Analysts expect Bombardier to gain in fourth quarter

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Bombardier Inc.'s latest setback in the development of its new C Series narrow-body jet has made for a lot of interesting guesswork as to what the delayed program's financial impact will be.

Another $500-million (U.S.) in unforeseen costs? $1-billion? $2-billion? Will the aerospace and rail-equipment giant have to issue new equity, or return to the debt markets?

Much speculation, few answers.

Investors, analysts and observers expect the gaps to be filled in when the company unveils fourth quarter earnings and hosts a conference call Thursday.

Essentially, the issue is whether Montreal-based Bombardier is spreading itself too thin because of the additional capital spending requirements for the stretched-out C Series program, whose cost was last pegged at $3.9-billion.

"Perhaps the key number to watch will be the cash position at year end since with the lengthy C Series delay, some concerns over Bombardier's liquidity are re-emerging," National Bank Financial analyst Cameron Doerksen wrote in a recent report.

"We estimate that Bombardier will generate just under $1-billion in [free cash flow in the fourth quarter] and end [2013] with cash of $3.5-billion."

Mr. Doerksen figures Bombadier's cash position would fall below the $2-billion threshold required to run its business if it were to burn through $1.7-billion in the first nine months of 2014, which it did in 2013 when C Series spending was at its peak.

He points out that Bombardier has $1.4-billion of credit it can draw on, as well as anticipated improved cash-flow from both the aerospace and rail units in 2014 and so he doesn't foresee a liquidity crunch.

Darryl Genovesi of UBS Securities believes the company "will push out or retract its 2014 targets for a $500-million development spending decline and 8 per cent EBIT margins at both" the aerospace and transportation divisions.

BMO Nesbitt Burns's Fadi Chamoun calculates the incremental cost associated with the C Series delay to be in the $200-million to $300-million range, "which we believe can be absorbed within the company's current cash flow outlook and available liquidity."

But his estimate of Bombardier's cash position at the end of 2013 is about $5-billion, far higher than that of Mr. Doerksen.

According to analysts' consensus estimate, Bombardier's fourth-quarter adjusted earnings are expected to come in at 10 cents per share, with revenue of $5.1-billion.