New Flyer expecting business to pick up

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This article was published 12/05/2012 (5072 days ago), so information in it may no longer be current.

THROUGH no fault of its own, New Flyer Industries’ market — heavy duty buses for North American transit authorities — has been in the pits for the last two years and it’s been reflected in the Winnipeg company’s poor financial results.

But Paul Soubry, CEO of New Flyer, is convinced there are good early signs of recovery.

“It’s not all gloomy,” he said on an analyst call Friday. “There are positive signs in the transit space. There’s lower unemployment in the U.S., which leads to increased ridership. Oil prices continue to rise, making transit a cost-effective alternative. U.S.-based transit fleets continue to age, state tax collection continues to increase and general economic health is improving.”

Despite that, the company is still suffering from a declining backlog and this week reported a 24.1 per cent decline in EBITDA (earnings before interest, taxes, depreciation and amortization) to $16.7 million and a 6.2 per cent decline in total revenue to $227.6 million for the first quarter.

But as tough as the marketplace has been, New Flyer has arguably done just about everything a responsible company can do to position itself for a recovery.

In the past few weeks alone, New Flyer witnessed the exit from the market of one of the smaller, weaker performers (leaving only four bus makers in North America). It signed a new three-year contract with its Canadian workforce after suffering through a 25-day strike in April 2006. And it entered into a partnership with a U.K. firm to build and market a new, smaller bus for the North American market.

“They have positioned themselves nicely, considering the pain their customers have felt,” said Trevor Johnson, an analyst at National Bank Financial. “New Flyer is coming out of this OK.”

While the light is visible at the end of the tunnel, it’s not clear just how long that tunnel is.

Soubry is adamant the company will be able to maintain the forecast production rate of 36 equivalent units a week, but its total firm orders as of April 1 was 1,210 versus 1,897 on Jan. 2, 2011.

David Tyerman, analyst with Canaccord Genuity, said he’s watched the firm order numbers go down for a few years now, but he has no reason to doubt management’s confidence production rates are sustainable.

Meanwhile, he agrees the company has done a lot of things that make sense.

In addition to the Alexander Dennis midi bus, New Flyer has been selling an increasing number of its latest home-grown Excelsior bus model, which is lighter, more fuel efficient and has a sleeker design.

When it comes to the Alexander Dennis bus, the company believes it won’t need to spend more than $1 million to tool up for production.

“If it doesn’t work out it will not cost them much,” Tyerman said. “It could be a successful product from a financial standpoint. They have done a lot of good things.”

Meanwhile, at the company’s annual meeting in Toronto this week, it beefed up its board of directors — chaired by former federal Liberal cabinet minister Brian Tobin — with a couple of strong American directors, a good move considering close to 80 per cent of the company’s revenue comes from the United States.

William Millar, who just retired from his position as president and CEO of the American Public Transit Association and Adam Gray, managing partner of Coliseum Capital Management, a New York hedge fund that is one of New Flyer’s largest shareholders, joined the board.

And in a move that may be the most immediately productive for the company — though a bitter pill for its shareholders — its annual dividend will be cut in half to 58 cents in August as part of the restructuring into a common share corporation, which will save the company about $25 million a year.

martin.cash@freepress.mb.ca