REV Group’s Q3 2025 Earnings Call: Contradictions in Tariff Pricing, Backlog Management, and Capacity Expansion

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $644.9M vs $579.4M in Q3 FY24; up 20.5% YOY excluding divested transit bus

Guidance:

• FY25 revenue: $2.40B–$2.45B (midpoint +10% vs FY24 pro forma $2.20B).
• FY25 adjusted EBITDA: $220M–$230M (midpoint +55% vs FY24 pro forma $145.2M).
• FY25 net income: $95M–$108M; adjusted net income: $127M–$138M.
• FY25 RV: revenue $625M–$650M; adjusted EBITDA $30M–$35M.
• FY25 capex: $45M–$50M; interest: $24M–$26M; FCF: $140M–$150M.
• Q4 Specialty Vehicles: low single-digit sequential revenue growth; mid-teens YOY (pro forma); 20%–25% incrementals; $5M–$7M tariff headwind.
• Q4 RV: approximately flat vs Q3.
• Tariff headwinds (~$20M annualized) expected into FY26; mitigation via resourcing/onshoring.

Business Commentary:

* Strong Financial Performance: - REV Group reported consolidated net sales of $644.9 million for Q3, up 20.5% year-over-year when excluding the impact of the divested bus business. - Consolidated adjusted EBITDA was $64.1 million, an increase of 66.1% year-over-year, driven by the Specialty Vehicles segment's operational performance and improved throughput.

• Specialty Vehicles Segment Growth:
• The Specialty Vehicles segment achieved sales of $483.3 million, up 11.8% year-over-year, excluding the impact of the divested bus business.

• Segment-adjusted EBITDA increased by 71.4% to $64.6 million, primarily due to increased unit sales and favorable unit mix, despite inflationary pressures.

• Capital Investment and Capacity Expansion:

• REV Group announced a $20 million investment for a major facility expansion in South Dakota, expected to increase fire apparatus production capacity by 40%.

• This expansion aims to improve delivery times and throughput for both custom and semi-custom fire apparatus, while also fostering economic benefits to local communities.

• Recreational Vehicles Segment Challenges:

• The Recreational Vehicles segment reported sales of $161.7 million, a 9.7% increase year-over-year, driven by increased shipments in Class A and Class C categories.
• However, the segment faced challenges due to soft industry demand and tariff impacts on imported luxury vans, leading to a 13.8% decrease in adjusted EBITDA.

Sentiment Analysis:

• Raised FY25 revenue to $2.40–$2.45B and adjusted EBITDA to $220–$230M (midpoint +10% and +55% vs FY24 pro forma). Q3 net sales were $644.9M vs $579.4M prior year; adjusted EBITDA $64.1M, up 66% YOY ex-bus. Fire shipments +11% and ambulance +7% YOY. Backlog $4.3B with book-to-bill ~1. Cash from operations was $60.3M; FY25 free cash flow outlook raised to $140–$150M.

Q&A:

• Question from Mike Klipschke (D.A. Davidson): Q3 EBITDA margins were near record; are you ahead of schedule on the 10–12% margin goal for 2027?
  Response: Management says they’re on the planned trajectory and throughput is ahead of pace, supporting the midterm targets cadence.

• Question from Mike Klipschke (D.A. Davidson): How should we think about early FY26 margins given Q4 tariff impacts and normal seasonality?
  Response: Expect full tariff impact in Q4; Q1 seasonally down 10–15% sales with 15–20% decrementals; FY26 H1 incrementals ~20–25% then reverting to 30–40% later in the year.

• Question from Mike Klipschke (D.A. Davidson): Are you pricing 2028 fire/ambulance orders to offset current inflation/tariffs?
  Response: They continually adjust pricing and sourcing to offset inflation; no tariff-specific increase yet but targeted price actions are taken where appropriate.

• Question from Mig Dobre (Baird): Are steel/aluminum tariffs an incremental headwind beyond prior expectations?
  Response: No change; Q4 headwind remains $5–$7M and about $20M annualized into FY26, mainly via components, with supplier resourcing/onshoring mitigation.

• Question from Mig Dobre (Baird): Will tariffs become a permanent cost base or be offset with pricing/productivity?
  Response: They plan to offset via internal productivity, simplification, and selective pricing actions rather than absorbing all costs permanently.

• Question from Mig Dobre (Baird): Clarify the South Dakota fire facility expansion scope, timing, and impact.
  Response: The Brandon, SD expansion (two phases) is specific to that site; some benefit by late FY26 with full run-rate in FY27, lifting custom and S180 capacity and enabling <1-year deliveries.

• Question from Mig Dobre (Baird): How sustainable is fire demand as lead times decline and capacity increases?
  Response: Backlog normalization is expected, but with >2 years of sales in backlog now; they aim to lead on shortest lead times and quality to sustain orders as lead times compress.

• Question from Angel Castillo (Morgan Stanley): Backlog appeared down sequentially—what does that imply for pricing on new orders?
  Response: The 4% decline referenced months of backlog, not units; backlog dollars are essentially flat (~$4.3B, book-to-bill ~1), and pricing continues to flow through as shipments convert.

• Question from Angel Castillo (Morgan Stanley): Are you seeing increased price competition as peers improve throughput?
  Response: They are not seeing notable price pressure and remain competitive on both price and lead time, focusing on throughput to lead the market.

• Question from Mig Dobre (Baird): With strong free cash flow and low net debt, how will you deploy capital?
  Response: Priority is internal capacity/productivity investments, with disciplined, opportunistic M&A considered; maintain flexibility while share repurchases remain paused.