REV Group May Gain Traction In Second Quarter
REV Group (NYSE: REVG) released its Q1 results and one thing is glaringly clear; supply chain constraints continue to impact both the top and bottom lines. This issue has the shares down more than 25% from their 2021 high but a reversal may be at hand. There are glimmers of supply chain improvement in various industries that make us think the lost revenue will be recouped. More, backlogs continue to rise so we think there is an opportunity for momentum to build and the company to outperform for the remainder of fiscal 2022.
Mixed Results Drive REV Group Higher
REV Group had a good quarter if one in which revenue declined on a YOY basis. The points we are focusing on are that revenue, while down 3.1% YOY, beat the Marketbeat.com consensus estimate by 150 basis points and there is margin strength in the report as well. The strength in revenue was driven by gains in Commercial and Recreation offset by a decline in Fire and Emergency. The Commercial segment grew by 17%, the Recreational by 6.5%, with both segments being impaired by supply chain and labor issues. The F&E segment declined by 15.4%, also largely due to supply chain constraints.
Moving down to the income, margin contracted on a YOY basis but less than expected due to pricing and mix. Margin contraction in the F&E segment is due to deleveraging of fixed costs that are related to lower volume caused by supply issues. Margin in both the Commercial and Recreational segments improved. On the bottom line, the $0.13 is down a penny from last year but beat by two pennies and the outlook is favorable.
While supply chain headwinds will continue to blow, the company reaffirmed its guidance for revenue in the range of $2.3) to $2.55 billion. This compares to the Marketbeat.com consensus target of $2.65 and comes with an expectation for a widening margin later in the year.
“We began fiscal 2022 with strong demand, which combined with the execution of our Commercial Excellence program has led to a record backlog in each of our segments and positions us to continue to benefit from strong municipal budgets,” REV Group Inc. President and CEO Rod Rushing said. “We anticipate the external headwinds will continue in the near term and believe the actions we have taken, and an improved supply chain will improve performance in the second half of the fiscal year.”
Capital Returns Put Floor In REV Group Price Action
REV Group reinstated the dividend a few quarters ago and upped the ante for capital returns with a share repurchase program this quarter. The program was worth $250 million and there is close to $200 million left or about 24% of the market cap. This is a substantial amount for shareholders and should help sustain upward action in prices over the next year. The dividend is worth 1.15% to shareholders and looks safe enough now the economic reopening is well underway.
The Technical Outlook: REV Group Moves Up From Support
Shares of REV Group have been consolidating around the $13 level for the last few months and are moving up from that level now. The Q1 report has price action up 5.0% and we think heading higher if resistance at the $14 level can be overcome. If not price action will most likely remain rangebound below $14 until a clearer picture of 2022 results is formed.
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