New Flyer boss very bullish

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This article was published 14/05/2016 (3599 days ago), so information in it may no longer be current.

The stoplights are synced green, and all routes are on schedule at New Flyer Industries.

After only 140 days of ownership of the cross-town Motor Coach Industries, New Flyer is well on its way to becoming a significant industrial market leader with operations across North America.

CEO Paul Soubry spoke glowingly about MCI and its people at an analyst presentation Friday.

“The wonderful news is that there were no post-due-diligence surprises,” he said. “Candidly, as much as New Flyer can teach MCI… MCI can teach New Flyer.”

Soubry emphasized management would take its time learning the business and is not likely to firm up an integration strategy for MCI until the end of the year.

Having said that, he also indicated there was already $3 million in savings of the estimated $10 million in annual savings expected to be realized with the deal.

On Thursday night, New Flyer released its first full quarter of results that include the operations of MCI, which it acquired for US$455 million last December.

And rather than create a short-term drag on earnings as such deals often can, operating profits at New Flyer doubled in the quarter to US$68.2 million. Net earnings and earnings per share were also twice as much. Revenue for the quarter was up 45 per cent compared to last year, to US$553 million.

The release of stellar first-quarter results proved to be excellent timing for the Winnipeg company to host a number of Bay Street analysts on a tour of New Flyer and MCI’s Winnipeg production plants Friday.

While the brighter lighting and more colourful industrial fixtures at New Flyer’s Transcona plant might have been in contrast to the darker lighting, older infrastructure at MCI’s operations in Fort Garry, it certainly isn’t a turnoff for the analysts or their investor clients.

“We will have to make some investments,” Soubry said of the MCI facilities. “For instance, some elements (of the production facility) are dated, the IT system may be lacking. But we are pleased with the opportunity to be able to co-ordinate things over at MCI.”

At the close of trading Friday, New Flyer shares hit an all-time high of $40.73, up almost 10 per cent in one day on very heavy trading Friday. On Thursday, the board of directors, chaired by former federal Liberal cabinet minister Brian Tobin, agreed to a 36 per cent increase in the dividend to 95 cents per share, the third dividend increase in the last 12 months.

Kevin Chiang, an analyst with CIBC World Markets had a 12-month target price on the stock of $45.

“But that will be subject to revision,” Chiang said. “It was a good quarter.”

The company was already on a roll before December’s purchase of MCI. It bought North American Bus Industries in Alabama in 2013 and successfully converted that plant to New Flyer’s Xcelsior platform, at a lower cost than forecast, ahead of schedule and with three times the original synergy targets.

That, along with the acquisition and integration of Orion Bus’s parts business — turning New Flyer’s parts business into a very profitable $340-million-per-year business — means management now has the proven track record of successfully integrating acquisitions.

Through it all, the company has made great strides in its operational excellence efficiency program. Wayne Joseph, executive vice-president in charge of bus manufacturing, said it has been nothing short of transformational.

After suffering through the cataclysmic public-sector credit crisis last decade that resulted in orders drying up and bus prices plummeting, the market has normalized, partially thanks to New Flyers muscling its way through the industry.

Not only has New Flyer’s investments helped its own operational performance, it’s also stabilized the market in general with two fewer competitors and a more predictable flow of business, the largest order book and “bid universe” — the totality of orders out there in the North American market — in its history.

Chris Murray, an analyst with Alta Corp. Capital, believes earnings growth — the compounded annual growth rate is at a 35 per cent clip over the last four years — is sustainable.

“A lot of what you see in the earnings today have to do with the optimization work they have done on systems and process. That has been institutionalized. It’s not going away,” he said. “The other very important piece of it is the quality of the backlog.”

Murray said that came about partly because New Flyer itself stabilized the market by taking out two of the main competitors.

“They are beneficiaries, but also the creators of the conditions that made it possible,” he said.

New Flyer is also in the process of creating a whole new market in all-electric buses, which also includes its own cohort of new competitors.

Although there were only about 50 shipped throughout North America last year, Soubry said it’s not a matter of if, but when electric buses dominate the market.

martin.cash@freepress.mb.ca