03/01/2012 06:42 EST | Updated 05/01/2012 05:12 EDT

Bombardier posts lower profit in Q4, disappoints Street on margins for 2012

MONTREAL - Shares of Bombardier (TSX:BBD.B) dropped more than nine per cent Thursday after the Montreal-based airplane and train maker's profit margins failed to meet expectations and it announced lower aircraft deliveries than expected.

The widely held stock fell 45 cents, or 9.47 per cent, to $4.30 on the Toronto Stock Exchange in very heavy volume of almost 26.5 million shares.

But president and CEO Pierre Beaudoin told analysts he expects aerospace margins to improve as the year progresses.

"Our EBIT (earnings before interest and taxes) margin will be five per cent and it will be better in the second half of the year than it is in the first half of the year," Beaudoin said during a conference call.

"This is essentially the same guidance we gave last year. We expect significant cash flow from operations in order to fund our $2 billion in new programs and development."

Desjardins analyst Benoit Poirier said he was disappointed with lower margins in the aerospace division since he had estimated them at seven per cent and noted the lower margin will impact Bombardier financially.

"Each one per cent change in margin has a four-cent U.S. impact on EPS," Poirier said in a research note.

"The company has also withdrawn its long-term aerospace margin guidance of 10 per cent."

The drop in Bombardier's stock came after the company reported a lower net income of US$214 million or 12 cents per share for the fourth quarter ended Dec. 31. That's compares with $295 million or 16 cents per share in the year-earlier period.

However, the results reflected a change in the reporting period for Bombardier's aerospace division, which shifted its year-end to Dec. 31 from Jan. 31, shortening the reported quarter by a month. The move brought the reporting period in line with Bombardier's transportation operations, which already report its year-end on Dec. 31.

Quarterly revenues totalled $4.3 billion, down from $5.6 billion in the previous year.

In its outlook, Bombardier Aerospace said it expects to deliver a total of 235 aircraft — 180 business aircraft and 55 commercial aircraft in 2012. Deliveries totalled 245 in 2011, including 163 business aircraft.

CIBC analyst Michael Willemse said he had expected deliveries of 185 business jets and 60 commercial aircraft in 2012.

Willemse also noted the lower profit margin, which he had estimated at 6.25 per cent for 2012, calling it "conservative."

"The better product mix in C2012 (more business jets) should have also suggested higher margins," he said in a research note.

National Bank Financial analyst Cameron Doerksen also said Bombardier's earnings per share were in line with expectations but noted the margin outlook is "disappointing."

"The key disappointment in Bombardier's guidance is its 2012 Aerospace EBIT margin forecast of five per cent, which is well below our 6.5 per cent forecast and likely below most street estimates," Doerksen wrote in a research note.

But he noted that last year Bombardier guided for a five per cent aerospace margin and ended up with 5.8 per cent.

"We had expected a greater proportion of business jet deliveries would boost margins modestly in 2012, but low production rates on regional aircraft and what appears to be a pension expense headwind are weighing on profitability."

Quarterly revenues totalled $4.3 billion, down from $5.6 billion in the previous year.

For the year ended Dec. 31, Bombardier posted net earnings of $837 million or 47 cents per share, compared to $775 million or 42 cents per share in the previous year.

Annual revenues rose to $18.3 billion, compared to $17.9 billion for the year prior.

Bombardier's aerospace division had revenues of $8.6 billion for fiscal 2011, compared to $8.8 billion in 2010, while EBIT totalled $502 million, or 5.8 per cent of revenues, compared to $554 million, or 6.3 per cent.

Bombardier Aerospace's backlog increased to $22 billion as of Dec. 31, compared with $19.2 billion as of Jan. 31, 2011.

The transportation division had revenues that totalled $9.8 billion, compared with $9.1 billion last fiscal year. EBITB amounted to $700 million, or 7.2 per cent of revenues, compared to $651 million, or 7.2 per cent, last fiscal year.