REV Group Inc. reported that consolidated net sales in its third quarter, ended July 31, were $617 million, an increase of 3.2% compared to $597.7 million for the three-month period a year ago. Sales growth in fire and emergency and commercial segments were partially offset by lower net sales in the recreation segment.

The company’s third-quarter net income was $5.6 million, or nine cents per diluted share, compared to net income of $18.3 million, or 28 cents per diluted share, in the third quarter 2018. Adjusted net income was $13.6 million, or 21 cents per diluted share, compared to $24.7 million, or 38 cents per diluted share, in the third quarter 2018. Adjusted EBITDA in the third quarter was $33.5 million, compared to $47.6 million the previous year. 

“We believe the fundamentals that drive our business remain strong with the exception of softness in the RV market. Notwithstanding the overall strength of our markets and backlog, third quarter performance was well below our expectations in two of our three segments,” said CEO Tim Sullivan. “The recreation segment was negatively impacted primarily by a larger than expected decline in wholesale deliveries of our Class A motorhomes as dealers have been reducing their inventory levels in excess of the actual decline in retail demand. We believe the current dealer inventory levels are close to being in balance and importantly we have revamped this business’s product portfolio which we expect will drive incremental demand going forward,” said Tim Sullivan, CEO of REV Group.

“In summary, the majority of our underperformance in the quarter and year-to-date as a company has primarily been the result of disappointing performance at three of our 20 manufacturing locations.”

Recreation Segment

Recreation segment net sales were $166.7 million for the third quarter 2019, a decrease of 15.5% from $197.3 million for the third quarter 2018. The decrease in net sales compared to the prior year period was primarily due to decreases in sales of Class A motorhomes as well as truck campers, partially offset by the benefit of delivering on existing backlogs in our other RV categories.

Recreation segment backlog at the end of the third quarter 2019 was $129.7 million, down 55.4% from $290.7 million at the end of fiscal 2018 and 23.3% sequentially compared to the second quarter 2019. The decrease in recreation backlog is reflective primarily of the softer Class A RV and camper markets plus the overall slowdown of wholesale shipments in the broader RV market during the quarter.

Third-quarter recreation segment adjusted EBITDA decreased to $12.8 million, a 28.5% reduction, compared to $17.9 million for the third quarter 2018. The reduction in profitability was solely due to the lower shipment volumes in the Class A product category. Profit margins in the other RV categories within the recreation segment continued to be solid in the quarter.

Sullivan commented, “The third-quarter Class A wholesale market slowdown was greater than anticipated as dealer orders have been slower than retail sales during the quarter, impacting the segment’s top and bottom lines. As a result, we identified and implemented cost reduction opportunities within the segment by shutting production down an extra week during the July 4th holiday and further consolidating Class A production facilities from two locations to one at our Decatur, Ind., location.

“In addition, we reduced production line rates and adjusted the mix of coaches produced at our remaining Decatur facility during the quarter. While retail demand for our products was reasonable compared to the overall industry during the quarter, wholesale demand was soft and is likely to remain so until at least the September Open House dealer event where we will showcase our new 2020 models.”

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