Bombardier Inc. has once again slashed its financial estimates for 2019 on the back of continuing struggles in its rail unit, deepening investor concern that chief executive Alain Bellemare’s five-year turnaround can stay on track.
The Montreal-based plane and train maker also said it is weighing whether to pull out of its joint venture with Airbus and the Quebec government on the A220 airliner because of what could be onerous funding requirements. And it said it is pursuing further strategic options to speed up debt repayment, which could mean selling more real estate or other assets.
Bombardier shares tanked 33 per cent as they opened for trading Thursday on the Toronto Stock Exchange, to $1.20. The last time they were this low was March of 2016.
Mr. Bellemare is trying to get Bombardier back on course by making it a smaller and more profitable company focused on jets and rail equipment as part of a five-year turnaround effort that started in late 2015. Those business lines are more profitable and offer more growth prospects as the number of billionaires increases globally and cities seek more rail transit solutions for congestion, Bombardier executives have said.
Under the CEO’s leadership, Bombardier has already raised more than US$7-billion from governments and public markets, sold several businesses and cut thousands of jobs. After some encouraging signs of progress in 2017 and the first half of 2018, the company’s stock was starting to climb higher.
But the effort has hit some major stumbles since. Pushed to the brink by the cash-sucking development of its C Series airliner, Bombardier is now dealing with the completion of several legacy rail contracts that are wreaking havoc with its financial projections.
For the second time in 12 months, Bombardier issued a profit warning on Thursday that pinned much of the shortfall on trouble with big train contracts. It said it would record a fourth quarter loss of about US$230-million in its train unit, which includes a special charge related to certain projects in the United Kingdom as well as commercial negotiations with Swiss Federal Railways and increased production and manufacturing costs for projects in Germany.
“This is a significant setback,” BMO Capital Markets analyst Fadi Chamoun said in a note to clients. He noted that company executives had said in the summer that the worst might be behind the train unit, known as Bombardier Transportation.
The company now says adjusted earnings before interest and taxes will come in at about US$400-million for fiscal 2019, down significantly from the US$700-million to US$800-million it projected during its third quarter earnings report in August. Revenue should come in at about US$15.8-billion, down from a previous estimate of US$16.5-billion to US$17-billion, Bombardier said. The company now expects to burn through US$1.2-billion of cash for the year, more than twice as much cash as previously forecast.
At its annual investor meeting in December 2018, Bombardier highlighted five big rail contracts that were proving problematic in different ways. They included the US$630-million contract for New York’s Metropolitan Transportation Authority (MTA) in which Bombardier experienced production-related delays at its factories, and a US$1.8-billion contract with Swiss Federal Railways in which the company faced regulatory authorization issues.
Earlier this month, the MTA pulled about 300 Bombardier subway cars out of service because of unreliable door mechanisms. “Bombardier sold us lemons,” the city’s comptroller, Scott Stringer said at the time.
Despite the challenges, Bombardier insists it is making progress completing the legacy rail projects and taking the right actions for its future success. The business is led by Danny Di Perna, former head of Bombardier’s engineering and aerostructures unit.
While Bombardier has exited commercial aviation, its joint venture with Airbus on the A220, formerly the Bombardier C Series, also poses a lingering challenge. Airbus is winning orders for the plane but the latest information of the joint venture’s financial plan calls for additional cash investments to support production increases while pushing out the break-even point and generating lower return over the life of the program, Bombardier said.
“This may significantly impact the joint venture value,” Bombardier said, adding it could take a write-down on the business when it reports fourth quarter results next month. The company said is weighing its continued participation in the joint venture but provided no other details.
Bombardier sold control of the A220 to Airbus in 2018. It holds a 33.58 per cent stake in the venture, while Airbus holds a 50.06 per cent stake and Quebec holds 16.36 per cent.
Bombardier is contractually committed to investing US$925-million over three years in the joint venture, spokeswoman Jessica McDonald said. Any investments required in the business beyond that is shared by the three partners according to their weight in the joint venture, she said.
