Bombardier Inc (BBDb.TO) on Thursday reported a sharp increase in capital spending, sparking concern about the company's cash burn rate as it continues to pour money into its CSeries aircraft program.
The cash burn, combined with weaker-than-expected quarterly results, sent shares of the Canadian aircraft and train maker into a tailspin. Shares sank over 8 percent before paring losses to close the day down 5.9 percent at C$4.15.
Bombardier is spending billions to develop the CSeries, a high tech narrow-body plane to compete with smaller passenger jets from Boeing Co (BA.N) and Airbus Group (AIR.PA). The program has been delayed four times and costs have climbed.
Bombardier said its free cash flow use rose more than 35 percent in the first quarter to $915 million from $590 million a year ago, causing some concern among equity analysts and shareholders. The company however, attempted to allay those fears on a conference call.
"We don't anticipate to have to go back to any sources to increase our liquidity. We have ample liquidity to meet our plan," said Chief Executive Officer Pierre Beaudoin, reaffirming the company's full-year capital expenditure forecast of between $1.6 billion and $1.9 billion. "We don't think we need to borrow government money on this program, that's already been done."
Some debt market analysts concur that the company remains on a solid financial footing.
"The company used significantly more free cash flow in Q1 than the street was expecting and that seems to have immediately shifted concerns to liquidity for certain investors," said Citi's Credit analyst Manish Somaiya.
He added that liquidity was strong and noted little change in Bombardier's bond prices, however, with cash flow likely to improve over the coming months, "I don't see a need for the company to do another bond issue," Somaiya said.
Montreal-based Bombardier said it had short-term capital resources of $3.9 billion, including cash and cash equivalents of $2.5 billion as of March 31. Last month, Bombardier issued $1.8 billion in notes, with some proceeds going to refinance about $1.3 billion of existing debt.
Beaudoin reiterated the company's expectation it will reduce investment spending as the year progresses and have good cash flow by the fourth quarter, a typically strong delivery period.
"The cash burn has been a topic of concern for some time," said Raymond James Ltd analyst Steve Hansen. "They've done a good job at assuaging some of the concerns here over the short term, although whenever you see a headline number as large as it was in the quarter, it probably brings those concerns back to the surface."
Bombardier posted lower-than-expected first-quarter revenue, which some analysts attributed in part to weaker pricing in business aviation. Revenue in the aerospace unit fell 9 percent to $2.1 billion, while sales in the transportation business rose nearly 10 percent to $2.3 billion.
Total revenue rose about 2 percent to $4.35 billion, but fell short of the average analyst estimate of $4.58 billion, according to Thomson Reuters I/B/E/S.
Bombardier said it was making progress with the CSeries, with 280 hours of flight testing so far. The fourth test plane is expected to complete its first flight in the coming weeks.
The CSeries has 203 firm orders so far and Beaudoin said he was "very confident" it will reach its target of 300 firm orders by the time the first plane enters service.
Bombardier Aerospace's backlog totaled $38.5 billion compared to $37.3 billion at the end of December. Order backlog in the transportation business totaled $38.4 billion, up from $32.4 billion.
The company delivered a total of 56 aircraft in the quarter, compared to 53 a year earlier. Bombardier, which announced in January it would cut 1,700 aerospace jobs, said it has downsized by about 1,430 and that rest of the cuts would occur over the next couple of quarters.
The company's net income fell to $115 million, or 6 cents per share, in the quarter, from $148 million, or 8 cents per share, a year earlier. Excluding one-time items, Bombardier earned 8 cents per share, in line with the analysts' estimates.
(Additional reporting by Euan Rocha, Natalie Harrison and Narottam Medhora; Editing by Meredith Mazzilli, Leslie Adler and Tom Brown)