Rev Group Plunges 12% on Mixed Q3 Results and Lower FY21 Guidance

REV Group, Inc. (REVG) delivered mixed third-quarter results, with adjusted earnings beating estimates and revenue missing expectations. Shares of the specialty vehicles manufacturer plunged 12% on the news, closing at $15.01 on September 8.

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The company has been facing supply chain disruptions and labor problems due to the pandemic, which is affecting its capacity to deliver. At quarter-end, REV Group posted a record backlog of $2.7 billion, with strong orders across all segments.

REV Group reported adjusted earnings of $0.37 per share, significantly higher than the $0.10 per share posted in the year-ago period and beating analysts’ estimates of $0.34 per share. (See REV Group stock charts on TipRanks)

Additionally, net sales grew 1.9% year-over-year to $593.3 million but failed to meet the Street’s estimate of $663.4 million. Net sales growth was driven by an increase in the Recreation and Commercial segments, but offset by a decline in the Fire and Emergency segment.

Commenting on the quarterly performance, the company’s President and CEO Rod Rushing said, “We delivered another strong quarter of earnings performance and cash generation while continuing to manage through the supply chain and labor challenges that impacted our top-line growth. Our end markets remain strand with solid order intake in each of our segments, resulting in REV Group’s seventh consecutive record backlog.”

Due to supply chain constraints, the company lowered its Fiscal 2021 guidance. The company now forecasts annual net sales to be in the range of $2.30 – $2.45 billion, lower than the consensus estimate of $2.54 billion.

On a positive note, on September 2, REV Group’s Board approved a new $150 million share buyback program, effective immediately. The company’s efforts to reduce debt and improve free cash flows have positioned it well to pursue its strategic growth agenda, and enabled it to authorize the buyback program, the company said.

In response to the results, Robert W. Baird analyst Mircea Dobre maintained a Buy rating on the stock with a price target of $25, implying 66.6% upside potential to current levels.

Dobre cautioned that shares would likely pull back due to the lowered FY21 EBITDA outlook. That said, he sees the new share buyback program and strong free cash flow outlook as a positive for the company and maintains his optimistic view of the stock.

Overall, the stock has a Hold consensus rating based on 1 Buy, 2 Holds, and 1 Sell. The average REV Group price target of $19.25 implies 28.3% upside potential to current levels. Shares have gained 90% over the past year.