Bombardier said aircraft deliveries will dip in 2012 and the world's third biggest commercial plane maker forecast lower than expected profit margins for its key aerospace unit.
The Montreal-based plane and train maker, which faces sluggish demand for its regional jets, said higher costs will hurt its margins, including a USD$100 million hit from a stronger Canadian dollar and further USD$100 million for pension expenses.
"A lot of focus will be on aerospace margin guidance of 5 percent," said Canaccord Genuity analyst David Tyerman. "A lot of people might think it's too low and they are being too conservative."
Bombardier competes with Brazil's Embraer in the smaller plane sector and is seeking to tread on the turf of Airbus and Boeing with its yet-to-launch C-series jet. That plane, promised by the end of 2013, will be Bombardier's largest jet to date.
Bombardier said its closely watched margin for earnings before interest and taxes is expected to decline to about 5 percent in 2012 from 5.8 percent in 2011. It withdrew its 2013 forecasts, blaming the poor economy and regional jet weakness.
The company, whose fourth-quarter profit came in slightly above estimates, also said it expects to deliver about 235 planes this year, down from 245 in 2011, reflecting strength for big aircraft and soft demand for its smaller commercial planes.
"On the commercial side it's very weak," said Morningstar analyst Neal Dihora. "Bombardier's commercial aircraft strength is more in North American and Europe and those markets aren't really growing. Growth in Asia has been dominated by other players like Embraer."
Bombardier said it has been expanding its sale force to drive business in emerging markets.
2012 DELIVERIES DOWN
Bombardier expects to deliver 180 business aircraft, such as its Challenger and Global brands, and 55 smaller commercial planes, like its Learjet, in 2012. It delivered 163 business planes and 78 commercial planes in 2011.
"Last year was certainly a very difficult year for aircraft sales for them," said PI Financial analyst Chris Murray. "Next year's going to be more of what they've been doing for the last little while."
The aerospace unit's order backlog reached USD$22 billion at December 31, the division's new year-end, a 15 percent increase from USD$19.2 billion at January 31, 2011.
The gain reflects an increase in orders for business and C-Series planes that is partly offset by lower orders for turboprops and regional jets, Bombardier said.
Bombardier expects to run test flights on the C-Series this year and says the plane will enter service in late 2013. There have been doubts in the market that the single-aisle 110- to 149-seater plane will meet its launch date.
PROFIT DROPS IN TRUNCATED QUARTER
Bombardier net profit was USD$214 million for the fourth quarter compared with USD$295 million a year ago.
Revenue fell 23 percent to USD$4.3 billion.
The results reflect a change in the aerospace unit's year-end to December 31 from January 31.
Revenue at Bombardier's aerospace unit was USD$2 billion for the two months ended December 31, compared with USD$3.1 billion for the three months ended January 31, 2011.
Free cash flow in the quarter fell to USD$590 million, from USD$1.5 billion last year.