Quebec is not required to put any additional funds into the venture but its share in the business would shrink accordingly, Ms. McDonald said. A spokesman for Quebec Economy Minister Pierre Fitzgibbon declined to comment Thursday on the government’s plans for the investment.
The final step in Mr. Bellemare’s turnaround plan is to cut Bombardier’s indebtedness and solve its capital structure. The CEO said Bombardier is “actively pursuing alternatives” that would allow the company to speed up debt repayment and strengthen its balance sheet but did not provide any more details.
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General Motors said it is pumping the brakes a little on its plans for electric vehicles and self-driving cars as new labour deals signed with unions in the U.S. and Canada will cost it almost $9.3 billion US.
Despite those costs, the automaker says it plans to buy back up to $10 billion US of its own shares, while also boosting its dividend by 33 per cent.
The buyback is the equivalent at Tuesday’s closing price to nearly a quarter of GM’s common stock. Its shares were down about 14 per cent this year before rising 10 per cent to $31.92 on Wednesday.
The Detroit automaker also lowered 2023 profit expectations after the U.S. strike by the United Auto Workers (UAW).
GM has struggled to boost its stock price as it dealt this year with the UAW strike, and with problems at its Cruise self-driving vehicle unit and rollout of its new electric vehicles.
The $9.3 billion US in additional costs through 2028 is for agreements with the UAW as well as Canadian union Unifor, and translates to about $575 per vehicle over the life of the deals.
“Finally, some good news for GM, and this was a strong outlook and comments from Barra & Co post the UAW debacle,” Wedbush Securities analyst Daniel Ives said in an email. “Now it’s about getting the train back on the tracks and this is a great start.”
GM’s new guidance reduced expected net income attributable to stockholders for 2023 to a range of $9.1 billion to $9.7 billion, compared to the previous outlook of $9.3 billion to $10.7 billion.
That includes an estimated $1.1 billion EBIT-adjusted impact from the UAW strike, which lasted just over six weeks, primarily from lost production. The total impact in 2023 is $1.3 billion including the higher wages and benefits in the deal.
“Now that we have a ratified contract and a clear path forward that includes greater operating investment efficiencies, we can resume returning capital to shareholders per our plan,” GM CEO Mary Barra said on an investor conference call, during which officials set out the largest U.S. automaker’s updated targets.
However, she also acknowledged how GM’s stock price was “disappointing to everyone,” pointing to how shares at about $28 were 15 per cent below the level they traded at when the company had its IPO in 2010.
GM shares currently trade 4.4 times forward profit estimates, compared with 6.3 for Ford, 8.8 for Toyota and 66.1 for EV market leader Tesla. However, Volkswagen and Stellantis’ share price multiples are an even lower at 3.5 each.
GM said earlier this year it would cut fixed costs by $2 billion by the end of 2024 and then followed up in July with plans for another $1 billion in cost reductions. In April, GM said about 5,000 salaried workers had taken buyouts.
GM said it would cut costs at its self-driving unit Cruise, which has suspended all U.S. testing after a crash in California last month prompted that state’s regulators to bar the company from testing driverless vehicles. Cruise, which is cutting jobs, lost more than $700 million in the third quarter and more than $8 billion since 2016.
“We expect the pace of Cruise’s expansion to be more deliberate when operations resume, resulting in substantially lower spending in 2024 than in 2023,” Barra said.
GM Chief Financial Officer Paul Jacobson said spending on Cruise in 2024 will be down “hundreds of millions of dollars.”
Barra added that GM needed to “rebuild trust” with state and federal regulators, and others Cruise works with.
Barra said she was “disappointed” with EV production this year due to difficulties with battery module assembly, but GM expects “significantly higher” production and “significantly improved” profit margins in that business in 2024. Jacobson said GM was aiming for single-digit pre-tax margins on EVs by 2025, including Inflation Reduction Act benefits.
However, GM also said the new labour deals will add $3 per kilowatt-hour to battery cell costs.
GM now faces higher costs under a new contract with the UAW. The company said it was finalizing its budget for next year “that will fully offset the incremental costs of our new labour agreements and the long-term plan we are executing.”
University of Michigan professor Erik Gordon said GM’s actions flew in the face of company arguments during the strike that it couldn’t afford a lucrative deal for its U.S. workers.
