May 2, 2019
By Allison Lampert and Arathy S Nair
(Reuters) – Canada’s Bombardier Inc will face pressure from skeptical investors at an annual meeting on Thursday about whether the plane-and-train-maker’s turnaround plan is still on track as its transportation division grapples with delayed rail contracts.
Investors were rattled when Bombardier last week lowered its first-quarter and full-year revenue targets for the transportation division, its largest unit, raising concerns over whether Bombardier will still meet its 2020 targets of boosting margins and generating $20 billion in revenues.
The rail division, which is expected to generate $10 billion next year, is crucial to Bombardier’s five-year turnaround plan, after heavy investment in aircraft production drove it to the brink of bankruptcy in 2015.
Bombardier’s surprise decision to slash its full-year revenue forecast by almost 8 percent to about $8.75 billion was blamed largely on five delayed contracts, mostly in Europe.
On Wednesday, Swiss Federal Railways said Bombardier was making progress on one of those contracts, a long-delayed 1.9 billion Swiss franc ($1.87 billion) order.
Some investors questioned Bombardier’s credibility in changing its financial guidance following a recent debt raise.
“The concern, particularly after the March debt raise, is whether management remains committed to its longer term 2020 guidance,” said Toronto-based AltaCorp analyst Capital Chris Murray by email.
“We expect that during that process, the company had reiterated prior 2019 guidance, which it changed last week, adding to concern on the part of bondholders.”
A Bombardier spokesman declined to comment and said management would address questions at the meeting.
One fixed-income strategist who spoke on condition of anonymity said it was a “misleading move to market this lead at the end of February to early March when you obviously knew how your numbers were going to look.”
The yield on Bombardier’s 7.875 percent April 2027 U.S. dollar bond, which was issued on March 7 and has $2 billion outstanding, traded on Wednesday at 7.6815 percent, up about 43 basis points since April 24.
Bombardier is still expecting improved free cash flow, a metric closely-watched by investors.
While Bombardier management will likely face frustration from investors, “issues they have had over the past few months are nothing relative to the issues they had in 2015,” said Michael Willemse, senior research analyst at Taylor Asset Management, a top 10 Bombardier shareholder according to Refinitiv Eikon data.
(Reporting By Allison Lampert in Montreal and Arathy Nair in Bengaluru Additional reporting by Fergal Smith in Toronto; Editing by Tom Brown)