REV Group (NYSE:REVG) Surprises With Strong Q4, Stock Jumps 11.6%

Speciality vehicle provider REV (NYSE:REVG) announced better-than-expected revenue in Q4 CY2024, 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.

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Company Overview

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

Heavy Transportation Equipment

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.

Sales Growth

A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth 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 was below our standards 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. Although this projection indicates its newer products and services will spur better top-line performance, it is still below average for the sector.

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Operating Margin

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.

Earnings Per Share

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 shorter period to see if we are missing a change in 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%.

Key Takeaways from REV Group’s Q4 Results

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 good quarter with some key areas of upside. The stock traded up 11.6% to $30.45 immediately after reporting.

Indeed, REV Group had a rock-solid quarterly earnings result, but is this stock a good investment here? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.