Daily Gains Letter

Transit Company Could Drive Portfolio Growth

By for Daily Gains Letter | Feb 28, 2013

280213_DL_whitefootDuring the Great Depression, America built the Hoover Dam and the Golden Gate Bridge. After World War II, it connected Americans across the country by building a system of highways.

In an effort to bolster economic growth and create jobs during the Great Recession, President Obama earmarked $74.0 billion for the Department of Transportation in the fiscal 2013 budget, a two percent increase above 2012. (Source: “Budget Highlights: Fiscal Year 2013,” U.S. Department of Transportation web site, January 24, 2012, last accessed February 27, 2013.)

The Department of Transportation budget set aside $580 million for fiscal 2013 to continue improving motor carrier safety. This represents the first year of a six-year, $4.8-billion proposal. This increase will improve the safety and security of commercial motor vehicles and buses.

That’s good news for cash-strapped municipalities. It’s great news for transit equipment makers, many of which are already reporting improving market conditions.

New Flyer Industries, Inc. (OTC/NFYEF) is the leading manufacturer of heavy-duty transit buses in the United States and Canada with over one-third of the market share. Twenty of the 25 largest transit systems in North America are New Flyer customers. (Source: “Best Bus Value and Support for Life,” New Flyer Industries, Inc. web site, last accessed February 27, 2013.)

The company offers the broadest product line in the industry, including drive systems powered by clean diesel, trolleys powered by liquid or compressed natural gas or electricity, and energy-efficient diesel-electric hybrid vehicles.

New Flyer has delivered over 30,000 heavy-duty buses in the United States and Canada and has manufacturing facilities in St. Cloud, Minnesota; Crookston, Minnesota; and Winnipeg, Manitoba, Canada. The company also operates a parts fabrication facility in Elkhart, Indiana and has the largest bus original equipment manufacturer (OEM) presence in the U.S.

New Flyer has a market cap of $454 million, $3.0 million in cash, short-term liabilities of $187 million, and total current assets of $202 million. New Flyer also provides an annual dividend yield of roughly 5.6%, or $1.05 per share, paid monthly.

In November, the company reported third-quarter revenues of $208 million, a nine percent decrease from the $229 million recorded in the same period of 2011. New Flyer reported third-quarter net income of $1.7 million, compared to net earnings of $15.1 million in the third quarter of 2011. (Source: “New Flyer Announces Results for the Third Quarter of 2012 Fiscal Year,” New Flyer Industries, Inc. web site, November 12, 2012, last accessed February 27, 2013.)

Delayed order release from a large U.S. customer during the third quarter negatively impacted New Flyer’s line entries and production schedule. As a result, third-quarter bus revenues decreased by 10.7% to $179 million, compared to the $201 million in bus revenues recorded in the same prior-year period. Subsequent to the end of the third quarter, production had returned to previous levels, averaging 36 equivalent units (EUs) per week as the notice to proceed was received.

New Flyer reported year-to-date revenues of $663 million, a one percent decrease over the $670 million recorded in the same period in 2011. Net income for the first nine months of fiscal 2012 increased significantly to $8.0 million, versus net earnings of $1.4 million for the same period in 2011. The increase was primarily due to reduced finance costs.

The total backlog at the end of the third quarter of 2012 was 6,206 EUs, a sequential decrease of 0.3%—totaling $2.6 billion. The firm portion of the total backlog at the end of the third quarter of 1,462 EUs increased 15.4%, compared to the 1,267 EUs on July 1, 2012.

This improving trend in total backlog is consistent with management’s expectations, taking into account current market conditions and upcoming procurements.

Subsequent to the end of the third quarter, New Flyer has announced a number of new contracts, including partnerships with Rochester-Genesee Regional Transportation Authority, Nashville Metro Transit, the Los Angeles County Metropolitan Transportation Authority, and MTA New York City Transit.


dl_02282013_image001Chart courtesy of www.StockCharts.com

New Flyer’s share price has been in an uptrend since its initial public offering (IPO) in August 2011. Between August and November 2012, New Flyer traded in a very tight range along the 50-day moving average (MA). The company’s share price broke to the upside on increased momentum in early December after it announced a number of new contracts. New Flyer’s share price remains bullish; and has climbed more than 20% since the beginning of January.

On January 9, 2013, New Flyer issued its quarterly order and backlog update for the fourth quarter of 2012, with a total backlog of 6,325 EUs, worth $2.7 billion. (Source: “New Flyer Announces Fourth Quarter 2012 Orders and Backlog,” New Flyer Industries, Inc. January 9, 2013, last accessed February 27, 2013.)

The total order activity in the second half of 2012 improved significantly relative to the previous four quarters and represents the third consecutive quarter of improved order intake. The new orders (firm orders and options) for the fourth quarter of 2012 totaled 1,055 EUs, which represents the highest level of order intake by New Flyer in a single quarter since the fourth quarter of 2008.

With a strong backlog and ongoing demand from across North America, New Flyer could increase production in 2013, adding value to the company’s bottom line. Plus, New Flyer provides an excellent monthly dividend yield.

While New Flyer’s third-quarter net income and bus revenues were down significantly, it was a result of a delayed order—not a fundamental change in the company’s operations.

In spite of the turbulent economic climate, New Flyer continues to be an excellent stock with great long-term growth potential.

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