But he adds that “While we are taking these immediate actions, we believe the global business jet market still has significant long-term growth potential.”
Donnelly also stresses that the company is forging ahead with its product development plans, including the introduction of the M2, Sovereign and Citation X business jets this year, followed by the Latitude in 2015 and the Longitude in 2017.
In the quarter, the company sold off the five remaining legacy Sovereigns as it prepares to bring the new Sovereign to market. But since both the Sovereign and Citation X are in transition to newer models, Cessna is not expecting to delivery any of each model in the second quarter.
On a brighter note, used aircraft sales improved – up $18 million in the quarter – and actually led revenues to increase $39 million in the first quarter. Also contributing to that increase was an $18 million jump (9%) in aftermarket revenues. But at the same time, Cessna backlog at the end of the first quarter was down another $28 million to $1.03 billion.
Cessna affiliate company Bell also had a slower quarter, with lower military deliveries and commercial aftermarket sales. Bell revenues decreased $45 million and profit was down $16 million as it delivered two fewer military helicopters (V-22s were down one to nine and H-1s were down one to six).
But Bell’s commercial business for new helicopters continues to surge, up 33% from 30 helicopter deliveries in the first quarter of 2012 to 40 in the most recent quarter. However, backlog fell $386 million to $7.08 billion by the end of the first quarter.
RBC Capital Markets calls the Bell results unexpected, particularly with reduced civil helicopter aftermarket sales. “As a result, operating profits came in below our forecasts,” says RBC analyst Robert Stallard, who adds Bell’s margins are still “robust” at 13.6%.
But Cessna – back in the red – remains a risk, Stallard believes. Like Bell, revenues were lower than expected, he says, and points to the reversal in outlook for 2013. Any pickup in indicators has yet to translate into actual orders, he adds.
“With the limited backlog at Cessna, investing in Textron on the basis of a belated pickup in business jets was always a bit of a leap of faith, and this weak quarter for bizjet is likely to again test investors’ confidence in whether we are likely to see a turnaround in the small/mid cabin sector within a reasonable time frame,” Stallard says.