bombardier

Bombardier makes most of its money from its airplane operations. This is a highly cyclical industry, and the recession has hurt demand for new planes. That’s mainly why Bombardier’s shares are down over 50% from last June’s peak of around $9. However, Bombardier’s passenger-railcar business, while not as profitable, adds stability. The long-term outlook for this division remains bright, particularly as more people move to cities and governments increase spending on public-transit systems. BOMBARDIER INC. (Toronto symbols BBD.A $3.78 and...

BOMBARDIER INC. (Toronto symbols BBD.A $3.78 and
BBD.B $3.65, Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $6.4 billion; Price-to-sales ratio: 0.3; SI Rating: Extra Risk) is the world’s third-largest maker of commercial aircraft, after Boeing and Airbus. Bombardier’s aerospace division supplies about half of its revenue and two-thirds of its profits.

The remaining revenue and earnings come from Bombardier’s transportation division, which controls 22% of the global market. This makes Bombardier the world’s largest maker of passenger railcars and commuter trains. The company sells most of its trains under long-term contracts with large, well-financed customers, such as national railways and municipal transit authorities. This helps offset the cyclical nature of Bombardier’s aircraft business.

Bombardier’s revenue fell from $15.6 billion in 2005 (the company’s fiscal year ends January 31) to $14.8 billion in 2006, but rose to $19.7 billion in 2009 (all amounts except share price and market cap in U.S. dollars). It lost $0.08 a share (or a total of $122 million) in 2005. But thanks to a major restructuring of its railcar business, earnings jumped from $0.11 a share (or $192 million) in 2006 to $0.56 a share (or $1 billion) in 2009.

The recession has hurt demand for new aircraft. In the latest fiscal year, Bombardier delivered 349 planes, down from 361 the previous year. Orders for new planes fell more than 50%, to 367 from 698.

Despite the drop in deliveries, the aerospace division’s revenue rose 2.6% in fiscal 2009, to $10 billion from $9.7 billion the previous year. The gain was the result of higher selling prices for business jets, and increased revenue from repairing and maintaining aircraft. Its gross profit margin (its gross profits as a percentage of its revenue) rose to 9.0% from 5.8%. The division’s $23.5-billion order backlog is equal to 2.4 years of revenue.

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BOMBARDIER INC. (Toronto symbols BBD.A $4.57 and BBD.B $4.50; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $7.7 billion; Price-to-sales ratio: 0.4; SI Rating: Extra risk) has received an order from Germany’s state-owned railway for 800 passenger railcars. The deal is worth $2.1 billion, or 10.5% of Bombardier’s annual revenue of about $20 billion (all amounts except share price and market cap in U.S. dollars). Bombardier’s Transportation division supplies half of its overall revenue, but just 35% of its profit. However, its gross margin (gross profits as a percentage of sales) improved to 5.1% in its latest quarter from 4.2% a year earlier. It also stands to gain from further spending by governments on new public transit infrastructure projects. As well, growing demand for railcars offsets the cyclical nature of Bombardier’s aircraft division. Bombardier is a buy. The subordinate voting ‘B’ shares are the better choice due to their slightly higher dividend yield and liquidity.

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