Sunday, December 10

NFI swings to $57 million loss as inflation and shortages dog bus maker

But CEO expects operations to ramp up towards end of year

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Canadian bus manufacturer NFI Group Inc. reported a net loss of US$56.7 million in the second quarter, compared to net earnings of US$2.6 million in the same quarter last year as it grapples with inflation, supply constraints and labour issues.

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The company’s revenue totalled US$398 million, down from US$583 million in the second quarter of 2021. While revenue from its manufacturing segment decreased by US$176 million or 38 per cent because of reduced deliveries, revenue from its aftermarket segment increased eight per cent or US$114 million compared to last year.

The parent company of New Flyer also said that it wasn’t eligible for government wage subsidy grants during the quarter, which added to the challenges.

“There is still tremendous uncertainty around anything with a microprocessor and frustrations around confidence of supply of anything that has electrical components associated with it,” the company’s CEO Paul Soubry said on a conference call.

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“The problem we have is unique to our business. Because of the bespoke nature of our products, we don’t have a defined supply chain for every bus, there is a lot of unique customization or … element that are put on that bus, ” he added.

The slowdown in the economy has also made it difficult to hire skilled people in some areas, he said.

However, the CEO, who recently returned from medical leave, also believed that the company was in a much better position than three to six months ago, in terms of supply and labour issues, and that it would be able to ramp up operations towards the end of 2022.

In a bid to tackle “significantly increased inflation” in previous contracts, the company said that it was negotiating with customers to seek price increases and surcharges. “The majority of the impacts from inflation are expected to be seen in 2022 results due to legacy firm order contracts,” it said.

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According to Soubry, about 20 to 30 per cent of what the company builds in 2023 will be based on previous contracts and may be impacted by inflation. However, everything that the company worked on in the past three to four months and its contracts for the The rest of the year will reflect the inflated cost.

“So, if costs go down, we have an opportunity for some potential margin enhancement or mitigation,” he said.

NFI booked new orders of 1,348 equivalent units (EU) during the quarter, where one EU represents one bus, unless it’s an extra-long transit bus which represents two units. Its total backlog at the end of the quarter was 9,674 EUs, compared to 8,908 EUs at the end of the first quarter. Twenty per cent of the company’s backlog consists of battery and fuel-cell electric vehicles.

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As a result of a specific microprocessor shortage, NFI has been building and holding a number of vehicles in its inventory, which has grown by $57 million in the quarter. It expects to deliver these vehicles in the second half of 2022 and early 2023.

“Significant progress has been made on a new alternative microprocessor module that will be installed in some vehicles,” the company said.

Shares of NFI Group were up 8.5 per cent to $14.44 on the TSX in afternoon trade Wednesday.

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