REV Group Gears Up On Supply Chain Barriers

REV Group Can Gain Traction In Second Quarter

REV Group (NYSE: REVG) released Q1 results and one thing is very clear; Supply chain constraints continue to impact the top and bottom lines. This issue sees the stock down more than 25% from its 2021 high but a reversal may be at hand. There are glimmers of supply chain improvements across industries that lead us to think that lost revenue can be recovered. What’s more, the backlog continues to increase so we think there is an opportunity to build on the company’s momentum and performance for the remainder of the 2022 fiscal year.

Mixed Yield Pushes REV Group Higher

REV Group has had a good quarter if revenue is declining every year. The point we focus on is revenue, while down 3.1% YOY, beating Marketbeat.com’s consensus forecast of 150 basis points and there is margin strength in the report as well. Revenue strength driven by Commercial and Recreational gains was offset by a decline in Fire and Emergency. Commercial segment grew by 17%, Leisure by 6.5%, with both segments disrupted by supply chain and workforce issues. The F&E segment fell 15.4%, also largely due to supply chain constraints.

Moving on to earnings, margins contracted YOY but less than expected due to price and mix. Margin contraction in the F&E segment was due to the deleveraging of fixed costs associated with lower volumes caused by supply issues. Margins in the Commercial and Recreation segment increased. Bottom line, $0.13 is down one cent from a year ago but is being beaten by two cents and the outlook is favorable.

While supply chain bottlenecks will continue to blow, the company reaffirmed its guidance for revenue in the $2.3) to $2.55 billion range. This compares to Marketbeat.com’s consensus target of $2.65 and is accompanied by expectations for wider margins later in the year.

“We started fiscal year 2022 on strong demand, which combined with the implementation of our Commercial Advantage program has resulted in record savings in each of our segments and positions us to continue to benefit from a strong city budget,” REV Group Inc President and CEO. said Rod Rushing. “We anticipate external challenges will continue in the near term and believe the actions we have taken, and an improved supply chain will improve performance in the second half of the fiscal year.”

Returns Puts Floor In REV Group Price Action

REV Group returned dividends a few quarters ago and upped the ante for a return on capital with a share buyback program this quarter. The program is worth $250 million and there is almost $200 million left or about 24% of the market cap. This is a substantial amount for shareholders and will help sustain price action over the next year. The dividend is worth 1.15% to shareholders and looks pretty safe now that the reopening of the economy is underway.

Technical Outlook: REV Group Rises From Support

REV Group shares have been consolidating around the $13 level over the past few months and are moving up from that level now. The Q1 report has price action up 5.0% and we think heading higher if the resistance at $14 is overcome. Otherwise, the price action will most likely stay in the sub-$14 range until a clearer picture of the 2022 outcome is formed.