(The Montreal Gazette published the following story by Nicolas Van Praet on its website on August 28.)
MONTREAL — Three months ago, newly minted Bombardier Inc. chief executive Paul Tellier said he was unhappy about the plane and train maker’s results, and shareholders deserved better.
Yesterday, he gave them a $93.2- million, 5-cents-a-share second-quarter net profit to cheer about and pulled off a $1.225-billion sale of the company’s snowmobile unit.
Revenue stood solid at $5.3 billion for the three months ended July 31, the same as the year-earlier period.
Bombardier, Tellier said, is back on track.
Some analysts warn that Bombardier’s airline customers are far from nursing themselves back to health and corporate leaders are far from resuming significant spending on the private jets it builds.
Profits at Bombardier’s train-making unit have also yet to climb in any major way, falling about 4 per cent during the quarter.
The company’s aerospace profit margin was less than one per cent.
But compared with the recent tumultuous past, which has seen credit agencies cut the company’s debt ratings to the lowest investment grade and 3,000 aerospace workers turfed as Bombardier swam in red ink last year, things are looking better for the transportation titan. It actually delivered 85 aircraft during the quarter, 11 more than during the year-earlier period.
“I don’t want to brag about this but … if I’m not mistaken, we are the only manufacturer in the business which has not reviewed downward its forecast in terms of deliveries for this year,” Tellier said.
“We are confident that our backlog will keep on improving.”
Bombardier yesterday also took one of the final steps in its $2.3-billion recapitalization, announcing it sold its Recreational Products division for $1.225 billion.
The buyer is a consortium of the Bombardier family, U.S. investment house Bain Capital, and the Caisse de dépôt et placement du Québec. Recreation Products makes Ski-Doo snowmobiles as well as personal watercraft, boat engines and all-terrain vehicles.
Tellier, former chief executive of Canadian National Railway Co., took the reins of Bombardier from Robert Brown in January as Bombardier fought desperately to boost its sunken share price and restore investor confidence.
Over the past several months, Tellier has led Bombardier in selling $1.2 billion worth of stock, changing its accounting practices and auctioning off its Belfast airport operation, its military service unit, as well as the bulk of its business-aircraft loan-financing portfolio.
The sale of the recreation-products division will improve the company’s debt-to-equity ratio, Tellier said.
Bombardier’s earnings yesterday matched the average estimate of eight analysts. Some analysts said the company’s credit rating could soon climb back up a notch. Moody’s and Standard & Poor’s both rate Bombardier’s debt at one level above junk status.
“What matters most (to the ratings agencies) is for us to execute our plan, and therefore the announcement of the sale of the recreational-products business is another major plank in that platform,” Tellier said.
Bombardier has to work hard to climb back to its historical net-profit margins of around 3.5 per cent, said Pierre-Yves Terrisse, who tracks the company for Desjardins Securities.
“They’re in a turnaround. But we’re still far from those margins.”
Tellier said Bombardier could seek to cut costs by outsourcing more work and renegotiating with suppliers.
He said finding financing for Bombardier’s customers remains the most serious challenge going forward. The federal government recently freed up $1.2 billion worth of loans at market rates that will help Bombardier finance its plane sales. Bombardier officials have also approached the government of Ontario to provide financing, Tellier said.
Investissement Québec, the provincial government’s financing arm, is in talks with Bombardier about further loan guarantees. Since 1996, Quebec has authorized up to $976 million in guarantees to Bombardier clients.
Bombardier shares rose 36 cents yesterday to close at $5.38 in Toronto.