CHARLOTTE, Mich. — Spartan Motors Inc. has reported operating results for the third quarter ended September 30, 2018.
For the third quarter of 2018 compared to the third quarter of 2017 the results reflect strong revenue growth and continued profitability from all three business segments. However, the results were negatively impacted by industry-wide headwinds, including tariff-driven increases in commodity and component costs, chassis shortages, supplier component delays, freight costs and disruptions, and labor shortages, which resulted in production and labor inefficiencies and shipment delays.
Highlights from the report include:
- Sales increased $37.0 million, or 19.6 percent, to $226.2 million, from $189.2 million.
- Gross profit margin decreased 350 basis points to 11.6% of sales, from 15.1 percent of sales.
- Net income decreased $8.3 million, or 61.5 percent, to $5.2 million, or $0.15 per share, from $13.5 million, or $0.38 per share. The prior year net income includes the benefit from a $6.3 million, or $0.18 per share, tax valuation allowance adjustment due to the company’s improved financial condition.
- Adjusted EBITDA decreased 17.8 percent to $10.6 million, or 4.7 percent of sales, from $12.9 million, or 6.8 percent of sales.
- Adjusted net income decreased $1.4 million, or 18.9 percent, to $6.0 million, or $0.17 per share, from $7.4 million, or $0.21 per share, which excludes the $6.3 million, or $0.18 per share, tax valuation allowance adjustment.
- Consolidated backlog, excluding the multi-year USPS truck body order at September 30, 2018 totaled $325.9 million, essentially flat, compared to $323.4 million at September 30, 2017. Including the USPS order, consolidated backlog, totaled $484.9 million compared to $537.7 million a year ago.
“Our third quarter sales were up significantly year-over-year and all three of our segments remained profitable. Despite that progress, unexpected industry-wide headwinds negatively impacted our profitability for the period,” said Daryl Adams, president and CEO. “As it stands, our results were hindered by multiple external factors, which resulted in production and labor inefficiencies and shipment delays. If not for the significant industry-wide headwinds and the operating issues we sustained as a result, we would have exceeded our internal operating plan for the quarter.”
Fleet Vehicles and Services (FVS)
FVS segment sales increased $39.8 million, or 50.6 percent, to $118.4 million from $78.6 million. The revenue increase was primarily due to increased volume relating to USPS truck body, Reach vehicle, and upfits. The adoption of ASC 606 increased reported segment sales by $0.9 million.
Adjusted EBITDA decreased $1.6 million to $7.2 million, or 6.1 percent of sales, from $8.8 million, or 11.2 percent of sales, a year ago. The adjusted EBITDA decrease is primarily due to unfavorable sales mix, tariff-driven increases in commodity and component costs, chassis shortages, supplier component delays, and increased freight costs and disruptions. These factors resulted in production and labor inefficiencies as well as unit shipment delays. The adoption of ASC 606 had minimal impact on reported segment adjusted EBITDA.
The segment backlog, excluding the multi-year USPS truck body order at September 30, 2018, totaled $116.2 million, up 48.6 percent, compared to $78.2 million at September 30, 2017. Including the USPS order, segment backlog totaled $275.2 million compared to $292.5 million a year ago. The adoption of ASC 606 reduced reported segment backlog by $9.3 million.
Emergency Response (ER)
ER segment sales decreased $5.6 million to $60.3 million, or 8.5 percent, from $65.9 million. The decrease is primarily due to lower volume and unfavorable sales mix, partially offset by pricing changes realized in 2018. The adoption of ASC 606 decreased reported segment sales by $5.8 million.
Adjusted EBITDA decreased $1.9 million to $0.6 million, or 1 percentof sales, from $2.5 million, or 3.8 percent of sales, a year ago, primarily due to reduced volume, tariff-driven increases in commodity and component costs and supplier component delays resulting in production and labor inefficiencies. The adoption of ASC 606 decreased reported segment adjusted EBITDA by $0.3 million.
The segment backlog at September 30, 2018, totaled $175.7 million, down 17.6 percent, compared to $213.3 million at September 30, 2017. The adoption of ASC 606 reduced reported segment backlog by $22.8 million.
Specialty Chassis and Vehicles (SCV)
SCV segment sales increased 5.5 percent to $51.7 million from $49.0 million a year ago. Revenues were driven mainly by a $1.9 million increase in luxury motor coach chassis sales, due to increased unit volume driven by market share gains and continued industry demand.
Adjusted EBITDA increased $0.8 million to $5.9 million, or 11.4 percent of sales, from $5.1 million, or 10.5 percent of sales, a year ago, mainly due to the strong demand for luxury motor coach chassis, partially offset by tariff-driven increases in commodity and component costs, increased freight costs and disruptions, and chassis component and labor shortages, resulting in production and labor inefficiencies.
The segment backlog at September 30, 2018, totaled $34.0 million, up 6.6 percent, compared to $31.9 million at September 30, 2017.
“The underlying business fundamentals in each of our business segments remain strong, as indicated by our strong backlog, despite the increased industry-wide headwinds,” said Matt Long, Interim Chief Financial Officer. “We remain encouraged by the continued strength of orders across all of our business segments. As we head into the remainder of the year, we have taken proactive steps and cost reduction actions to help mitigate the unfavorable market conditions experienced in the third quarter.”
Based on year-to-date results, the company is adjusting its previous guidance for 2018 as follows:
- Revenue to be in the range of $790-$815 million, unchanged
- Net income of $14.4 – $16.4 million, changed from $20.2 – $22.4 million
- Adjusted EBITDA of $29.3 – $31.3 million, changed from $39.0 – $42.0 million
- Effective tax rate of approximately 24.5 percent
- Earnings per share of $0.41 – $0.47, changed from $0.58 – $0.64, assuming approximately 35.3 million shares outstanding
- Adjusted earnings per share of $0.42 – $0.48, changed from $0.60 – $0.66
“While we expect near-term growth and profitability challenges from these recent headwinds to impact the fourth quarter, our long-term expectations have not changed,” Adams concluded. “Our long-term growth strategy, fueled by continued demand for our last-mile delivery vehicles, remains strong. We see opportunities for sustained revenue and margin expansion through 2020 and beyond, although it may take longer than originally anticipated. We remain focused on executing our overall strategic plan, including our capital allocation strategy, which prioritizes the funding of our growth initiatives, including acquisitions, and increasing shareholder value.”
See the earnings webcast at: www.spartanmotors.com/webcasts
For more information about Spartan, please visit www.spartanmotors.com.
SOURCE: Spartan Motors press release