GM expects to increase its quarterly common stock dividend by 3 cents to 12 cents a share beginning in 2024.
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When someone asks me for job search advice, my first question is: What are you looking for? A job or a career?
So we are on the same page:
Earning money is the primary goal of every career and job. I have yet to meet anyone who would do their career or job for free.
Increasingly, I am seeing job seekers searching for career jobs (e.g. marketing, social media management, financial services) but who are not career-driven, which savvy hiring managers take into account when assessing a candidate.
INTERVIEWER: “I see you got your PM certification in 2014; how have you been updating your knowledge and skills since then?”
INTERVIEWER: “Are you a member of any industry associations? Do you sit on any boards?”
Despite what your well-meaning parents, high school guidance counsellor and social norms have told you, it is okay not to want a career—careers are not for everyone. So long as you can support yourself financially doing a job (e.g., carpenter, bricklayer, server, taxi driver, warehouse picker, mechanic), which you absolutely can, you do not need “a career.”
Career success involves climbing a ladder and navigating cutthroat office politics, which is not everyone’s cup of tea. I have been knocked off “the ladder” more than once. In increasingly hostile workplaces, where everyone is fighting for survival, job seekers would greatly benefit from reflecting on whether they have the ambition, skills, social acumen, and mental fortitude to maintain a career.
Few people ask themselves, especially in their late high school years, whether they want a job or a career when it comes to earning a living.
It is never too late to reassess whether you want to remain in your career versus finding a job/learning a trade by asking yourself, “Is the juice worth the squeeze?” I know several people who have given up their careers and opted for a job where they can clock in and out, resulting in less stress, being happier, and even making more money. Do you know what an AZ truck driver can make these days?
Generally, people underestimate how difficult establishing and maintaining a career is. The time, sacrifices, continuous learning, and cultivating professional networks, particularly if you’re trying to break into a field other than IT, finance, or sales, takes effort. In hindsight, I admit most of my failures were due to underestimating the work required. My failures were caused by the leading reason people fail: Not working hard enough.
(Readers of my column know I don’t play the “I’m a victim!” game.)
There is no shame in not being career-driven. Millions of people live meaningful and fulfilling lives without a career. Perhaps it is just me, but I feel a waitress who smiles and makes small talk with a customer who appears lonely or sad makes the world a better place compared to a VP of Marketing whose job is to figure out how to manipulate consumers into buying products, often stuff we do not need which end up in landfills, or nutrient-deficient processed food, we should not be consuming.
Your parents’ definition of success and seeing what others have accomplished— whether they are happy and fulfilled is another matter—and, of course, your ego influenced whether you are now chasing a career.
Passion versus money is an internal debate that everyone has at some point in their life, if not throughout their life. From one side, you probably have parents, relatives, friends, and even strangers (I raise my hand) telling you to be realistic and find a well-paying job. However, on the other side, you likely have well-meaning friends, Internet talking heads giving reconstituted job search advice, and TED talks of successful people telling you that “following your passion is the foundation for success.” It is no wonder so many people anxiously question whether they should follow their passion, which is unlikely to earn them a living or choose a career that looks reasonably promising and has a somewhat stable future; this especially applies to artistic endeavours or being a social media influencer. Recently, I overheard someone say to a journalist who had been laid off, “Learn to code.” The advice was not encouraging, but it was pragmatic. Due to my pragmatic nature, I nodded in agreement.
“Being pragmatic is not surrender. Being pragmatic is not cynicism. Being pragmatic is not selling out. In truth, being pragmatic is often the only real path to progress in an uncertain, complicated world.” ― Tom C.W. Lin, Jack E. Feinberg Chair Professor of Law at Temple University’s Beasley School of Law.
The end goal of most people is to have a steady paycheck and benefits; hence, the question I mentioned earlier: Is the juice (a career) worth the squeeze? The competition for career jobs is fierce and likely to intensify. In contrast, competition for blue-collar jobs is not nearly as fierce. Do you know what plumbers make these days?
