Bombardier turns annual profit for first time in 5 years as train woes continue

Christopher Reynolds, The Canadian Press</span>
Published Thursday, February 14, 2019 6:56AM EST
Last Updated Thursday, February 14, 2019 11:20AM EST

MONTREAL -- Bombardier Inc. turned a profit in 2018 for the first time in five years as it ramped up train revenues despite several project derailments and lower-than-expected margins.

The mixed rail results prompted Bombardier to decrease ownership of its train business, which is its highest-grossing division, by 2.5 per cent to 70 per cent.

That means further delay of the Montreal-based company's buyback of the Caisse de depot's now-30 per cent stake -- valued at more than US$2 billion -- in the rail segment.

Chief executive Alain Bellemare acknowledged there are a half-dozen train projects "that have been a drag," but said that "there's no systemic issue here."

"I understand it's creating disappointment," he added.

Bombardier's train unit raked in US$8.9 billion of the company's US$16.2 billion in revenues in 2018, with a margin of 7.7 per cent on earnings before interest and tax, below last year's 8.4 per cent and the 8.9 per cent expected by Desjardins Securities.

Fourth-quarter rail revenues dropped 10 per cent year over year to US$2.16 billion.

Delays and repair problems have plagued Bombardier train contracts over the past decade.

Earlier this month, Metrolinx announced it would impose financial penalties on the company after it delivered only half of a promised six vehicles for Toronto's Eglinton Crosstown LRT by deadline.

Last month, three international public transit agencies opted to stop taking trains from the company until it fixes the ones already in service.

Swiss Federal Railways (BB) cited doors that don't close properly, putting the brakes on deliveries under its US$1.9-billion contract for 62 trains.

"SBB is the most complex project that we have right now under our watch," Bellemare told analysts on an earnings call Thursday.

"We have been facing some fleet and production issues, but nothing abnormal."

Nonetheless, Bombardier and SBB apologized to passengers this week as the vehicles failed to live up to expectations.

Bombardier's Berlin-based train division has made 176 of 460 cars in the order, Bellemare said, with deliveries likely to resume mid-year, according to chief financial officer John Di Bert.

The New York City Transit Authority and the French National Railway Company also halted train car deliveries last month over quality issues. New York resumed deliveries in late January.

Bombardier announced a leadership shakeup at the troubled train unit last week, naming Danny Di Perna as the new head to replace Laurent Troger, who took on the role in December 2015.

The abrupt announcement came as Bombardier enters the final two years of a five-year turnaround after the company sold a majority share of its C Series commercial aircraft program to Europe's Airbus in July, turning its focus to higher-yielding business jets as demand for the jetliners gains elevation.

The company's shares were up 11 per cent to $2.27 in mid-morning trading.

Bombardier said it pocketed a net income of US$318 million in 2018, compared to annual losses that ranged from US$525 million to US$5.34 billion in the four preceding years.

The company, which keeps its books in U.S. dollars, said it earned a fourth-quarter profit of $55 million compared with a loss a year ago.

The profit amounts to two cents per diluted share for the quarter ended Dec. 31, Bombardier said. That compared to a loss of $188 million or nine cents per share a year earlier.

Revenue totalled $4.30 billion for the last three months of 2018, down from $4.61 billion in the final quarter of 2017.

On an adjusted basis, Bombardier said it earned five cents per share for the quarter compared to an adjusted loss of two cents per share a year ago.

Analysts on average had expected a profit of two cents per share for the quarter, according to Thomson Reuters Eikon.

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