New Flyer Industries Inc., the leading manufacturer of heavy-duty transit buses in Canada and the United States, announces its results for the 13-week period ended September 27, 2015 (2015 Q3). Full unaudited financial statements and Management's Discussion and Analysis (the MD&A) are available at the company's web site. Unless otherwise indicated, all monetary amounts are expressed in U.S. dollars.
Operating Results
- The increase in 2015 Q3 bus revenue primarily resulted from a 0.6% increase in total bus deliveries and a 4.5% increase in average selling price. The increase in average selling price is the result of amore favorable product sales mix of bus types and pricing during 2015 Q3. The average selling price can be volatile when comparing two fiscal quarters as a result of sales mix.
- The decrease in revenue from aftermarket operations during 2015 Q3 is primarily a result of the completion of the Chicago Transit Authority (CTA) mid-life overhaul program revenue stream.
- The increase in revenue from aftermarket operations during the 39-week period ended September 27, 2015 (2015 YTD) is primarily a result of improved aftermarket parts market fundamentals and incremental revenue from the CTA mid-life overhaul program.
- The increase in 2015 Q3 and 2015 YTD bus manufacturing operations Adjusted EBITDA as compared to the 13-week period ended September 28,2014 (2014 Q3) and the 39-week period ended September 28, 2014 (2014 YTD) is primarily due to increased margins. Higher margins are primarily a result of a favorable sales mix, pricing, improved labor efficiencies and the cost savings achieved from transition to Xcelsior in Anniston, AL. Management had anticipated and previously provided guidance that, on average, margins on orders planned for production in Fiscal 2015 are expected to be higher than the average margins achieved during Fiscal 2014. Adjusted EBITDA from bus manufacturing operations per EU can be volatile on a quarterly basis and therefore management believes that a longer term view should be taken when comparing bus manufacturing operations margins.
- Aftermarket operations' profit margins have improved during 2015 Q3 and 2015 YTD primarily as a result of improved market fundamentals and the benefits to the product mix that have resulted from a far broader portfolio of services and parts offerings to customers. This has contributed to the increase in Adjusted EBITDA for 2015 YTD as compared to 2014 YTD.
The company reported net earnings of $16.6 million in 2015 Q3 representing a 61.6% improvement compared to 2014 Q3, primarily as a result of improved earnings from operations offset by increased income tax expense.
Liquidity
The Free Cash Flow payout ratio is 41.3% in 2015 YTD compared with 54.8%during 2014 YTD. In May 2015, the company increased the annual dividend from $0.585 to $0.62 per common share.
As of September 27, 2015, there were $44.0 million of direct borrowings and $9.5 million of outstanding letters of credit related to the $115.0 million revolving credit facility.
Outlook
Management believes pricing in certain types of bus competitions has normalized and expects that bus margins realized during Fiscal 2015 will be, on average, higher than those realized during Fiscal 2014. Management continues to pursue savings as a result of its decision to focus exclusively on the Xcelsior platform, as well as in daily operations through its Operational Excellence initiatives. Management anticipates that the increased bus margins for Fiscal 2015 will substantially mitigate the loss of Adjusted EBITDA derived from the company’s investment tax credits (ITCs), which were substantially realized during Fiscal 2014.
During the first week of July 2015 there were no scheduled assembly line entries which resulted in a reduction of approximately 35 EUs being entered into production. The New Flyer master production schedule combined with current backlog and orders anticipated to be awarded under new procurements is expected to enable the company to continue to operate at a corporate average line entry rate of approximately 50 EUs per available production week for Fiscal 2015 and 2016.The production rates vary from quarter to quarter due to sales mix and the phased introduction of the Xcelsior platform in the Anniston, AL, manufacturing facility in Fiscal 2015.
With respect to the aftermarket segment, management continues to expect core aftermarket parts revenue growth of approximately 5% during Fiscal 2015. Also, the aftermarket revenue generated from the CTA mid-life upgrade program ended in June 2015 which represented 13.6% of the total aftermarket revenue during 2015 YTD. In addition, management continues to be engaged in a strategic review of New Flyer’s aftermarket business to identify efficiencies through business and system synchronization.
