More Trends Than One Support The REV Group
The REV Group (NYSE:REVG) is not a pure-play on the RV industry but it is certainly benefiting from its strength. Estimated to rise 24% or more in 2021, the backlogs in the RV industry are so high as to guarantee production for several quarters and that is just to meet existing orders. That doesn’t count filling inventory and getting the market back to normalized operations. That won’t happen until late next year and for the REV Group, there’s more. The REV Group makes a wide variety of specialty vehicles including RVs, fire and safety vehicles, school busses, and it even has EV options. In our view, the REV Group is more than perfectly positioned for the next few years at least.
“We are pleased with our fiscal first-quarter results which reflect year-over-year operating improvements in our business. Backlog and order intake have been strong in fire, emergency, recreation and specialty markets and we expect our transportation service markets to respond to greater availability and adoption of COVID-19 vaccinations throughout the year,” REV Group Inc. President and CEO Rod Rushing said. “Today we provide fiscal 2021 guidance that illustrates the momentum that we have achieved as we continue to offset the COVID-19 related headwinds by driving operational improvements.”
The REV Group Results Are Good, It’s The Guidance We Love
The REV Group only a decent quarter but decent is good enough for some companies in times like these. The $554 million in net consolidated revenue is up sequentially, up 4.1% from last year, and 380 basis points better than expected. Strength was driven in part by RV and boosted by Fire & Safety with some offset from the Commercial division. Sales of RVs grow a mere 14% compared to the high 20% to 30% range being posted by the RV pure-plays. Sales in the Fire & Safety segment was a more-robust 36% due to acquisitional gains and strength in the Ambulance divisions. Commercial sales fell 47% but are expected to rebound strongly this year which will help leverage revenue growth in the coming quarters.
Moving down the report, the company generated positive cash flow from operations this quarter which is a surprise. REV Group typically loses money in the Q1 period investing in profits later in the season. On the bottom line, the GAAP $0.00 is a slight disappointment in that it missed consensus by $0.02. The mitigating factor is that adjusted earnings of $0.14 beat by $0.08 and go a long way toward strengthening the company’s financial position. The balance sheet is cash-poor and highly levered following the acquisition of Spartan ER but that situation should change fairly quickly.
Turning to the guidance, the company issued an outlook for 2021 that is not only well above the analyst’s consensus but supported by strong backlogs in both of its growing segments. The company is looking for revenue in the range of $2.45 to $2.6 billion with an adjusted EBITDA of $125 to $135 million. This represents a 7% YOY gain in revenue at the low-end compared to the more tepid consensus of $2.35 billion. As for the backlogs, the backlog in the recreational segment is up 377% YOY and the Fire & Safety figure is comparably high.
The Technical Outlook: REV Group Pops, Don’t Chase Prices
The REV Group is well-positioned for this year and the market knows it. The stock popped more than 17% after the open of trading and could easily continue higher. The caveat for investors is that volatility is the only thing we can be sure of now. At this point, the stock is trading well off of its lows or even any other recent price action and will likely attract some profit-taking. Those wanting in on this reopening play are best advised to wait and see how deep price action pulls back before committing any money
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