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Nick Kossovan, a well-seasoned veteran of the corporate landscape, offers “unsweetened” job search advice. You can send Nick your questions to artoffindingwork@gmail.com.
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Charles Munger, the alter ego, sidekick and foil to Warren Buffett for almost 60 years as they transformed Berkshire Hathaway Inc. from a failing textile maker into an empire, has died. He was 99.
He died on Tuesday at a California hospital, the company said in a statement. He was a longtime resident of Los Angeles. “Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation,” Buffett said in the statement.
Munger was vice-chairman of Berkshire and one of its biggest shareholders, with stock valued at about US$2.1 billion as of March 2, 2022. His overall net worth was about US$2.5 billion at the start of 2023.
At the company’s annual meetings in Omaha, Nebraska, where he and Buffett had both grown up, Munger was known for his roles as straight man and scold of corporate excesses. As Buffett’s fame and wealth grew — depending on Berkshire’s share price, he was on occasion the world’s richest man — Munger’s value as a reality check increased as well.
“It’s terrific to have a partner who will say, ‘You’re not thinking straight,’” Buffett said of Munger, seated next to him, at Berkshire’s 2002 meeting. (“It doesn’t happen very often,” Munger interjected.) Too many chief executives surround themselves with “a bunch of sycophants” disinclined to challenge their conclusions and biases, Buffett added.
Buffett credited Munger with broadening his approach to investing beyond mentor Benjamin Graham’s insistence on buying stocks at a fraction of the value of their underlying assets. With Munger’s help, he began assembling the insurance, railroad, manufacturing and consumer goods conglomerate that posted nearly US$24 billion of operating profit in 2019.
“Charlie has always emphasized, ‘Let’s buy truly wonderful businesses,’” Buffett told the Omaha World-Herald in 1999.
That meant businesses with strong brands and pricing power. Munger nudged Buffett into acquiring California confectioner See’s Candies Inc. in 1972. The success of that deal — Buffett came to view See’s as “the prototype of a dream business” — inspired Berkshire’s US$1 billion investment in Coca-Cola Co. stock 15 years later.
The acerbic Munger so often curbed Buffett’s enthusiasm that Buffett jokingly referred to him as “the abominable no-man.”
“At what price would you be comfortable?” Buffett asked.
“Probably at a lower price than you,” Munger parried.
From Los Angeles, Munger spoke frequently by phone with Buffett in Omaha. Even when they couldn’t connect, Buffett claimed he knew what Munger would think. When Munger missed a special meeting of Berkshire shareholders in 2010, Buffett brought a cardboard cutout of his partner on stage and mimicked Munger saying, “I couldn’t agree more.”
Munger was an outspoken critic of corporate misbehaviour, faulting as “demented” and “immoral” the compensation packages given to some chief executives. He called Bitcoin “noxious poison,” defined cryptocurrency generally as “partly fraud and partly delusion” and warned that much of banking had become “gambling in drag.”
“I love his ability to just cut to the heart of things and not care how he says it,” said Cole Smead, CEO of Smead Capital Management, a longtime Berkshire investor. “In today’s society, that’s a really unique thing.”
Though Munger aligned with the U.S. Republican Party, and Buffett sided with Democrats, the two often found common ground on issues like the desirability of universal health care and the need for government oversight of the financial system.
But while Buffett would tour the world urging billionaires to embrace charity, Munger said a private company like Costco Wholesale Corp. — he served on its board for more than two decades — did more good for society than big-name philanthropic foundations.
With his own donations, Munger promoted abortion rights and education. He served as chairman of Good Samaritan Hospital in Los Angeles. Multimillion-dollar bequests to the University of Michigan and the University of California at Santa Barbara for new housing facilities gave him an opportunity to indulge a passion for architecture — though his vision for a 4,500-person dormitory on the Santa Barbara campus drew howls of protest in 2021 because the vast majority of bedrooms are to have no windows.
Though he never rivalled Buffett in terms of worldwide celebrity, Munger’s blunt manner of speaking earned him a following in his own right.
At the 2011 meeting, the last before Berkshire took complete control of Wesco, Munger told his audience, “You all need a new cult hero.”
