REV Group has reported its third quarter results, showing consolidated net sales were $597.7 million, representing growth of 0.4 percent compared to the same period last year. The company’s third quarter 2018 net income was $18.3 million, representing net income growth of 20.4 percent compared to the third quarter 2017.
Adjusted net income for the third quarter 2018 was $24.7 million, an increase of 12.8 percent, compared to $21.9 million in the third quarter 2017. REV ended the quarter with total backlog of $1.2 billion, up 0.4 percent sequentially, representing growth in line with historical seasonality of its businesses, and up 34.1 percent versus third quarter 2017.
“The availability of commercial chassis was a bigger headwind in the third quarter than previously anticipated, and we now don’t anticipate a return to normalcy until the end of the calendar year. In addition, during the quarter we experienced a significant lengthening of other material lead times creating additional production inefficiencies. Together these issues delayed product shipments beyond the quarter within all three of our segments and we expect this to continue through the fourth quarter,” said Tim Sullivan, CEO REV Group. “In addition, certain business units including our Class A RV, specialty products, and parts business have underperformed our targets and we are taking specific actions to address these areas. We believe the material and chassis availability issues can be resolved by calendar year end.”
Recreation segment net sales were $197.3 million in the third quarter 2018, an increase of $19.4 million, or 10.9 percent, from $177.9 million in the third quarter 2017. The increase in net sales was due to net sales attributable to our recent acquisition of Lance and increases in net sales across our brand line-up except for Class A motorhomes, which declined compared to the prior year period due to a strategic reduction in the number of models produced and the timing of new model year introductions this fiscal year.
Excluding the impact of net sales from Lance, recreation segment net sales decreased by $15.2 million compared to the prior year period, as a result of the reduction in Class A unit volume. Sales for all other Recreation segment product categories were up in the third quarter 2018 by double-digit percentages versus the same period in the prior year. Recreation segment backlog at the end of the third quarter 2018 was $249.5 million, which was up 72.3 percent from $144.8 million at the end of fiscal year 2017, and up 4.2 percent from the end of the second quarter 2018.
Recreation segment adjusted EBITDA was $17.9 million in the third quarter 2018, an increase of $6.2 million, or 53 percent, from $11.7 million for the third quarter 2017. The increase in adjusted EBITDA was due to the impact of the acquisition of Lance and increased profitability at our Midwest and Renegade businesses along with REV’s Goldshield fiberglass business.
Adjusted EBITDA margin improved by 250 basis points to 9.1 percent of net sales in the third quarter 2018 compared to 6.6 percent in the third quarter 2017 and up from 6.4 percent in the second quarter of 2018. Excluding the impact of the acquisition of Lance, the recreation segment adjusted EBITDA increased 7.3 percent in the third quarter 2018 compared to the prior year period.
“We expect the Lance acquisition to help accelerate the pace of profitability improvement in the segment over the course of the next several quarters,” said Sullivan.
