NFI ‘poised for a pretty good recovery:’ CEO

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This article was published 03/08/2022 (1255 days ago), so information in it may no longer be current.

As bad as things have been for NFI Group, things are looking up.

Although its second quarter results released on Wednesday continued the trend of dismal declines in revenue, profit and buses shipped, things are falling into place for what could be a solid recovery by the end of next year… if everything goes as planned.

On Wednesday the company reported second quarter revenue down 32 per cent to $398 million, a net loss of $57 million pushing the profits/loss category down 2,281 per cent and bus deliveries were down 43 per cent.

‘The good news is we are positioned to come out ofthis nightmare’– NFI Group CEO Paul Soubry

But there is light at the end of the tunnel.

NFI was especially hard hit by the post-pandemic global supply chain catastrophe. Because of the fact its sophisticated vehicles are not mass-produced like passenger vehicles, the company does not have a defined supply chain for every bus.

Most seriously its sole supplier of key microprocessor control modules could not deliver, leaving the company unable to ship buses otherwise completed save that one part.

But the company expects a sizable shipment of modules in the next couple of weeks and it is already testing an alternate design using a different microprocessor to avoid the monumental disruption it’s just gone through.

“The parts supply continues to be fluid. Because of the bespoke nature of our production we will always have that level of complexity,” said CEO Paul Soubry.

The entire global manufacturing industry has been hard hit by market disruptions. But NFI really took it on the chin.

In April it was forced to re-state its financial forecast for the year — the second year in a row it had to take such measures — which saw its stock plummet. It announced further cutbacks including the closure of its Motor Coach Industries assembly plant in Pembina, N.D. by the end of the year.

Since the start of the pandemic the company’s global workforce is down 2,000 people including more than 500 fewer workers in Winnipeg.

But since then, Soubry has just come back from a medical leave, its syndicate of 11 lenders unanimously agreed to a relief package on its debt terms taking it through to the end of 2023 — a significant vote of confidence — and government funding, demand from transit authorities and bus ridership have all gone up.

The company now is sitting on its largest order book ever and its bet on electric bus technology is paying off, with electric vehicles making up an increasing percentage of total buses shipped.

Company officials say they are more confident than ever that by 2025, 40 per cent of its shipments will be zero emission buses — that includes trolley-electric, hydrogen fuel cell-electric, and battery-electric buses and coaches.

While there are some competitors on the zero emission products, Soubry said there really aren’t many.

In an interview with the Free Press, he said, “Our win rate on conventional buses is higher than our market share right now. Our win rate on zero-emission buses, whether it is fuel cell or battery electric, is at record levels.

“The good news is we are positioned to come out this nightmare,” he said. “The great news now is we are building back our order book, our products are right and the pricing reflects the supply chain hyperinflation. We are poised for a pretty good recovery.”

Even with significant losses and uncertainties remaining, investors pushed the stock up more than 10 per cent at mid-day Wednesday closing up 8.72 per cent to $14.46.

Not counting Wednesday’s bump, the stock was down 54 per cent from a year ago.

Cameron Doerksen, an analyst with National Bank Financial Capital Markets, said he is becoming “progressively more constructive on the stock.”

Brian Dewsnup, the president of NFI Parts who sat in as interim CEO while Soubry was on medical leave said the company expects to start the process of ramping up production.

“It’s not a simple process,” he said. “We’ll take a measured approach but the expectation is to be able to get back to pre-pandemic run rates by late 2023.”

To do that means not only having the capital and parts on hand, but also the people. Soubry said the company has been benchmarking wage rates in every location it operates in and said, “we now believe we are at or better than market rates in pay for all facilities” and that retention is up and turnover rates are trending down.

While the ugly losses and declining shipments have meant a very challenging couple of years for the company, its market-leading position and rigorous management – it’s achieved $67 million in annual cost savings – means it has tools in place to bounce back.

“We look forward to finishing 2022 stronger,” Soubry said. “2023 will be a significant recovery year. We will benefit from record demand and backlog growth which gives us excellent visibility in planned deliveries.”

Doerksen said, “The stock is attractive if you believe NFI can hit its 2025 targets of $400-$450 million in EBITDA (earnings before interest, taxes, depreciation and amortization). We also believe this is an achievable goal.”

That compares to its restated guidance of between $15 million US and $45 million US in EBITDA this year with revenue of between $2.3 billion and $2.6 billion US

By 2025 it expects to hit $3.9 billion-$4.1 billion in revenue.

martin.cash@freepress.mb.ca