Charles Thomas Munger was born on Jan. 1, 1924, in Omaha, the first of three children of Alfred Munger and the former Florence Russell, who was known as Toody. His father, the son of a federal judge, had earned a law degree at Harvard University before returning to Omaha, where his clients included the Omaha World-Herald newspaper.
Munger’s initial brush with the Buffett family came through his work on Saturdays at Buffett & Son, the Omaha grocery store run by Ernest Buffett, Warren’s grandfather. But the two future partners wouldn’t meet until years later.
Munger entered the University of Michigan at age 17 with plans to study math, mostly because it came so easily. “When I was young I could get an A in any mathematics course without doing any work at all,” he said in a 2017 conversation at Michigan’s Ross Business School.
In 1942, during his sophomore year, he enlisted in the Army Air Corps, soon to become the Air Force. He was sent to the California Institute of Technology to learn meteorology before being posted to Nome, Alaska. It was during this period, in 1945, that he married his first wife, Nancy Huggins.
Lacking an undergraduate degree, Munger applied to Harvard Law School before his Army discharge in 1946. He was admitted only after a family friend and former dean of the school intervened, according to Janet Lowe’s 2000 book, Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger. Munger worked on the Harvard Law Review and in 1948 was one of 12 in the class of 335 to graduate magna cum laude.
With his wife and their son, Teddy, Munger moved to California to join a Los Angeles law firm. They added two daughters to their family before divorcing in 1953. In 1956, Munger married Nancy Barry Borthwick, a mother of two, and over time they expanded their blended family by having four more children. (Teddy, Munger’s first-born, had died of leukemia in 1955.)
“Like Warren, I had a considerable passion to get rich,” Munger told Roger Lowenstein for Buffett: The Making of an American Capitalist, published in 1995. “Not because I wanted Ferraris — I wanted independence. I desperately wanted it. I thought it was undignified to have to send invoices to other people.”
His fateful introduction to Buffett had come during a 1959 visit home to Omaha. Though the precise venue of their first meeting was the subject of lore, it was clear they hit it off right away. In short order they were talking on the telephone almost daily and investing in the same companies and securities.
Their investments in Berkshire Hathaway began in 1962, when the company made men’s suit linings at textile mills in Massachusetts. Buffett took a controlling stake in 1965. Though the mills closed, Berkshire stuck around as the corporate vehicle for Buffett’s growing conglomerate of companies.
Using that pool of capital, Buffett and Munger bought controlling shares in See’s Candies, the Buffalo Evening News and Wesco Financial, the company Munger would lead.
In 1975, the U.S. Securities and Exchange Commission alleged that Blue Chip Stamps had manipulated the price of Wesco because Buffett and Munger had persuaded its management to drop a merger plan. Blue Chip resolved the dispute by agreeing to pay former investors in Wesco a total of about US$115,000, with no admission of guilt.
The ordeal underscored the risks in Buffett and Munger having such complicated and overlapping financial interests. A years-long effort to simplify matters culminated in 1983 with Blue Chip Stamps merging into Berkshire. Munger, whose Berkshire stake rose to two per cent, became Buffett’s vice-chairman.
In recent years, Munger’s fans continued to travel to Los Angeles to ask him questions at annual meetings of Daily Journal Corp., a publishing company he led as chairman. He displayed his knack for investing by plowing the company’s money into temporarily beaten-down stocks like Wells Fargo & Co. during the depths of the 2008-2009 financial crisis.
Munger was for many years more bullish than Buffett when it came to investing in China. Berkshire became the biggest shareholder of Chinese automaker BYD Co., for instance, years after Munger began buying its stock, though Berkshire began trimming that stake in 2022.
Munger started sharing his vice-chairman title at Berkshire in 2018 with two next-generation senior executives, Greg Abel and Ajit Jain, who were named to the board in a long-awaited sign of Buffett’s succession plans.
It was Munger himself who, three years earlier, had signalled their likely promotion with praise delivered in his signature fashion: with a backhanded swipe at the boss.
“In some important ways,” he wrote of Abel and Jain in 2015, “each is a better business executive than Buffett.”
—With assistance from Katherine Chiglinsky and Max Reyes.
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