REV Group, Inc. (NYSE: REVG) reported Q2 EPS of $0.24, $0.11 worse than the analyst estimate of $0.35. Revenue for the quarter came in at $608.9 million versus the consensus estimate of $630.9 million.

Well positioned with record Q2 revenue and backlog, however adversely impacted by near term commodity price inflation, supply chain constraints and shortfalls in our Commercial Segment

Updated full year guidance reflects continued year over year revenue growth of 10% and Adjusted EBITDA growth of 11% at the midpoint of the range

• Net sales of $608.9 million, representing growth of 11.7% compared to the prior year1 quarter
• Second quarter net income of $7.4 million, an increase of 9.2% compared to the prior year quarter
• Second quarter Adjusted EBITDA2 of $34.1 million, a decrease of 9.2% compared to the prior year quarter
• Total backlog of $1,270.5 million as of April 30, 2018, an increase of 2.3% sequentially and 15.3% compared to the prior year end
• Company revises full-year 2018 outlook; now expects net sales of $2.4 to $2.6 billion (vs. $2.3 billion in prior year), Adjusted EBITDA of $175 to $185 million (vs. $163 million in prior year), net income of $72 million to $87 million (vs. $31 million in prior year) and Adjusted net income of $94 to $105 million (vs. $76 million in prior year)
• Ian Walsh joins REV Group as new Chief Operating Officer
• Company repurchased 238,547 shares under the Company’s share repurchase authorization during the second quarter for total consideration of $4.8 million

“Our fiscal second quarter results were below our expectations and were impacted by a number of factors.” commented Tim Sullivan, CEO of REV Group. “In particular, cost inflation across many of the commodities and services we buy was significant in the quarter and due to the length of our backlogs we were not able to mitigate these increases. We estimate the cost inflation will have an approximate $19 million impact on our current fiscal year. Additionally, production and sales at several of our business units were adversely impacted by the availability of chassis. Finally, margins were impacted by lower-than-expected sales of certain higher-content product categories including custom fire apparatus, large commercial buses, and Class A RVs.”

“Longer term, in response to these factors, we have taken mitigating action across our business to drive targeted margin expansion. First, we have implemented price increases and surcharges to offset material and service cost increases for all new orders. Second, we have implemented a series of significant cost and spending reduction actions including: supply chain actions, consolidations of certain facilities, and reductions in overhead headcount and spending. We estimate these actions will result in annualized savings of $20 million and they are already fully implemented as of today. Given the length of our backlogs, we estimate the impact on EBITDA of these price actions will be approximately $7 million for fiscal year 2018. Third, we have continued to add talent in several key areas of our business that we believe will help accelerate our long-term growth objectives, including the recent addition of Ian Walsh as our new Chief Operating Officer.”

Mr. Sullivan concluded, “While we’ve revised our full-year outlook downward, we still expect to generate solid financial performance this year, with approximately 10% sales growth and Adjusted EBITDA growth of approximately 11% at the midpoint of our guidance range. We are foundationally supported by the continued strength in our order activity, the growth in our backlogs, and our market positions remain strong. The margin improvement initiatives we implemented during the second quarter will help us drive performance improvement in the back half of this year, and we expect to close the year with good momentum as approximately 70% of full-year Adjusted EBITDA is expected to be generated during the third and fourth quarters, consistent with our historic seasonality. Finally, we’ll continue to remain active in the M&A market and are committed to efficient and shareholder-friendly capital allocation policies. We opportunistically repurchased approximately $5 million of our shares during the second quarter, in addition to our ongoing capex investments and our regular quarterly dividend.”

Fiscal 2018 Full Year Outlook

As a result of lower-than-expected second-quarter performance due to the negative factors discussed above which are impacting the Company’s margins, REV has revised its full-year outlook. The Company now expects full-year 2018 results in the following ranges:

• Full-year 2018 revenue of $2.4 to $2.6 billion
• Adjusted EBITDA of $175 to $185 million
• Net Income of $72 to $87 million
• Adjusted Net Income of $94 to $105 million

GUIDANCE:

REV Group, Inc. sees Q3 2018 revenue of $2.4-2.6 billion, versus the consensus of $2.56 billion.

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