Tom Konrad CFA
Highlights from New Flyer Industries’ (TSX:NFI, OTC:NFYEF) first quarter conference call
New Flyer announced first quarter results on May 9. The results were:
|Q1 2012||Q1 2011|
|Earnings up; reverses loss||$2.7 million profit||$6.4 million loss|
|Revenue up 6.2%||$227.6 million||$214.3 million|
The improved numbers mostly arise from a more favorable product mix, and the benefits of New Flyer’s restructuring, which removed most of the debt burden. The North American transit bus market remains very competitive, and this competition led to
Chrysler’s Daimler‘s Orion bus division to wind up operations in the quarter.
Management held the analyst conference call on Friday. Here are the highlights:
Bus Market Revival
Orion exited the market just in time for a revival. Transit agencies are once again issuing inviting bids for new buses, after a two year drought. State tax collections are rising, and transit agencies are contending with aging fleets and increasing ridership, driven by increasing oil prices. Overall demand for new buses is at “an all-time high.”
Management does not believe that Orion’s exit and the larger bid universe will be enough to allow the remaining manufacturers to increase prices this year, as all manufacturers compete to refill backlogs and manufacturing slots, but they do anticipate prices will stabilize.
New Midi Bus
New Flyer has been working for the last year to diversify its product offerings. The first announcement of this type came last week, when they announced a partnership with British firm Alexander Dennis to jointly develop a new smaller size “midi” bus for the North American market. Alexander Dennis has deep experience in the international midi bus market, having manufactured 16,000 buses in the class. New Flyer will be contributing its expertise with North American standards. New Flyer will manufacture the midi buses at its existing plants and sell them to existing and potential new customers. This new opportunity will come very cheaply for New Flyer, and cost $10 million or less to build prototype buses and retool an assembly line.
Management continues to look at other diversification opportunities, but can’t say if there will be any more announcements this year.
Conversion of Outstanding Notes
Management reiterated their intent to redeem the outstanding notes left over from the conversion of their old IDS securities in August. The remaining IDS securities trade in Toronto as NFI-UN and over the counter as NFYIF. After the conversion, management reiterated their long-stated intention to reduce the dividend to about C$0.04875 monthly or C$0.585 on an annual basis. At the recent stock price of C$7.14, this amounts to an 8.2% annual dividend yield, beginning with the dividend declared in August and paid in September.
Overall, the future is looking very bright for New Flyer. Their current backlog should allow them to maintain production at the current level for the rest of the year, and strong demand and new offerings mean they may be able to increase production and prices in 2013. Combine that with a dividend yield which will be over 8% even after it is reduced, and New Flyer remains a stock to buy and hold for the long term.
Disclosure: Long NFI
DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results. This article contains the current opinions of the author and such opinions are subject to change without notice. This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.