Canadian jet and train maker Bombardier (NASDAQOTH:BDRAF) came out with its third quarter numbers on October 30. Earnings for the period ended September 2014 were cut by almost half because of a huge one-time charge, but if we keep that aside, the company managed to improve the top and bottom lines and even beat expectations. Bombardier posted solid double-digit growth in both its aerospace and rail businesses, with its efforts to keep costs under control rubbing profitability the right way. Let's dig down deeper.

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Data source: Company press releases, Wall Street Journal, Reuters, and Bloomberg. Chart by author.

Revenue surges on solid deliveries
Bombardier's consolidated revenue in the quarter grew 20.9% to $4.9 billion compared with the same period last year, topping analysts' estimate by 2.1%. Revenue from the aerospace business grew 29% over last year to $2.6 billion aided by strong deliveries. The company delivered 71 planes vs 45 in the prior year quarter. Bombardier's transportation business, which manufactures and sells trains, grew 12% to $2.3 billion on the back of a number of small and medium order receipts.

Business jet deliveries were up 25% to 45 units, while commercial shipments grew almost three times from the same period last year to 26. According to Pierre Beaudoin, Bombardier's CEO, the improving U.S. economy is behind the recovery of the aerospace market, especially the business jet market. 

Bombardier Inc Agm Presentation
Source: Bombardier

Efficient cost management boosts earnings
Bombardier is restructuring its operations to rein in costs -- this includes both reorganization of operations and layoffs. Earlier this year, the company laid off 1,700 employees from its aerospace division, and announced 1,800 more job cuts globally in the second quarter. It's now added 200 more heads to the tally, bringing the annual number to 3,700. Bombardier has also cut 900 positions in its transportation segment. The reductions are mainly in back-end jobs, while the production side remains mostly untouched.

Bombardier also plans to divide its aerospace division into three parts for business jets, commercial aircraft, and aerostructures.

In the earnings call Beaudoin said, "Our new lighter structure will result in a more nimble organization, which brings reduced costs and contributes to increased profitability." The company believes the restructuring effort could save roughly $268 million per year from 2015. During the third quarter SG&A costs declined 7.4% from last year's levels.

In the quarter under review, Bombardier recorded a one-time restructuring charge of $120 million for cutting 2,900 positions. Due to this, net income nearly halved to $74 million. Reported earnings per share dropped 62.5% to $0.03 against the year-ago period. However, excluding the one-time charge, adjusted earnings shot up 33.3% to $0.12 per share. The quarter's result also came ahead of analysts' expectation of $0.09 per share.

Improving free cash flow
Bombardier has reported negative free cash flow in the past three consecutive fiscal years. The company has spent heavily on the development of the 100 to 150-seater CSeries commercial jets that are expected to enter service by the middle of next year after a series of delays. The wait has pushed development costs to $4.4 billion, roughly a billion ahead of the actual estimate and resulted in a cash drain for Bombardier. However, free cash use has dropped in the past two quarters due to improved deliveries and cost cuts. The company used $368 million of free cash flow, an improvement over $522 million usage in the same period last year.

Historically, Bombardier has posted strong fourth quarters, so it's expected that deliveries will be higher in the period. Hence, there are chances that cash inflows will improve further and help generate free cash flow. Bombardier has maintained its delivery target for fiscal 2014 and expects to deliver 200 business jets and 80 commercial planes.

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Company Sources. Chart by author.

CSeries order win is a positive
Net orders during the quarter almost tripled to 76 jets, up from just 26 in the comparable period last year. The order backlog of $72.4 billion will strengthen revenue growth for the coming five years.

Bombardier received a much awaited firm order for 40 CSeries jets from the aircraft leasing firm, Macquarie Air Finance, with the option of buying another 10 units. CSeries jets faced a series of delays earlier, losing significant orders. The success of the program is crucial for the stock's future prospects according to analysts. Walter Spracklin, an analyst at RBC Capital Markets says, "it will be trends in the CSeries project, and most notably new orders, that we believe will be the main driver of the stock in the near term."

The CSeries order comes just after the jet resumed test flights in September, after remaining on hiatus for over three months due to an engine issue. The company is looking to generate firm orders for 300 jets before they enter service. Currently, the total firm orders stand at 243 units. Earlier The Wall Street Journal had reported that Bombardier was talking to an undisclosed airline to be the launch customer of the CSeries jet.

The strong delivery numbers are a very encouraging development for Bombardier, and if the fourth quarter plays out as expected, the company might end the year on a high note. Cost cuts are helping the Canadian jet maker improve its cash flows, and the positive developments in the CSeries program must have eased investors' nerves.

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