New Flyer's bus business suffers in third quarter

St. Cloud Metro Transit New Flyer
New Flyer, the company that manufactures heavy-transit buses with plants in Crookston and St. Cloud, presented the St. Cloud Metropolitan Transit with four new buses in June 2010.
Ambar Espinoza

Canada-based New Flyer, the maker of heavy-duty transit buses, reported a nearly 16 percent drop in revenue in the third quarter which ended last month. The company employs several hundred people at plants in St. Cloud and Crookston.

Analysts say the revenue drop comes from fewer deliveries this quarter coupled with the weak health of transit authorities.

New Flyer delivered 526 buses in the third quarter compared to the 616 buses it delivered a year ago. That's why revenue dropped nearly 16 percent, according to Trevor Johnson, an analyst at National Bank Financial in Canada.

But Johnson says the company itself is doing better than the revenue drop indicates.

"Its cash flow is only down 7 percent year over year, despite having 15 percent fewer buses," Johnson said. "So that was encouraging for us. We were more or less pleased with the results. Very much in line with what we were looking for."

Year-over-year delivery was down because of two setbacks during the past year and a half. First, the company made a design error on a major bus order, which affected production and delivery in 2009. Then the Chicago Transit Authority delayed an order of 140 diesel electric hybrid buses because it didn't have enough federal stimulus money to pay for them.

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"You're not going to see as much money put into public transit systems, either buses or light rail or subways or anything like that."

Johnson says the fact that the company didn't see robust deliveries also put a little downward pressure on bus prices.

Louis Johnston, an economics professor at the College of Saint Benedict St. John's University in Collegeville, says it's not a good time to sell buses. While several big cities are expanding bus routes, he notes it's coming at time when there's pressure to cut government spending.

"One place to obviously do it is to cut funds to public transit, because people don't perceive that as important as rebuilding roads and bridges," said Johnston.

Johnston says the prospects for companies in the transportation sector don't look very good because government municipalities don't have the money to invest in transportation equipment.

He says a GOP-controlled Congress may affect those prospects, too. Traditionally, Republicans haven't been in favor of mass transit as much as Democrats have.

"So you're not going to see as much money put into public transit systems, either buses or light rail or subways or anything like that," said Johnston.

In a conference call for investors, New Flyer officials said many customers are deferring bus orders because of "local funding challenges." The economic downturn and increased unemployment levels have also affected ridership, which is down.

The company does not expect the demand for transit buses in the United States to recover until at least 2012.