REV Group (REVG)

Speciality vehicle provider REV (NYSE:REVG) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 2% year on year to $629.1 million. The company’s full-year revenue guidance of $2.4 billion at the midpoint came in 0.9% above analysts’ estimates. Its non-GAAP profit of $0.70 per share was 22.8% above analysts’ consensus estimates.

Company Overview

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

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.

Competitors offering similar products include Oshkosh (NYSE:OSK), Thor (NYSE:THO), Winnebago (NYSE:WGO), and Spartan Motors (NASDAQ:SPAR)

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, REV Group struggled to consistently increase demand as its $2.33 billion of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and is a poor baseline 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 recent performance shows its demand remained suppressed as its revenue has declined by 3.1% annually over the last two years.

This quarter, REV Group reported modest year-on-year revenue growth of 2% but beat Wall Street’s estimates by 5.4%.

Looking ahead, sell-side analysts expect revenue to grow 4.6% over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

REV Group has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 12% gross margin over the last five years. That means REV Group paid its suppliers a lot of money ($88.03 for every $100 in revenue) to run its business.

This quarter, REV Group’s gross profit margin was 15.2%, marking a 2.7 percentage point increase from 12.5% in the same quarter last year. REV Group’s full-year margin has also been trending up over the past 12 months, increasing by 1.6 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

REV Group was profitable over the last five years but held back by its large cost base. Its average operating margin of 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 4.2 percentage points over the last five years.

This quarter, REV Group generated an operating margin profit margin of 7.9%, up 4.2 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

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 74.3% 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.

Diving into the nuances of REV Group’s earnings can give us a better understanding of its performance. As we mentioned earlier, REV Group’s operating margin expanded by 4.2 percentage points over the last five years. On top of that, its share count shrank by 19.9%. 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.

For REV Group, its two-year annual EPS growth of 45.3% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q1, REV Group reported EPS at $0.70, up from $0.39 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects REV Group’s full-year EPS of $2.09 to grow 33.7%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

REV Group has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.5%, subpar for an industrials business.

Taking a step back, an encouraging sign is that REV Group’s margin expanded by 3.6 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

REV Group’s free cash flow clocked in at $87.6 million in Q1, equivalent to a 13.9% margin. This result was good as its margin was 8.4 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

REV Group historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.9%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. REV Group’s ROIC has increased significantly over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

REV Group reported $28.8 million of cash and $154.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $190.5 million of EBITDA over the last 12 months, we view REV Group’s 0.7× net-debt-to-EBITDA ratio as safe. We also see its $14.7 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly REV Group blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also excited its full-year EBITDA guidance outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 3.4% to $38.50 immediately after reporting.

Updated: June 22, 2025 at 11:21 PM EDT

Before deciding whether to buy REV Group or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

REV Group has some positive attributes, but it isn’t one of our picks. Although its revenue growth was weak over the last five years, its growth over the next 12 months is expected to be higher. And while REV Group’s low gross margins indicate some combination of competitive pressures and high production costs, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders.

REV Group’s P/E ratio based on the next 12 months is 15.6x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $45.25 on the company (compared to the current share price of $43.73).