Multiple Tailwinds Lift Rev Group To New Highs
Rev Group (NYSE: REVG) isn't exactly a pure-play on anything except perhaps specialty vehicles but it's a great play on those. The company makes buses for school and mass transit, safety vehicles for fire departments and hospitals, and recreational vehicles of many varieties. Along with that, the company is quickly moving into the EV Market and making headway in that regard in all three of its operating segments. The company came to our attention earlier in the year when it beat expectations and raised guidance. The company is in the spotlight again after reporting Q2 results and once again raising guidance. If you're looking for a way to play the rebound in automobiles, infrastructure, recreational vehicles, and EV’s Rev Group is a great way to do it.
Rev Group Beat Consensus On Strength In Most Segments
Rev Group had a great Q2 and one characterized by strength in two of its three main operating segments. The company reported $643.60 million in net consolidated revenue for a 17.7% gain over last year. This comp is admittedly against a very easy number, last year the company's Revenue shrank 11% in the Q2 period, but we prefer to focus on the 2-year comp of plus 4.5% and the facts the company beat revenue consensus by 115 basis points and set a first-half record.
On a segment basis, the recreation segment saw its Revenue rise more than 108% and we're not surprised. The RV market has been on a tear since the pandemic began and is not expected to slow down until late in 2022. The fire and emergency segment saw its sales increase 6.3% driven by strength in the fire sub-segment offset by slight weakness in the ambulance segment. As for the commercial business, sales of commercial vehicles fell more than 31% on a year-over-year basis due primarily to the divestiture of 2 assets and lower shipments of vehicles. While a negative near-term, these divestitures will help improve profitability long-term.
Moving down the report, the strength in revenue is also seen on the bottom line. The company's second-quarter net income of $20.6 million reverses a loss in the prior year and resulted in GAAP EPS of $0.31. The $0.3 beat the consensus by $0.13 cents while the Q2 adjusted EPS of $0.39 beat by $0.19 cents.
The business strength in the first half coupled with the company's backlog led management to raise guidance. The company's backlog grew to a record $2.30 billion giving management the confidence to raise fiscal full-year 2021 revenue guidance to a range of $2.45 billion to $2.6 billion versus the consensus of $2.50 billion. As for earnings, earnings have now been guided to a range well above the previous range and the consensus estimate.
“We are pleased with our second-quarter performance that exceeded expectations and resulted in record first-half earnings,” REV Group Inc. President and CEO Rod Rushing said. “While we will likely continue to experience and need to actively manage through supply chain and labor constraints in the second half of the year, the progress and momentum we are making through our operational initiatives combined with a record $2.3 billion backlog has positioned us to raise our guidance for the full fiscal year 2021.”
Rev Group Capital Position Improves, Dividend Reinstated
The strength in revenue and earnings not only helped improve the company's cash flow position but Rev Group has also worked to refinance its capital structure. the company completed a new 550 million five-year revolving credit facility that helps reduce the debt load and free up cash flow. Together, the earnings strength and operational improvements allowed management to reinstate the dividend at the pre-pandemic rate of $0.05 per quarter or $0.20 annually for a yield near 1%. Based on the first-half earnings results and guidance this puts the payout ratio in the range of 20% and at what we consider to be very safe levels.
The Technical Outlook: Rev Group Breaks Out To New High
Shares of Rev Group surged more than 8% in after-hours trading to break out to a new three-year high. The move is supported by both the results and the outlook and should carry the stock higher over the summer. Based on the strength of the rally leading up to today's break out and projecting that onto previous resistance we get a Target near $32 or more than 50% upside.
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