Steep losses at planemaker Airbus pushed European aerospace group EADS further than expected into the red last year, hitting its shares as it also disappointed investors with a cautious profit forecast.
Chief Executive Louis Gallois said the group was turning the corner after a slew of production delays but faced a challenge from the relentless rise of the euro against the dollar, which sliced $1 billion off revenue at the Airbus subsidiary in 2007.
Gallois said the planemaker was looking at adding to its Power8 restructuringosses and half a dozen factory sales, and took the unusual step of revealing an internal clash over operating business forecasts. EADS's 2007 net loss of 446 million euros ($685 million) compared with a slender 99 million euro profit in 2006 and an average market forecast of a 329 million loss.
"I am not happy with the 2007 figures but I believe their underlying strength will allow an improvement in performance as we move forward," Gallois told a news conference. "We have prepared the future and cleaned up a lot of the past," he added. Group revenue dipped to 39.1 billion euros from 39.434 billion, due mainly to the recent slide in the dollar.
Analysts had on average forecast a net loss of 329 million euros and an operating profit of 152 million euros on revenue of 39.278 billion, according to a Reuters poll. EADS's earnings were hit by the second annual loss in a row at Airbus after production delays on the A380 superjumbo and charges for its next civil model, the A350, and the delayed A400M military heavylifter programme.
Airbus revenue rose slightly to 25.216 billion euros from 25.190 billion but the planemaker posted a 2007 loss of 881 million euros, worse than many analysts had expected. EADS said it expected a recovery in 2008 and predicted a group operating profit of 1.8 billion euros and revenue topping 40 billion euros, based on a euro at $1.45. The forecast is below market estimates of at least 2.1 billion for 2008.
"We get the sense that this is the base number the company can hit...We think management is being overly conservative, but this will likely be taken negatively by the market," Morgan Stanley wrote in a research note.
Finance Director Hans Peter Ring said EADS would step up hedging to cope with a strong euro, now near $1.54, but that currency movements would continue to create volatility.
EADS is in the forefront of European companies complaining about the impact of a strong euro on exports, with most of its products priced in dollars but accounted for in euros. Airbus suffered a negative dollar impact of 1.08 billion euros in 2007. Gallois said the EADS board had ordered heads of divisions to revise their targets to allow the group to improve on its forecast of mid-single digit operating profit margins in 2011.
He has said he wants double-digit margins before 2015. On the positive side, EADS generated much more cash than expected in 2008, with free cash flow of 3.4 billion euros swelled by funding for a British military satellite contract and advance payments from airlines following a recent order boom. The results were also overshadowed by a challenge to a major defence contract win in the United States from Boeing.