REV Group (NYSE:REVG) Reports Sales Below Analyst Estimates In Q3 Earnings

Speciality vehicle provider REV (NYSE:REVG) missed Wall Street’s revenue expectations in Q3 CY2024, with sales falling 13.8% year on year to $597.9 million. The company’s full-year revenue guidance of $2.35 billion at the midpoint came in 4.3% below analysts’ estimates. Its non-GAAP profit of $0.51 per share was 4.1% above analysts’ consensus estimates.

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“We are proud to report strong full-year earnings, driven by the exceptional efforts of our team and the strength of our diversified portfolio,” President and CEO, Mark Skonieczny, said.

Company Overview

Offering the first full-electric North American fire truck, REV (NYSE:REVG) manufactures and sells specialty vehicles.

Heavy Transportation Equipment

Heavy transportation equipment companies are investing in automated vehicles that increase efficiencies and connected machinery that collects actionable data. Some are also developing electric vehicles and mobility solutions to address customers’ concerns about carbon emissions, creating new sales opportunities. Additionally, they are increasingly offering automated equipment that increases efficiencies and connected machinery that collects actionable data. On the other hand, heavy transportation equipment companies are at the whim of economic cycles. Interest rates, for example, can greatly impact the construction and transport volumes that drive demand for these companies’ offerings.

Sales Growth

A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, REV Group struggled to consistently increase demand as its $2.38 billion of sales for the trailing 12 months was close to its revenue five years ago. This fell short of our benchmarks and is a tough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. REV Group’s annualized revenue growth of 1% over the last two years is above its five-year trend, but we were still disappointed by the results.

This quarter, REV Group missed Wall Street’s estimates and reported a rather uninspiring 13.8% year-on-year revenue decline, generating $597.9 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 4.4% over the next 12 months. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below the sector average.

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Operating Margin

REV Group was profitable over the last five years but held back by its large cost base. Its average operating margin of 2.3% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, REV Group’s operating margin rose by 4.1 percentage points over the last five years.

In Q3, REV Group generated an operating profit margin of 5.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

REV Group’s EPS grew at an astounding 28.6% compounded annual growth rate over the last five years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.

We can take a deeper look into REV Group’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, REV Group’s operating margin was flat this quarter but expanded by 4.1 percentage points over the last five years. On top of that, its share count shrank by 16.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

In Q3, REV Group reported EPS at $0.51, down from $0.53 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 4.1%. Over the next 12 months, Wall Street expects REV Group’s full-year EPS of $1.62 to grow 30.1%.

Key Takeaways from REV Group’s Q3 Results

We were impressed by how significantly REV Group blew past analysts’ EBITDA expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its revenue in the quarter and full-year revenue guidance both missed. Overall, this quarter was mixed. The market seems to be more focused on the positives, and the stock traded up 3.4% to $30.61 immediately after reporting.

So do we think REV Group is an attractive buy at the current price? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.