Cessna records $50 million loss in second quarter
07/17/2013 3:34 PM
08/08/2014 10:18 AM
Editor's Note: This story has been changed to correct revenue figures for the company for the second quarters of 2013 and 2012.
Cessna Aircraft recorded a loss of $50 million in the second quarter, compared to a profit of $35 million for the same time a year ago, as deliveries of business jets fell and the company took charges related to severance costs.
Cessna delivered 20 Citation jets during April, May and June, down from 49 jets delivered in the same time a year ago.
For the second quarter, Cessna recorded $560 million in revenue, compared to $763 million a year ago.
Business jet demand for the quarter continued to be soft, the company said. As a result, the company announced in April cost reductions and other appropriate actions, Scott Donnelly, chairman and CEO of Cessna’s parent company, Textron, said on a conference call Wednesday with analysts.
“Specifically, we lowered our light jet production line rates, reduced associated direct head count, downsized our indirect work force and reduced our jet discount allowance,” Donnelly said.
As expected, the reduced discounting to entice customers into the market did result in lower sales volume, he said.
“We still believe the overall market demand will eventually recover as global economies continue to expand,” Donnelly said.
For the first six months of 2013, Cessna recorded a loss of $58 million, compared to profits of $29 million for the first six months of 2012.
Its order backlog at the end of the second quarter totaled $1.01 billion, down $23 million from the first quarter of 2013.
Cessna Aircraft took a charge of $28 million in pre-tax severance costs during the quarter. The company offered voluntary retirement packages to employees and also had some layoffs because of the weaker demand.
The team in Wichita “is doing a heck of a job in a pretty tough environment,” Donnelly said. They are doing everything possible to manage costs, he said.
Although Cessna didn’t sell as many jets because it declined to do deals at deeper discounts than what makes sense, buyers are still receiving “attractive” pricing, Donnelly said.
Lower residual values for used jets mean owners are continuing to fly their planes and waiting to trade them in on new ones.
The biggest challenge is the lack of price recovery for used aircraft, Donnelly said.
Owners of light and mid-size jets tend to be owners of small and mid-sized companies. And their confidence in the economy remains “more subdued,” he said.
Cessna has slid deliveries of its Citation M2 and the upgraded Sovereign into the fourth quarter from the third quarter. And deliveries of its upgraded Citation X have slid into early 2014. That’s because minor delays in avionics software certification have slightly delayed certification dates of the aircraft, Donnelly said.
Still, he said. “we are making good progress with certification testing. The aircraft are performing extremely well.”
At the same time, market demand for Cessna’s new M2 has stayed fairly strong, and Cessna is looking at how to add some additional production slots for the plane in 2014, he said.
Textron, meanwhile, recorded net income of $113 million for the quarter, on revenue of $2.839 billion. That compares to $172 million in net income and $3.019 billion in revenue for the same period a year ago.