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    REV Group (REVG)

    Q3 2024 Earnings Summary

    Reported on Sep 4, 2024 (Before Market Open)
    Pre-Earnings Price$30.21Last close (Sep 3, 2024)
    Post-Earnings Price$22.80Open (Sep 4, 2024)
    Price Change
    $-7.41(-24.53%)

    What went well

    • The Specialty Vehicles segment exited Q3 with double-digit EBITDA margins and is expected to maintain these margins into fiscal 2025, demonstrating strong operational performance and profitability. This is supported by the ambulance business operating at pre-COVID production rates or higher, and ongoing efficiency improvements in fire operations. ,
    • In the Fire & Emergency (F&E) segment, revenue grew in the mid-teens, with about 60% driven by price mix and 40% by volume, leading to significant year-over-year EBITDA margin growth and over 100 basis points of margin improvement from Q2 to Q3. This indicates effective pricing strategies and operational efficiencies within F&E.
    • The accelerated wind-down of the ENC municipal transit bus business is ahead of schedule, resulting in improved EBITDA margins and freeing up working capital. The ENC business was even accretive to overall EBITDA margins in the quarter, suggesting a positive impact on future financial performance as resources are reallocated.

    What went wrong

    • Ongoing weakness in the Terminal Trucks business is impacting margins and overall performance. The company acknowledges that this segment is "definitely at a trough" and expects it to be a "mid-single digit margin business" going forward, down from double-digit margins during COVID.
    • Dealer reluctance to replenish inventory in the Recreational Vehicles (RV) segment is leading to lower wholesale shipments and production cuts. Despite retail sales outpacing wholesale shipments, the company is experiencing "shutdowns... to manage our costs" and is uncertain about maintaining current revenue levels, indicating potential for further production cuts if demand doesn't improve.
    • Discounting in the RV segment is pressuring margins. The company admits to participating in discounting, stating that "we are participating in the discounting" and that it was a driver in Q3 results. They expect to continue discounting, which may negatively affect profitability in this segment.

    Q&A Summary

    1. Specialty Vehicles Margin Outlook
      Q: What's the margin outlook for Specialty Vehicles?
      A: Management expects Specialty Vehicles to exit 2024 with double-digit EBITDA margins and to maintain them into 2025. They anticipate low single-digit growth in revenue and EBITDA dollars from Q3 to Q4, with the EBITDA margin percent up slightly.

    2. ENC Wind-Down Impact
      Q: How does the ENC closure affect margins?
      A: The wind-down of ENC is ahead of schedule, with $40 million in sales in the quarter, and was accretive to overall EBITDA margins. They expect complete wind-down in early Q4 , and the ENC closure accounted for restructuring charges.

    3. Recreation Inventory and Outlook
      Q: What's happening with RV inventories and future production?
      A: Dealer inventories are down 20% from the calendar year, approaching pre-COVID levels. Management is flexing costs and production schedules to align with demand, but it's too early to predict if $150 million in revenue can be sustained.

    4. Terminal Trucks Performance
      Q: What's the outlook for the terminal trucks business?
      A: Terminal trucks are at a trough, which is normal in their cycle during an election year. This segment is expected to be a mid-single-digit margin business going forward.

    5. F&E Production Rates
      Q: Can you improve F&E production rates?
      A: Ambulance production is at or above pre-COVID rates. Fire production is catching up, with opportunities to improve efficiency rather than capacity. They exited Q3 with double-digit margins in Specialty Vehicles and expect the same in Q4.

    6. RV Discounting Impact
      Q: Will RV discounting continue?
      A: The company participated in discounting, impacting Q3 results. Discounts have dropped sequentially as dealer inventories become healthier.

    7. Book-to-Bill and Pricing
      Q: How does content vs. price affect book-to-bill?
      A: The unit book-to-bill in legacy F&E is about 1x, and the dollar book-to-bill is 1.3x, with fire ahead and ambulance normalizing. Management doesn't have a breakdown between content and price for the 1.3x ratio.

    8. Margins on Custom vs. Standard Trucks
      Q: Do margins differ between custom and standard trucks?
      A: There is no significant margin difference between custom and semi-custom trucks.

    9. RV Backlog Erosion
      Q: Will production cuts occur due to RV backlog erosion?
      A: Management is adjusting workforce and production schedules based on demand, but it's too early to predict further production cuts.

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