2 Dec 2003 14:04 ET =DJ Investors Wary Ahead Of Bombardier 3Q Report >BBD.B.T
By Monica Gutschi
Of DOW JONES NEWSWIRES
TORONTO (Dow Jones)--Bombardier Inc. (BBD.B.T), recently battered by bad news that has driven its shares to 15-week lows, may deliver more to weary investors tomorrow.
"We believe results could disappoint," Desjardins Securities analyst Pierre-Yves Terrisse said in a research note.
The aerospace giant is to release third-quarter financials Wednesday. Analysts expect net of 6 Canadian cents a share, according to a Thomson First Call mean estimate. Bombardier reported net of 15 Canadian cents a share in the year-ago quarter.
In Toronto Tuesday, Bombardier shares are down 1 Canadian cent to C$4.99 and are trading this week at their lowest level since mid-August.
"It's quite likely that the market is unduly pessimistic here," said Elvis Picardo, analyst at Global Securities Corp. in Vancouver. "Presuming there are no major bombshells in the earnings announcement, I think you could see some rebound in the stock."
Bombardier shares have dipped by about 20% since mid-October, when the company announced it was consolidating production of its Lear and Challenger jets. Analysts took that as confirmation the outlook for the key high-margin business jet division remains flat.
The growing presence of Brazilian competitor Empresa Brasiliera de Aeronautica (ERJ), or Embraer, in the U.S. regional jet market, has also dimmed the company's outlook and many analysts believe Bombardier may have to cut production next year as orders fizzle.
Meanwhile, the departure of Pierre Lortie, head of the Transportation division, has raised red flags, as did Bombardier's announcement that it is restating financials for its Recreational Products division from last year. There have also been reports the sale of the Recreational Products division may occur at less than the expected C$1.225 billion price.
All of these issues have investors wary, Picardo said, and analysts will be looking for guidance from the company.
But he believes that while, third-quarter earnings are expected to be well below last year's, there are signs the company's turnaround is nearly complete.
Transportation Division Now Tellier's Focus
Chief executive Paul Tellier took over the helm of the industrial giant nearly a year ago, with a mandate to shore up the company's weak financials and pare down debt.
Analysts say the focus of Tellier's attention has been the aerospace division, and they're forecasting a small upswing in margins there to reflect cost-reduction initiatives. But until business jet sales begin climbing, they don't see a significant increase in profitability.
Tellier is now seen shifting his attention to Transportation, where margins are still well below the 7% goal. Analysts say cost-cutting in the rail and rolling stock division will be more difficult, given European labor laws, capital costs and other factors.
Desjardins, which forecast third-quarter net of 8 Canadian cents a share, believes Lortie's departure from Bombardier Transportation could augur poorly for results from that division.
And BMO Nesbitt Burns analyst Claude Proulx noted last week that Lortie's loss could be a sign that cost-cutting initiatives "aren't occurring as fast as expected."
Dlouhy Merchant analyst Cameron Doerksen said in a recent note that "given the lack of progress in improving margins, we expect this division will become a focus for improving operations over the coming months."
Picardo said that, while Lortie's departure could point to disappointing margins, it could also mean Tellier is planning "sweeping changes" for the division.
As for Recreational Products, analysts said investors are anxious to see the deal close at its January 2004 deadline and at the announced price. Robert Fay at Canaccord Capital noted that "there are concerns about the terms and conditions of the deal."
Neither Picardo nor Doerksen owns Bombardier shares nor do their firms have investment-banking relationships with the company. It was unclear whether Terrisse or Fay owned Bombardier shares or whether their firms have investment-banking relationships with the company.
Company Web Site: bombardier.com
-Monica Gutschi, Dow Jones Newswires; 416-306-2017; monica.gutschi@dowjones.com
(END) Dow Jones Newswires
December 02, 2003 14:04 ET (19:04 GMT) |
