March 3rd, 2024

Bombardier stock drops even as plane sales, growth forecasts rise amid supply snarls

By Christopher Reynolds, The Canadian Press on February 8, 2024.

A view inside the fuselage of a Bombardier Challenger aircraft under construction is shown at Bombardier's Challenger manufacturing plant in Montreal, Wednesday, April 5, 2023. THE CANADIAN PRESS/Graham Hughes

MONTREAL – Bombardier Inc. shares slid 12 per cent on Thursday after the business jet maker forecast slower-than-expected growth, despite a jump in plane deliveries and profit last year.

While lower than analysts had predicted, the company’s outlook still featured earnings and delivery numbers well above those of 2023 in the face of ongoing supply chain snarls and slumping global demand for business jets, as well as a let-down in November when the federal government opted for rival Boeing Co. in a sole-source deal for military surveillance planes.

The Montreal-based manufacturer churned out 138 of its Global and Challenger planes last year, more than 40 per cent of them in the fourth quarter alone. The total marks its biggest tally since before Bombardier streamlined its business to become a pure-play private jet maker.

“Our team came together to deliver the highest revenues and earnings, record aftermarket revenue and the highest deliveries since we refocused our business in 2021,” said CEO Éric Martel.

For the coming year, Bombardier forecast between 150 and 155 deliveries as it hopes to navigate hold-ups at select suppliers that persist roughly four years after COVID-19 first threw a wrench in the gears of aerospace manufacturing.

“We are facing, clearly, some supply chain challenges,” Martel told analysts on a conference call, saying some planes may be delivered later than initially planned.

“Some of the significant suppliers, I would say, are still in catch-up mode. But we have less issues as a lot of them – the majority of our suppliers – are back on track.

“We are playing with the cards we have,” he said.

Bombardier predicted full-year revenues of between US$8.4 billion and US$8.6 billion. That target sits above last year’s US$8-billion revenue, which amounted to its third straight year of 16 per cent revenue growth.

Martel’s optimism comes despite sagging business jet activity across the globe. Business jet departures decreased by about four per cent last month versus January 2023, while cruising 16 per cent above 2019 totals, according to aviation tracker WingX.

Use of private planes has plateaued since the pandemic highs of 2021 – though it remains well beyond pre-pandemic levels – while mass air travel comes roaring back.

In some corners it’s still on the rise. The two airports handling most private plane traffic in Las Vegas are expecting about 1,100 business jet arrivals – Taylor Swift’s possibly included – for the Super Bowl this weekend, double the number from last year’s game in Glendale, Ariz., said Heidi Hayes, a spokeswoman for the Clark County Department of Aviation, which covers Las Vegas.

Nonetheless, the slower pace left Bombardier’s multi-year backlog at US$14.2 billion, four per cent smaller than its US$14.8 billion backlog from a year earlier. The company’s fourth-quarter book-to-bill – the ratio of orders received to deliveries billed, a key indicator of near-term demand – fell to 0.8, according to Desjardins analyst Benoit Poirier.

The bulk of the increase in plane deliveries this year will be made up of Challengers, which have a lower profit margin than the larger Global planes, he added.

Bombardier also forecast free cash flow of between $100 million and $400 million this year, lower than many analysts expected as the manufacturer plows much of its investment capital into meeting those delivery targets.

“Although we are somewhat disappointed with management’s (free cash flow) guidance for 2024, the company’s Q4 report and 2024 earnings outlook point to steady progress toward its 2025 financial targets,” said National Bank analyst Cameron Doerksen in a note to investors.

“Notably, valuation on the stock seemingly reflects an expectation that the company will fall well short of its 2025 targets despite a backlog which provides visibility on earnings and cash flow growth through 2025 and end-market conditions that remain generally healthy.”

Bombardier’s share price fell $6.12 or nearly 12 per cent to $45.99 by early afternoon on the Toronto Stock Exchange.

In the quarter ended Dec. 31, greater jet purchases and aftermarket work – maintenance and repair, for example – helped propel Bombardier’s revenues to US$3.06 billion, a 15 per cent leap from US$2.66 billion in the same period the year before.

Bombardier’s defence segment also had a “banner year,” Martel said, despite a setback in its home country.

Last month, it won a U.S. army contract to supply up to three Global 6500 business jets for conversion into a spy plane prototype.

The announcement came less than six weeks after the Canadian government rejected Bombardier’s pitch for an open bid to replace the air force’s aging patrol planes, with the contract going to Boeing instead.

The manufacturer also continued to lighten its still-heavy debt load, paying down US$400 million throughout 2023 to reduce its adjusted net debt to earnings ratio to 3.3. The number notched a 28 per cent improvement from 2022 and comes closer to the generally accepted target of three or lower.

“We are still planning to shave another billion dollars, roughly, from our debt between ’24 and ’25,” Martel said. The company had US$5.61 billion in long-term debt as of Dec. 31.

Bombardier reported that fourth-quarter profit fell by 11 per cent to US$215 million from US$241 million in the same three months a year earlier.

On an adjusted basis, the company earned US$1.37 per share in the quarter, down from an adjusted profit of US$2.10 per share a year earlier and roughly in line with analyst expectations, according to financial markets data firm Refinitiv.

For the full year, Bombardier reported net income of US$445 million, compared with a net loss of US$148 million in 2022.

This report by The Canadian Press was first published Feb. 8, 2024.

Companies in this story: (TSX:BBD.B)

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