Personal Finance

Why REV Group Stock Dropped 20%

Red stock arrow pointing down.

What happened

Shares of REV Group (NYSE: REVG) stock ran straight into a pothole Thursday, falling 20% by 10:40 a.m. EST after management reported a big net loss for its fiscal fourth quarter -- and pro forma profits that, while positive, were only about half as big as what Wall Street had been forecasting.

Sales for the year's fiscal fourth quarter declined 3.5% year over year to $660 million, while GAAP profits turned negative -- a $0.35-per-share net loss.

Red stock arrow pointing down.

The trend on this one is not looking good. Image source: Getty Images.

So what

The pro forma picture wasn't much prettier. REV Group argued that if you back out "a $35.6 million impairment charge for the planned disposition and writedown of certain assets," its profit for Q4 would actually have been $0.28 per share.

Nevertheless, even judged by this more lenient standard, REV Group would have seen a 36% decline in profits -- 10 times worse than the decline in sales. Moreover, Wall Street had predicted REV Group would earn $0.52 pro forma, and the company missed that target by a mile.

Now what

CEO Tim Sullivan admitted he was "disappointed with our financial results for fiscal year 2018," explaining that "tariffs, chassis availability, material lead time extensions and temporary labor inefficiencies" prevented the company from capitalizing on "the ongoing strength of demand" for the company's specialty vehicles such as ambulances and school buses.

Sullivan promised "improvement" in the new year and issued new guidance calling for a return to profitability, predicting REV will earn about $53 million (GAAP) in fiscal 2019, and perhaps $75 million pro forma, on sales of roughly $2.5 billion.

If achieved, such results would represent about 5% sales growth and more than a 300% increase in net profits. Problem is, they would also fall short of Wall Street estimates, which currently call for $2.5 5 billion in sales and pro forma profits of $94 million.

Long story short: REV Group missed expectations in 2018, and it looks like it's going to miss them again in 2019.

10 stocks we like better than REV Group, Inc.

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and REV Group, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 14, 2018

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

REVG

Other Topics

Stocks

Latest Personal Finance Videos

    #TradeTalks: A Holistic Financial Picture to Give a True Indicator of your Financial Health

    Harvest Founder Nami Baral joins Jill Malandrino on Nasdaq #TradeTalks to discuss the Harvest PRO Index, holistic financial picture to give a true indicator of your financial health, not just a credit score.

    Oct 9, 2020

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More