BUSINESS

Bombardier tells shareholders that investments will pay long-term dividends

05/10/2012 06:20 EDT | Updated 07/10/2012 05:12 EDT
MONTREAL - Bombardier tried to reassure investors Thursday that investments in a series of new planes and trains will eventually improve the manufacturer's lagging share price.

"I think we're doing what we need to do to increase the value to shareholders — that is to invest in growth products for the future," CEO Pierre Beaudoin said after the annual meeting.

He said the Montreal-based transportation giant will be a very different company in five years after revenues ramp up on development projects for the CSeries, Learjet 85, Global 7000/8000 and high speed Zefiro train.

The CSeries is expected to generate US$5 billion to US$8 billion in additional revenues.

Bombardier's shares gained 7.3 per cent in Thursday trading, rising 27 cents to C$3.96 on the Toronto Stock Exchange. But they have lost 42 per cent of their value over the past year and have not exceeded $10 in nearly a decade.

The stock price prompted one shareholder to question how Beaudoin can justify his $8.2-million compensation when investors have seen their investment plummet.

He said projects unfortunately take a few years to add revenue.

"We're in the investment phase now and I have good confidence that as the revenues come up from these new products and of course profitability will follow, that our share price should follow that."

Bombardier missed expectations Thursday as its profit dropped nearly 14 per cent to US$190 million in the first quarter on a 25 per cent decrease in aerospace and transportation revenues.

Reporting in U.S. dollars, it earned 10 cents per share for the period ended March 31. That compared with a profit of $220 million, or 12 cents a share, in the same period a year ago.

Revenues were $3.5 billion, down from $4.7 billion last year.

Adjusting for one-time costs and a lower tax rate, the profit was about eight cents per share in the quarter this year.

Bombardier (TSX:BBD.B) was expected to earn 10 cents per share in adjusted earnings on $4.56 billion of revenues, according to analysts polled by Thomson Reuters.

But Beaudoin said the first-quarter results came in as anticipated.

Aircraft deliveries fell to 37 aircraft compared with 61 last year. It received 68 net orders, compared with 86 for the three-month period ended April 30, 2011.

Buyers have been cautious, but the market for business jets, especially larger models like Global and Challenger, is recovering.

Problems with updates to its Vision Flight Deck delayed Global aircraft orders in the quarter, causing Bombardier to lose its top ranking to Gulfstream.

Bombardier delivered 29 business jets valued at US$818.5 million, compared with 19 planes valued at US$860.8 million by its U.S. rival, according to the General Aviation Manufacturers Association.

The smaller aircraft segment has been under pressure during the recession, but Bombardier said it could benefit from the Chapter 11 bankruptcy filing by Hawker Beechcraft.

"The fact that they are in financial difficulties gives us a certain advantage, that's clear," said Bombardier Aerospace president Guy Hachey.

Asked if Bombardier could acquire parts of the company, he said it is "very satisfied" with its current portfolio. The new composite Learjet 85 is scheduled to enter into service next year.

Hachey said it has enough Learjet orders for its current production rate.

Production rates for commercial aircraft are set for this year, but it needs more orders to maintain levels in 2013.

Bombardier said 2012 promises to be exciting with the maiden flight of the CSeries planned for this year and delivery of the first plane a year later.

Beaudoin is confident the company can meet its targets despite the problems that surface on such a complex endeavour.

The aerospace division earned $91 million on $1.5 billion of revenues in the quarter. That compared to $141 million on $2.2 billion of revenues last year.

The railway division earned $124 million on $2 billion of revenues in the quarter, compared with $171 million on $2.5 billion of revenue in the prior year.

Cameron Doerksen of National Bank Financial said the results had largely been expected and were built into the stock price.

He raised his rating for the stock to outperform with a C$5 price target, after lowering it earlier in the year over concerns about a weak first half of the year.

"Our thesis has turned out to be correct, but we now believe that the shares are reflecting an overly negative view," he wrote in a report.

Note to readers: This is a corrected story. An earlier version said net revenue in paragraph 1 instead of net income