Aerospace industry expects to boost profit
TORONTO (Dow Jones)--Net income for Canada's aerospace companies is expected to climb, tracking industry sales, which are forecast to rise about 14% this year.
Canadian aerospace industry sales are expected to hit C$15.3 billion in 1998,
up from C$13.4 billion in 1997, according to a survey of aerospace companies by
the Aerospace Industries Association of Canada. In 1997, sales were up 8% from
1996.
The association also said Canada is expected to have the fifth-largest
aerospace industry in the world in 1998, advancing one position from 1997.
Daniel Verreault, the association's vice-president of policy and research,
said the outlook for the industry is "tremendous."
The industry's order backlog rose to C$18.4 billion in 1997, compared with
C$15.3 billion in 1996, supporting the forecast of future growth.
The outlook for individual companies is also good, with CAE Inc. (T.CAE),
Bombardier Inc. (BBD.A), Magellan Aerospace Corp. (T.MAL) and Spar Aerospace Ltd. (T.SPZ) all expected to report improved earnings.
Bombardier's outlook is good not because of any one project but because of
the continuing good job the company is doing, especially in its aerospace
division, said Don Odgen, an analyst at Brink, Hudson & Lefever Ltd.
Bombardier has also received a number of orders on the transportation side,
Odgen said, citing a July 31 announcement that Amtrak would exercise its option
under a March 1996 agreement for an additional C$51 million of trains from the
Bombardier Alsthom consortium.
Although the market for Bombardier's Sea-Doos, or personal watercraft, is
weak, Bombardier is continuing to develop new consumer products, like the
neighborhood electric vehicle and an all-terrain vehicle. These moves
illustrate the company's "drive to introduce new products and innovations,"
Odgen said.
For Bombardier's second quarter ended July 31, First Call's mean estimate is
for net of 17 Canadian cents a share, up from 12 Canadian cents a share a year
earlier. The company is expected to release its second-quarter results on Aug.
24.
Analysts are looking for CAE Inc. (T.CAE) to continue enjoying increases in
net income in fiscal 1999 compared with a year earlier. The company recently
acquired Newnes Machine Ltd. of Salmon Arm, B.C. and McGehee Equipment Co., of
Ukiah, Calif. for about C$100 million. The two companies provide
high-technology equipment and systems for the lumber industry.
The two companies have complementary technologies which allow sawmills to cut
more clear wood - wood without knots and blemishes - than without the
technology, said Robert Waite, vice-president of corporate relations and
marketing at CAE.
The acquisitions don't represent a completely new direction for CAE, which
already provides advanced pulp screening technology.
Tony Yue, an analyst with Brink, Hudson & Lefever Ltd. said the acquisitions
make sense because they have better growth potential than CAE's flight
simulation business does. Yue explained that the simulation market will
continue to be healthy, but won't expand as much as it has in the past.
Waite said the simulation market is expected to grow at an annual rate of 5%
to 10% over the next five to 10 years, compared with an annual growth rate of
20% for the high-tech lumber market.
Only about a dozen sawmills of the 500 large ones in North America are
currently using the technology, which gives CAE a "tremendous opportunity for
growth," Waite said.
But CAE will still be active in the aerospace industry, with about 65% of its
revenues for the year ending March 31, 1999 expected from the flight simulation
segment, about 25% from its lumber and cleaning operations and the remaining
10% from its marine and energy control systems.
First Call's mean estimate for CAE's first quarter ended June 30 is for net
income of 11 Canadian cents a share, compared with 7 Canadian cents a share a
year earlier.
For CAE's fiscal 1999, First Call's mean estimate is net of 76 Canadian cents
a share, compared with 67 Canadian cents in fiscal 1998. Waite said the new
acquisitions are expected to add about 5 Canadian cents to 6 Canadian cents to
the annual results, and that this increase is already included in the First
Call estimate.
Earnings from the acquisitions will start being seen in the second quarter
and won't affect CAE's first-quarter results, which are scheduled to be
released Thursday morning, he said.
Magellan Aerospace Corp. (T.MAL) is also expected to post higher earnings
when it reports its second-quarter results later this month. First Call's mean
earnings estimate for the quarter is 11 Canadian cents a share, up from 5
Canadian cents a year earlier. The year-earlier period doesn't include results
from Bristol Aerospace Ltd., which Magellan acquired for C$62.5 million in July
1997 from Rolls-Royce Industries Canada.
Magellan's stock has fallen slightly recently, from the C$10 range in May to
about C$7.50 currently. Glynn Williams, an analyst with Newcrest Capital Corp., links the decline to the Toronto market's overall slide, rather than to any corporate developments.
Williams said Magellan's acquisitions are working out well. In addition to
Bristol, Magellan also acquired Ambel Precision Manufacturing Corp. in June
1998 and Chicopee Manufacturing Ltd. in May 1998.
Spar Aerospace Ltd. (T.SPZ) is expected to turn a profit for the second
consecutive quarter, continuing to recover after an "unsatisfactory" year in
1997.
For the first quarter of 1998, Spar earned 6 Canadian cents a share. The
company is expected to better that in the second quarter, with First Call
having a mean earnings estimate of 10 Canadian cents a share.
Spar expects to include a gain in its second quarter in connection with the
sale of its Prior Data Sciences software subsidiary to a consortium led by
Royal Bank Capital Corp. and CIBC Capital Partners for C$15 million in cash.
In the second quarter of 1997, Spar had net from continuing operations of 72
Canadian cents a share, which included a favorable income tax adjustment of 83
Canadian cents a share.
-By Mary Weil; 416-943-7808
(END) DOW JONES NEWS 08-05-98
01:33 PM
[A shorter version of this article also appears in today's Globe and Mail - Report on Business.] |
