Bombardier Tumbles as New Rail Woes Force Cut to Outlook

(Bloomberg) -- Bombardier Inc. plunged to an eight month-low after new costs in its troubled rail-equipment division forced the company to cut its 2019 financial forecasts.

Additional outlays of as much as $300 million are needed to complete late-stage train projects and meet delivery schedules, Bombardier said in an earnings release Thursday. The company predicted free cash flow usage of $500 million, burning at least twice as much as its previous forecast.

Bombardier is struggling to right its rail business, which already prompted the company to reduce its 2019 outlook in April. The latest woes are marring Chief Executive Officer Alain Bellemare's effort to turn matters around by exiting commercial-aircraft manufacturing to focus on making private jets and trains.

“This transformation now appears to be in extra innings,” Credit Suisse analyst Robert Spingarn said on a conference call.

The shares dropped 12% to C$1.99 at 11:44 a.m. in Toronto after tumbling to C$1.78, the lowest intraday since November. Bombardier advanced 12% this year through Wednesday, trailing the 22% gain of a Standard & Poor's index of Canadian industrial stocks.

Bombardier's $2 billion of 7.875% bonds due 2027 traded as low as 97.5 cents, the lowest since June 4, according to Trace prices.

More Risk

The company can't rule out additional risk to its train-delivery timetable, Chief Financial Officer John Di Bert said on the call. Bombardier has made high-profile stumbles on transit projects in New York and Toronto and on a railroad contract in Switzerland.

Analysts expressed frustration as executives side-stepped whether Bombardier will meet margin targets or generate positive free cash flow in the near term.

“Why should anybody believe this is an 8% margin business sustainably?” asked Noah Poponak, an analyst at Goldman Sachs. “What's to say there won't be more contracts that are a problem three years from now?”

Bellemare asserted that Bombardier's fundamentals are solid. Di Bert said he was confident the company would generate sustainable earnings and cash flows but didn't make a guarantee for 2020.

Bombardier pared its 2019 revenue to between $16.5 billion to $17 billion from no less than $17 billion previously.

The Montreal-based company said it would consolidate its three aerospace units into a single one called Bombardier Aviation, focused on making private jets.

The maker of trains and planes recently sold its turboprop operation to De Havilland Aircraft of Canada Ltd., and agreed to sell its CRJ regional-jet business to Mitsubishi Heavy Industries Ltd. Last year, it handed control of its C Series jetliner program to Airbus SE, which renamed the aircraft the A220.

--With assistance from Sandrine Rastello and Paula Sambo.

To contact the reporters on this story: Jack Pitcher in New York at jpitcher2@bloomberg.net;Esteban Duarte in Toronto at eduarterubia@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Tony Robinson

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