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Demand for transit buses hits bumpy road

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DESPITE a recent string of new orders for Winnipeg's New Flyer Industries, the demand for transit buses is still not where it needs to be, according to the company's top executive.

"We're frustrated with the slow recovery in our market," company CEO Paul Soubry said Thursday while discussing New Flyer's second-quarter financial results with industry analysts.

"And to say we're satisfied with our second-quarter results would be inaccurate."

At first glance, the bottom line doesn't look that bad -- a $3.6-million profit versus a $7.3-million loss for the second quarter of 2011.

But Soubry said the turnaround was mainly due to a $9.2-million decrease in financing costs and a $2.8-million reduction in income-tax charges during the quarter.

And it's the same story for the first six months of the year -- a $6.3-million profit compared with a $13.7-million loss in the first half of last year. But that was also due mainly to reducing financing and income-tax costs.

Soubry said revenues did increase slightly -- up 0.5 per cent to $227 million from $225.9 million in the second quarter and up 3.3 per cent to $454.6 million from $440.2 million in the first half.

And that was in spite of a 0.9 per cent decline in the average selling price per bus in the second quarter because of fierce competition in the marketplace.

The company also didn't sell as many used buses in the quarter, which took a 4.9 per cent bite out of its aftermarket revenues, he said.

Soubry told analysts that while demand for transit buses is improving -- the company has announced three new orders for a total of 211 buses in the last three weeks -- funding is still an issue for transit authorities on both sides of the border. And while one of its competitors closed earlier this year, Soubry said the competition for orders remains fierce and the downward pressure on prices hasn't let up.

On the positive side, public-transit ridership continues to climb in both Canada and the United States, U.S. state tax revenues are on the rise, and the U.S. Congress recently approved a modest increase in public-transportation funding.

On top of that, U.S. transit fleets are aging, and some of those old buses will soon need to be replaced.

Soubry said New Flyer officials expect revenues and earnings to continue to improve over the second half of this year and in 2013.

"But we don't expect 2013 to see... any kind of crazy recovery for the industry or for New Flyer," he said, adding there are likely still a few more weak quarters ahead for the company.

In its second-quarter report, the company said there were 498 equivalent units (EUs) ordered during the second quarter, worth $222.5 million. That includes both firm and optional sales. That's up from $77.9 million in sales in the same quarter of last year.

And there are pending orders for another 613 EUs, it said. One regular 30- to 40-foot bus represents one EU. One articulated bus, which is 16.7 to 18 metres long, represents two EUs.

Soubry said New Flyer still intends to proceed with its previously announced plans to reduce its annual shareholder dividend to 58 cents later this month from the current 86 cents as part of its conversion from an income trust into a common-share corporation. That's expected to boost cash flows by about $12.2 million a year.

New Flyer's shares (NFI) trade on the Toronto Stock Exchange and closed down 33 cents to $7.37 on Thursday.

murray.mcneill@freepress.mb.ca

Republished from the Winnipeg Free Press print edition August 10, 2012 B6

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