REV Group, Inc Has Record Back Log
REV Group (NYSE: REVG) is only the latest example of a growing problem for America and for the world. Shortages of freight and shipping capacity coupled with supply chain issues and parts availability are cutting into the top-line results. This led the company to lower its guidance from a previously stated range and to below the analyst consensus and that is leading the shares lower. If this becomes a trend in the broader market, there could be a reckoning in store for the major indices.
“We delivered another strong quarter of earnings performance and cash generation while continuing to manage through supply chain and labor challenges that impacted our top line growth. Our end markets remain strong with solid order intake in each of our segments, resulting in REV Group’s seventh consecutive record backlog,” REV Group Inc. President and CEO Rod Rushing said.
REV Group Lowers Guidance But Profitability Improves
REV Group reported a very mixed quarter and one that could have been much better if not for supply chain challenges plaguing the entire automotive industry. The company reported $593.30 in consolidated revenue for a gain of 1.9% over last year but this missed the consensus by 1000 basis points despite record backlogs. On a segment basis, Fire&Emergency vehicles were the weak segment this quarter with a decline of 12% but that was offset by strength in the Recreational and Commercial segments. Commercial sales rose 20% for the quarter while recreational sales grew 16%. Recreational sales, surprisingly, are below the industry average so that could be a red flag for the RV stocks as well.
Moving down the report, the margin and earnings news are good. Margin Improvement was seen in both the Fire&Emergency segment and the Recreational segment due to internal improvements but the Recreational segment stands out. Adjusted EBITDA in the Recreational segment grew 99% due to cost leverage, higher realized prices, and the company's strategic initiatives. On the bottom line, the GAAP EPS of $0.36 beat by $0.05 while the adjusted EPS of $0.37 beat by $0.03 but this is where the good news ends.
The company is expecting supply chain issues to persist through the end of the year and are guiding accordingly. The new guidance assumes revenue in the range of $2.30 billion to $2.45 billion versus the prior range which had a low end of $2.45. The new range compares to the consensus of $2.54 and will likely lead to a round of analyst downgrades as well. Pricetargets.com analyst tracking tools show a consensus rating of Hold.
REV Group Returns Capital To Shareholders
REV Group reinstated its dividend in the previous quarter and is increasing its capital returns to shareholders this quarter. The company announced a new $150 million share repurchase program that goes into effect immediately. This repurchase program is worth more than 10% of the market cap and should have a significant influence on price action over the next six months to a year.
The Technical Outlook: REV Group Falls To Support
The best news about REV Group’s Q3 earnings report is that the business is strong and supported by high demand. While revenue will be impacted in the near term we do expect to see the supply chain issues overcome eventually and for growth to reaccelerate. In that light, the 12.5% decline in share prices seen in the wake of the report is an opportune time to buy some more of the shares. REV Group is trading above a key support level that should maintain price action in the near to midterm. Longer-term, we expect to see a bottom form at or above the $14 level and for price action to move higher under the influence of growing revenue, growing earnings, and the buyback program.
Companies in This Article:
