Q2 2024 Summary
Published Jan 14, 2025, 7:52 PM UTC- Strong sales growth and pricing power in the Fire & Emergency segment: Sales increased by 33%, while units were up 18%, with the difference attributed evenly to price increases and favorable product mix. Over the last few years, the company has implemented cumulative price increases of 40% through mid-2023, and is only in the "third to fourth inning" of realizing these increases in the Fire segment, indicating potential for future revenue growth as higher-priced units are delivered.
- Sequential EBITDA margin improvement anticipated in the Specialty Vehicles segment: The company expects EBITDA margins in this segment to increase by 50 to 100 basis points from the second to the third quarter, and by an additional 100 basis points from the third to the fourth quarter. This demonstrates operational efficiency gains and improved profitability, positioning the company for stronger financial performance in the second half of the year.
- Capacity to meet increasing demand without significant capital expenditure: Many of the company's plants operate on four 10-hour shifts, allowing for a theoretical capacity to double by adding additional shifts. This means REV Group can increase production in response to strong demand, particularly in the Fire & Emergency segment, without the need for significant capital investment.
- The company has lowered its revenue guidance for the Recreational Vehicles segment by $90 million to $100 million, and the Terminal Trucks business by an additional $50 million, indicating significant headwinds in these markets.
- Backlog in the Recreational Vehicles segment continues to decline, especially in the Class A and Towables categories, with the Towables backlog being less than one month, suggesting future revenues may be further pressured.
- The company acknowledges that the premium side of the RV business has not seen an uptick, and shipments continue to exceed incoming orders, leading to concerns that 2025 revenues may decline if market conditions do not improve.
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Guidance Revisions
Q: What are the reasons behind the guidance revisions?
A: The company lowered its revenue guidance by $50 million, primarily due to a $100 million reduction in recreation revenues and an additional $50 million decline in the terminal trucks business. This was partially offset by better-than-expected performance in the specialty vehicles business and an anticipated $70 to $80 million increase in the back half of the year. -
Recreation Segment Outlook
Q: How is the recreation segment performing and what's the outlook?
A: The recreation segment is facing challenges with declining orders and backlog, especially in Class A and towables, leading to a $100 million lower guidance. The company is managing costs, reducing headcount, and adjusting fixed costs to maintain margins at 7% to 7.5% for the full year. Future performance depends on market recovery in the back half of the year, which remains uncertain. -
Fire & Emergency Throughput
Q: What progress is being made on increasing Fire & Emergency throughput?
A: The company has made significant strides in increasing throughput in Fire & Emergency. They expect third-quarter EBITDA margins to improve by 50 to 100 basis points, and another 100 basis points in the fourth quarter, reaching low double-digit margins. They are catching up to Ambulance throughput improvements and expect both businesses to align exiting the year. -
Capacity Expansion in Fire & Emergency
Q: Can production volume in Fire & Emergency be further increased?
A: There is potential to increase production without significant CapEx or capacity constraints. The company operates on 4x10-hour shifts and can add second shifts to double capacity. They aim to stabilize Fire throughput at current rates before considering increasing line rates or shifts, positioning for further increases in 2025. -
Supply Chain Status
Q: Are supply chain issues resolved in Fire & Emergency?
A: The company has overcome major supply chain challenges in Fire & Emergency. They have dedicated lines for products like the Spartan S-180 and are meeting lead times, delivering within six months. They anticipate record shipments in the third and fourth quarters, improving run rates to pre-pandemic levels. -
Cost Management in Recreation
Q: How is the company managing costs in recreation?
A: The company proactively reduced costs by cutting significant personnel and addressing fixed costs, particularly in Class A and towables. They are operating at a new cost structure, which has allowed them to maintain margins above breakeven, even with lower volumes. This positions them for margin upside as volumes return.