MILWAUKEE, Wis. — REV Group has reported results for the three months ended April 30. Consolidated net sales in the second quarter 2018 were $608.9 million, representing growth of 11.7 percent over the three months ended April 29, 2017.
The company’s second quarter 2018 net income was $7.4 million, or $0.11 per diluted share. Adjusted net income for the second quarter 2018 was $15.6 million, or $0.24 per diluted share, a decline of 17.9 percent compared to $19 million, or $0.29 per diluted share, in the second quarter 2017.
Adjusted EBITDA2 in the second quarter 2018 was $34.1 million, representing a decline of 9.2 percent compared to adjusted EBITDA of $37.6 million in the second quarter 2017. The company ended the quarter with total backlog of $1,270.5 million, representing growth quarter over quarter and year over year.
“Our fiscal second quarter results were below our expectations and were impacted by a number of factors,” commented Tim Sullivan, CEO of REV Group. “In particular, cost inflation across many of the commodities and services we buy was significant in the quarter and due to the length of our backlogs we were not able to mitigate these increases. We estimate the cost inflation will have an approximate $19 million impact on our current fiscal year.”
He added, “Additionally, production and sales at several of our business units were adversely impacted by the availability of chassis. Finally, margins were impacted by lower-than-expected sales of certain higher-content product categories including custom fire apparatus, large commercial buses and Class A RVs.”
“Longer term, in response to these factors, we have taken mitigating action across our business to drive targeted margin expansion,” he said. “First, we have implemented price increases and surcharges to offset material and service cost increases for all new orders. Second, we have implemented a series of significant cost and spending reduction actions including: supply chain actions, consolidations of certain facilities and reductions in overhead headcount and spending.”
Sullivan pointed out that, “We estimate these actions will result in annualized savings of $20 million and they are already fully implemented as of today. Given the length of our backlogs, we estimate the impact on EBITDA of these price actions will be approximately $7 million for fiscal year 2018. Third, we have continued to add talent in several key areas of our business that we believe will help accelerate our long-term growth objectives, including the recent addition of Ian Walsh as our new COO.”
He concluded, “While we’ve revised our full-year outlook downward, we still expect to generate solid financial performance this year, with approximately 10 percent sales growth and Adjusted EBITDA growth of approximately 11 percent at the midpoint of our guidance range. We are foundationally supported by the continued strength in our order activity, the growth in our backlogs, and our market positions remain strong.”
He continued, “The margin improvement initiatives we implemented during the second quarter will help us drive performance improvement in the back half of this year, and we expect to close the year with good momentum as approximately 70 percent of full-year Adjusted EBITDA is expected to be generated during the third and fourth quarters, consistent with our historic seasonality. Finally, we’ll continue to remain active in the M&A market and are committed to efficient and shareholder-friendly capital allocation policies. We opportunistically repurchased approximately $5 million of our shares during the second quarter, in addition to our ongoing capex investments and our regular quarterly dividend.”
The company’srecreation segment grew net sales to $198.8 million in the second quarter 2018, representing an increase of $32.5 million, or 19.5 percent, from the prior year quarter. Recreation segment sales growth was the result of strong performance from our recent Lance acquisition and the acquisition of Midwest in April 2017 (Class B and Towables product categories), an increase in Class C unit volume, and an increase in sales at the company’s molded fiberglass business.
Class A unit volume declined compared to the prior year period due to a reduction in the number of models produced and the timing of new model year introductions which were targeted to occur later in this fiscal year. Excluding the impact of net sales from acquired companies, Recreation segment net sales decreased 7.1 percent compared to the prior year period. Recreation segment backlog at the end of the second quarter 2018 was $239.5 million, which was up 65.4 percent from $144.8 million at the end of fiscal year 2017.
Recreation segment Adjusted EBITDA grew 74 percent in the second quarter 2018 to $12.7 million, compared to $7.3 million in the second quarter 2017. The increase in Adjusted EBITDA was primarily due to the positive impact of the Lance and Midwest acquisitions, partially offset by higher material costs. Adjusted EBITDA margin in the second quarter 2018 grew to 6.4% of net sales compared to 4.4 percent in the second quarter 2017. The expansion in profitability is attributable to higher unit volumes, product mix, and continued benefit from ongoing operating initiatives. Excluding the impact of acquisitions, Recreation segment Adjusted EBITDA decreased 4 percent in the second quarter 2018 compared to the prior year period, due to the reduction in the number of Class A models produced and model year introduction timing mentioned above.
Sullivan commented, “The diversification of our recreation segment will enable us to participate in the relatively stronger areas of this market and further broaden our product portfolio and dealer value proposition. We expect the combination of strong performance from our acquisitions as well as our profitability improvement initiatives to deliver favorable financial performance in the segment during the back half of the year.”
SOURCE: REV Group press release