Bombardier Inc. T.BBD.A

RBC : Connecting the dots : Gulfstream results

[Tempo1]

Connecting the Dots: BBD flash read-through – GD's Aerospace Q1 results

Sentiment: Neutral

What happened?

General Dynamics (GD) today reported Q1 results, with EPS coming in at $2.88, slightly below consensus of $2.91. Aerospace revenues and operating income were up 10.1% and 11.4% on increased deliveries and services revenues, respectively. However, aerospace results fell short of consensus expectations driven by lower operating margins. Book-to-bill was 1.2x, up from 1.15x last quarter. FCF was a usage of -$437MM in the quarter below cons. of +$646MM driven by working capital build for the G700

.....FCF was a usage of -$437MM in the quarter below cons. of +$646MM driven by working capital build for the G700...  ( From Tempo 1: do you remember the market reaction to the same Bombardier news in february ?) 


Our view.

We view GD's Q1 results as a neutral read-through for Bombardier and Bizjet demand. On the one hand, Aerospace results and deliveries improved y/y, with the CEO noting supply chain improvements (ERJ also reported strong growth in deliveries of 67%, albeit off a lower base). On the other hand, margin performance was below consensus as higher supply chain-related costs and ramp up of the G700 impacted profitability. FCF usage also surprised on working capital build for increased G700 deliveries expected this year. We see persistent yet improving supply chain challenges and gradual improvements in FCF from early investments in inventory as in line with our expectations for Bombardier and therefore, look to these results as neutral. In addition, the company spoke to slowing of bizjet transactions from "concerns over persistent inflation and monetary policy in the US, together with concerns about conflict in the Middle East", though commented it was more of a timing issue, especially with corporate fleet refresh cycles and pointed to a 1x book to bill for the year. Nevertheless, we will look for more colour to the sales cycle on BBD's conference call tomorrow when the company reports its Q1 results.