
expectations. Executives said CSeries test planes have flown
about 100 hours.
Two of the five flight-test planes for the smaller CS100
CSeries model have flown so far, with the third one ready to fly
in the coming weeks. The larger CS300 model will have two test
Last month, Bombardier warned that the CSeries would not go
into commercial service until the second half of 2015, the
latest in a string of delays that has pushed back the plane's
entry into service by 18 to 24 months.
(With additional reporting by Ashutosh Pandey in Bangalore, and
Alastair Sharp and Solarina Ho in Toronto; Editing by Maju
Samuel, Savio D'Souza and Peter Galloway)