NEW business acquisitions and a generally stronger market has boosted revenue at Winnipeg bus maker New Flyer Industries by 30 per cent for the second quarter.
The company posted total sales of $346.5 million on a 19 per cent increase in deliveries and a 57.1 per cent increase in aftermarket revenue. Net earnings were $3.6 million in the quarter compared with $1.7 million for the same period last year, and earnings per share doubled to six cents.
The strong financial performance is happening in a climate of renewed investment in the transportation sector in the U.S., where New Flyer generates 80 per cent of its revenue.
But that may come at a price for the company's Winnipeg operation where it employs about 1,300 people.
That's because proposed U.S. federal legislation that includes a $6.8-billion increase for public transportation in 2015 over fiscal year 2014 also includes changes to the Buy America requirements. Those changes might increase the U.S.-content requirements for transit buses from the current 60 per cent U.S. content to 70 per cent in 2016 and then additional annual 10 per cent increases to 100 per cent in 2019.
"We believe there is lots of negotiations, and there will be lots of water under the bridge before we get to that kind of change," Soubry told analysts Wednesday. "But rest assured, from our perspective we are going to spend lots of time figuring out what kind of levers we can pull internally and what we can pull with our supply base. And we keep saying this is not just a New Flyer issue. Nova and Gillig (two of New Flyers' largest competitors) have the same issues relative to their sourcing."
Not surprisingly, he said if it did go to 100 per cent, "every one of us -- Nova and Gillig included -- would have an impossible time complying with it."
In an email response to a request for comment on the future of Winnipeg's operation, Soubry said, "Quite honestly, it is way too early to speculate on the impact to New Flyer on our industry of any potential Buy America legislation changes as it is in early stages of the debate."
Trevor Johnson, an analyst with National Bank Financial, increased his 12-month target price on New Flyer stock after the release of second-quarter results from $12.50 to $14.
The shares closed up 28 cents to a new 52-week high of $13.17.
"The funding environment at both the federal and local level is amongst the best we have seen in seven years covering NFI (New Flyer Industries), and we anticipate the company will eventually benefit from a greater U.S. commitment to transportation infrastructure spending," Johnson said in a note to investors. "A negative offset could be NFI requiring a greater percentage of Buy America content, but the company is actively working on solutions should this unfold."
In June, the company announced it would be converting production at NABI, an Alabama bus maker it acquired last year, into New Flyer's Xcelsior bus model.
That's expected to allow for improvement in competitiveness in the U.S. and Canadian markets by leveraging its combined bus volume, production, and purchasing for greater efficiencies.