New Flyer Industries Inc., the largest transit bus and motor coach manufacturer and parts distributor in North America, has announced its results for the 13-week period ended December 27, 2015 (2015 Q4) and the 52-week period ended December 27, 2015 (Fiscal 2015). Full audited financial statements and Management's Discussion and Analysis (the MD&A) are available at the company's website.
Operating Results
- 2015 Q4 and Fiscal 2015 operating results include deliveries of 32 EUs by MCI during the period December 18, 2015 to December 27, 2015.
- The increase in 2015 Q4 bus and coach revenue primarily resulted from a 1.8% increase in total bus and coach deliveries and a 1.4% increase in average selling price. The increase in average selling price is the result of a more favorable product sales mix of bus and coach types and pricing during 2015 Q4. The average selling price can be volatile when comparing two fiscal quarters as a result of sales mix.
- Similarly, bus and coach revenue for Fiscal 2015 increased 7.5%. Bus and coach deliveries increased 1.9% compared to 52-week period ended December 28, 2014 (Fiscal 2014) and the average selling price per EU in Fiscal 2015 increased 5.5% compared to Fiscal 2014. The increase in average selling price is the result of changes in the product sales mix and pricing.
- The decrease in revenue from aftermarket operations during 2015 Q4 as compared to the 13-week period ended December 28, 2014 (2014 Q4) is primarily a result of the completion of the Chicago Transit Authority (CTA) mid-life overhaul program revenue stream. Excluding the CTA mid-life overhaul program, the revenue from aftermarket operations for 2015 Q4 of $71.7 million increased compared to $66.8 million in 2014 Q4.
- The increase in revenue from aftermarket operations during Fiscal 2015 compared to Fiscal 2014 is primarily a result of improved aftermarket parts market fundamentals. Excluding the CTA mid-life overhaul program, the revenue from aftermarket operations of $288.2 million in Fiscal 2015 increased compared to $271.8 million in Fiscal 2014.
- The increase in 2015 Q4 and Fiscal 2015 bus and coach manufacturing operations Adjusted EBITDA compared to 2014 Q4 and Fiscal 2014 is primarily due to favorable sales mix, pricing, labor efficiencies and the cost savings achieved from transition to Xcelsior in Anniston, AL. Management has continued its efforts to enhance margins during Fiscal 2015 through cost reductions, improved labor efficiency and price change orders. Profit margins can vary significantly between orders due to factors such as pricing, order size, propulsion system and product type and components specified by the customer. Adjusted EBITDA from bus and coach 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 and coach manufacturing operations margins. Management had anticipated and previously provided guidance that on average, margins on orders planned for production throughout Fiscal 2015 were expected to be higher than the average margins achieved during Fiscal 2014.
- 2015 Q4 and Fiscal 2015 aftermarket operations Adjusted EBITDA increased compared to 2014 Q4 and Fiscal 2014 as profit margins have improved 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.
- Net earnings during 2015 Q4 increased by 90.0% compared to 2014 Q4, primarily as a result of improved Earnings from Operations offset by the increase in income tax expense and non-cash losses. Similarly, Fiscal 2015 net earnings increased by 101.7% compared to Fiscal 2014.
- Fiscal 2015 net earnings were negatively impacted by a retroactive past pension service cost charge of $3.7 million and a $1.4 million impairment loss on equipment and intangible assets, whereas the Fiscal 2014 earnings were negatively impacted by a $4.8 million impairment loss on equipment and intangible assets.
Liquidity
- The Free Cash Flow payout ratio was 31.2% in Fiscal 2015 compared with 49.6% during Fiscal 2014.
- The company's board of directors approved a 12.9% increase in the annual dividend rate from C$0.62 to C$0.70 per common share, and revised its policy to pay dividends on a quarterly basis. The first quarterly dividend on the common shares in the amount of C$0.175 per share is payable on April 15, 2016, to holders of record at the close of business on March 31, 2016.
- The increased liquidity relates to financing of the MCI acquisition and the decision to refinance $142.0 million from term loan to the revolving credit facility as a means to increase the company's overall operating flexibility to temporarily draw upon in the future if required by the combined businesses.
Outlook
The company’s annual operating plan for the 53-weeks ending January 1, 2017 (Fiscal 2016) is focused on completing the integration of the New Flyer and NABI aftermarket parts businesses, defending and growing the leading market position in the heavy-duty transit bus and motor coach markets, and developing a combination and integration plan for the acquired MCI business.
Management continues to pursue cost and overhead savings in operations through its Operational Excellence initiatives at New Flyer, and the Quality at Source program at MCI. The company's master production schedule combined with current backlog and orders anticipated to be awarded by customers under new procurements is expected to enable the company to deliver new buses and coaches of approximately 3,450 EUs during Fiscal 2016 (53 week period), which compares to 3,265 EUs (New Flyer plus pro-forma MCI) in Fiscal 2015 (52 week period).
Management expects the core aftermarket revenue will grow by approximately 5% in Fiscal 2016.
With respect to the integration of MCI, the company has targeted annual synergies of approximately $10 million through the rationalization of certain corporate costs, further deployment of LEAN operational techniques, and leveraged sourcing expertise across the company. Management is taking the necessary time to evaluate the market and the company and is assessing strategic opportunities for overall business optimization. Similar to the previous acquisition of NABI, management will provide investors with combination and integration plans and investments in due course.
