REV Group Inc. reported consolidated net sales for its second quarter, ended April 30, were $608.9 million, representing growth of 11.7% compared with prior year results.

Net income was $7.4 million, or 11 cents per diluted share, up from $6.8 million, or 10 cents per share, a year ago. Adjusted net income for the second quarter 2018 was $15.6 million, or 24 cents per diluted share, a decline of 17.9% compared to $19 million, or $0.29 per diluted share, in the second quarter 2017.

Adjusted EBITDA in the second quarter was $34.1 million, representing a decline of 9.2% compared to adjusted EBITDA of $37.6 million in the second quarter 2017. The company ended the quarter with total backlog of $1,270.5 million, representing growth quarter over quarter and year over year.

“Our fiscal second quarter results were below our expectations and were impacted by a number of factors.” commented Tim Sullivan, CEO of REV Group. “In particular, cost inflation across many of the commodities and services we buy was significant in the quarter and due to the length of our backlogs we were not able to mitigate these increases. We estimate the cost inflation will have an approximate $19 million impact on our current fiscal year. Additionally, production and sales at several of our business units were adversely impacted by the availability of chassis. Finally, margins were impacted by lower-than-expected sales of certain higher-content product categories including custom fire apparatus, large commercial buses, and Class A RVs.”

“Longer term, in response to these factors, we have taken mitigating action across our business to drive targeted margin expansion. First, we have implemented price increases and surcharges to offset material and service cost increases for all new orders. Second, we have implemented a series of significant cost and spending reduction actions including: supply chain actions, consolidations of certain facilities, and reductions in overhead headcount and spending. We estimate these actions will result in annualized savings of $20 million and they are already fully implemented as of today. Given the length of our backlogs, we estimate the impact on EBITDA of these price actions will be approximately $7 million for fiscal year 2018. Third, we have continued to add talent in several key areas of our business that we believe will help accelerate our long-term growth objectives, including the recent addition of Ian Walsh as our new chief operating officer.”

Recreation Segment

The recreation segment grew net sales to $198.8 million in the second quarter 2018, representing an increase of $32.5 million, or 19.5%, from the prior year quarter. Recreation segment sales growth was the result of strong performance from the recent Lance acquisition and the acquisition of Midwest in April 2017 (Class B and towables product categories), an increase in Class C unit volume, and an increase in sales at the company’s molded fiberglass business. Class A unit volume declined compared to the prior year period due to a reduction in the number of models produced and the timing of new model year introductions which were targeted to occur later in this fiscal year. Excluding the impact of net sales from acquired companies, recreation segment net sales decreased 7.1% compared to the prior year period. Recreation segment backlog at the end of the second quarter 2018 was $239.5 million, which was up 65.4% from $144.8 million at the end of fiscal year 2017.

Sullivan commented, “The diversification of our Recreation segment will enable us to participate in the relatively stronger areas of this market and further broaden our product portfolio and dealer value proposition. We expect the combination of strong performance from our acquisitions as well as our profitability improvement initiatives to deliver favorable financial performance in the segment during the back half of the year.”

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