NFI Group continues to be held back by chronic parts shortages and has been forced to temporarily lay off about 200 people and halt new production for two weeks as it tries to finish off buses that are waiting for parts before they can be shipped.
A lot of the persistent delays in parts that got worse at the end of September and into October have to do with microprocessors and electrical parts.
The company, formerly New Flyer Industries, has to lower its financial forecasts for the quarter and has had to go back to its bankers once again to re-negotiate covenant agreements on its $1.25 billion in debt.
Even with all the troubles the company has been experiencing, NFI remains the market leader in North America, says CEO Paul Soubry. (Mike Sudoma / Winnipeg Free Press files)
NFI shares were down close to 20 per cent on Monday.
But despite production delays and the ongoing uncertainties with its bankers and supply chain, its business is actually booming with a record number of bids submitted this quarter and a huge order book.
“If it was about us managing a poor business or us not having customers or us not having an order book or not having a future it would be one thing,” said CEO Paul Soubry in an interview with the Free Press. “But these issues are not really within our control. We have to manage our way through it.”
Soubry said that even with all the troubles the company has been experiencing, it remains the market leader in North America.
“We have not lost a single customer,” Soubry said. “Our overall market position has not changed. In fact, we have seen an increase in our overall win rates, especially for zero-emission buses.”
The company expects an adjusted loss before interest, taxes, depreciation, and amortization (EBITDA) of between US$15 million and US$17 million for the quarter.
The company also experienced short-term margin pressure from higher inflation and surcharge-driven input costs, Soubry said.
NFI believes the disruptions will continue in the near term and is lowering its planned fourth-quarter vehicle deliveries and updating its guidance for fiscal 2022 to an adjusted EBITDA of between US$40 million and US$60 million on revenue of between US$2.0 billion and US$2.2 billion.
It remains committed to its forecast for 2025 when it believes EBITDA will exceed US$400 million with revenue of between US$3.9 billion and US$4.1 billion.
“We believe NFI will receive covenant relief without being forced to raise additional equity given that liquidity is sufficient and demand for new buses remains strong. However, until there is certainty on relief, we expect the stock to remain under pressure,” Cameron Doerksen, an analyst with National Bank of Canada Financial Markets, said in a note to his customers.
NFI has consistently shared details of its supply chain woes, perhaps shining additional attention on itself even though all its peers are essentially in the same boat.
But most of its bus-making competitors are privately owned and do not have to make public disclosures. Nova Bus out of Quebec, is owned by Volvo, which is a public company, but its bus operations represent a very small piece of Volvo’s overall business.
“We’re in a Catch-22 situation,” said Soubry. “If we don’t provide colour and insights into our challenges we get criticized that maybe we are hiding something. I have taken the position that we would rather be transparent with employees, investors and customers about the issue so that there is no question about what the challenges are and what we are doing about it.”
Throughout the pandemic the company has been on a rigorous cost-cutting mission, taking about $67 million in annual costs out of the system. Those actions included closing a number of parts distribution locations and some production facilities, including the Motor Coach Industries’ assembly plant in Pembina, N.D. that will be completely wound down in the first quarter of 2023.
martin.cash@freepress.mb.ca
Martin Cash
Reporter
Martin Cash has been writing a column and business news at the Free Press since 1989. Over those years he’s written through a number of business cycles and the rise and fall (and rise) in fortunes of many local businesses.
