REV Group (REVG)

Speciality vehicle provider REV (NYSE:REVG) reported Q4 CY2024 results beating Wall Street’s revenue expectations, but sales fell by 10.4% year on year to $525.1 million. Its non-GAAP profit of $0.40 per share was 50.9% 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. 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 $2.32 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and is a rough 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 declines of 1.2% over the last two years align with its five-year trend, suggesting its demand consistently shrunk.

This quarter, REV Group’s revenue fell by 10.4% year on year to $525.1 million but beat Wall Street’s estimates by 6.5%.

Looking ahead, sell-side analysts expect revenue to grow 2% over the next 12 months. While this projection indicates 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 11.7% gross margin over the last five years. Said differently, REV Group had to pay a chunky $88.31 to its suppliers for every $100 in revenue.

REV Group’s gross profit margin came in at 13.3% this quarter, marking a 2.6 percentage point increase from 10.7% in the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

REV Group was profitable over the last five years but held back by its large cost base. Its average operating margin of 2.5% 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 5.1 percentage points over the last five years.

This quarter, REV Group generated an operating profit margin of 5.3%, up 6.4 percentage points year on year. The increase was solid, and since its operating margin rose more than its gross margin, we can infer it was recently 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 30.8% 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 to better understand the drivers of its performance. As we mentioned earlier, REV Group’s operating margin expanded by 5.1 percentage points over the last five years. On top of that, its share count shrank by 16.7%. 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 48.7% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q4, REV Group reported EPS at $0.40, up from $0.25 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 $1.78 to grow 41.3%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because 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%, subpar for an industrials business.

Taking a step back, an encouraging sign is that REV Group’s margin expanded by 1.2 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 burned through $18 million of cash in Q4, equivalent to a negative 3.4% margin. The company’s cash burn slowed from $80.2 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

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 7.5%, 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 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 $31.6 million of cash and $171.4 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 $169.1 million of EBITDA over the last 12 months, we view REV Group’s 0.8× net-debt-to-EBITDA ratio as safe. We also see its $15.6 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’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid quarter. The stock traded up 11.6% to $30.45 immediately following the results.

Updated: May 21, 2025 at 11:18 PM EDT

Are you wondering whether to buy REV Group or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

REV Group’s business quality ultimately falls short of our standards. To kick things off, its revenue growth was weak over the last five years. And while its expanding operating margin shows the business has become more efficient, the downside is its low gross margins indicate some combination of competitive pressures and high production costs. On top of that, its operating margins reveal poor profitability compared to other industrials companies.

REV Group’s P/E ratio based on the next 12 months is 14.9x. Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $34 on the company (compared to the current share price of $37.55).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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