Canada

NFI officials see victory in sight as Q3 results beat projections

1 year ago
BusinessL

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After dealing with just about every bomb blast the pandemic cold hurl at it, NFI Inc. continues to do battle.

It has not yet declared victory, but company officials believe it is in sight.

The company’s third-quarter results beat analysts’ projections across the board and the company modestly increased its own financial projections for the rest of the year.

Revenue during the quarter totalled US$709.6 million, up from US$514.0 million in the same quarter last year.

In its outlook, NFI says it now expects revenue of US$2.7 billion to US$2.8 billion for 2023, up from earlier expectations of US$2.6 billion to US$2.8 billion.

Company CEO Paul Soubry said production profit margins are still being curtailed by work in progress from pre-inflation contracts that are priced in such a way that the company is not making the kind of margins it needs to be successful.

Production rates are gradually increasing throughout its international operations. Among other things, it has added 240 workers across its operations — NFI now has production on two continents with a global workforce of 8,000 people — and expects to add another 300 to 400 next year.

And as a manufacturer of custom products with lengthy production cycles, it does not get paid until product is delivered and accepted, which, in the midst of the myriad disruptions experienced over the past three years, put its balance sheet in dire straights.

A complex refinancing plan — including the injection of new debt and additional equity — that had been in the works for a few months was only completed in August.

Soubry made it clear on an analyst call Wednesday that despite the gradual increase in production rates, much improved supply chain and increasing demand, in particular for higher value zero emission buses, the company does not expect profit margins to immediately recover. Pre-pandemic production rates are not expected to be reached until 2025.

Soubry said a task force established by the powerful American Public Transit Association (APTA) is working on a report on the health of the industry. It is examining the possibility of establishing a standardized system whereby transit authorities would make milestone payments for buses that are in the process of being manufactured. The original equipment manufacturers like NFI have to finance the entire cost of the custom order right up to delivery before it gets any payment.

“What the industry (APTA) wants is healthy suppliers, “ Soubry said, noting the industry has gone through the current year with one company pulling out of the U.S. market — Nova Bus — and another — Proterra — going into bankruptcy protection.

“Full health of our business does not happen overnight,” he said. “You won’t see it until through 2024 and into 2025.”

While it has been hit hard in every conceivable manner from a production perspective, it has the benefit of a strong, enduring level of demand with generous public sector funding available for those transit agency customers.

So despite continuing lacklustre bottom line results — on an adjusted basis, NFI lost 41 cents per share in its latest quarter compared with an adjusted loss of 60 cents per share a year earlier — analysts are bullish about the company’s fortunes.

Shares were up more than four per cent Wednesday — the stock closed at $13.51 — and those who bought NFI shares in April, for instance, have already doubled their money.

Cam Doerksen, an analyst with National Bank of Canada Financial Markets, has a target price of $18.00 in the next 12 months.

In a note to his clients Wednesday, Doerksen said, “The company still needs to execute on its production ramp, but we are encouraged by improvements in the supply chain that should facilitate higher bus deliveries. With demand for buses continuing to be strong, we believe financial results will trend more positively in the coming quarters and through 2024-25, which we believe will support further upside to the share price.”

Soubry reminded analysts that increasing production is not just a matter of flicking a switch.