Orders at Cessna Aircraft were “very very light” in July and August, although September was stronger, the head of Cessna’s parent company, Textron, said in a conference call with analysts Wednesday.
So far 2012 has been disappointing for much of the general aviation market. That means a lot is resting on the fourth quarter, “which is usually the big quarter for the bizjet industry,” Robert Stallard, an analyst with RBC Capital Markets, wrote in a report.
The good news is that order cancellations continue to decline, Textron chairman and CEO Scott Donnelly said.
“Despite a tough market here in the third quarter, we’ll see more normal activity in the fourth quarter,” said Donnelly, who expects order rates and activity to be similar to the last three months of 2010 and 2011.
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Officials said they expect next year’s production at Cessna to be somewhat flat, although the company will give more guidance in January.
Cessna posted $778 million in revenue in the third quarter, up from $771 million for the same time a year ago.
Profit at Cessna totaled $30 million, down $3 million from a year ago.
Cessna’s revenue in the quarter was “considerably lower than we had expected,” Stallard wrote.
But Donnelly still expects deliveries for the year to be up slightly over 2011 shipments.
“I would be kidding if I didn’t say I would’ve hoped the third quarter would have been a little bit stronger in terms of deliveries,” Donnelly said. “But the summer months were pretty tough. But again, as I’ve seen what happened in September, and we look at what we need our deliveries to be, to be up modestly over last year, I think that that’s still a reasonable plan.”
The company’s parent company, Textron, released third quarter earnings Wednesday.
Cessna’s backlog totaled $1.3 billion at the end of the quarter, down $156 million from the second quarter.
Revenue increased in the quarter because of higher used aircraft sales, which offset a decline in new Citation business jet deliveries.
The company delivered 41 new Citations, down from 47 for the quarter a year ago and from 49 in the second quarter of 2012.
The company posted a $30 million increase in used aircraft sales in the quarter.
It’s good that the used aircraft market is moving, Donnelly said, although the company ended up selling used jets it took as trade-ins at zero margins, Donnelly said.
“So that’s a particularly bad mix when you see fewer new deliveries and more used deliveries,” he said. “And so you effectively had $30-plus million dollars of zero margin business in there. When we bring used aircraft in, we book them at their market value, and generally, that’s where we sell them.”
Pricing for new aircraft also remains difficult.
It’s more of a buyer’s market than a seller’s market, Donnelly said.
Sales have trended to Cessna’s larger jets, such as the Citation XLS and Citation Sovereign rather than the smaller ones, such as the Citation Mustang, he said.
About two-thirds of the deliveries were to U.S. customers, with the remaining going to international customers.
At the same time, the company has improved the total cost structure of the business, Donnelly said.
“We believe that generating essentially flat segment profit with fewer jet deliveries demonstrates the progress we’re making with overall cost structure at Cessna,” he said.
Textron, meanwhile, recorded $2.9 billion in revenue in the quarter, up from $2.8 billion a year ago. Net income totaled $151 million, compared to $142 million in the quarter.