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REV Group, Inc. (NYSE:REVG)
Q4 2019 Earnings Call
Dec 19, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the REV Group, Inc.'s Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Drew Konop, Vice President, Investor Relations. Thank you. You may begin.

Drew Konop -- Vice President, Investor Relations

Thanks, Doug. Good morning, and thanks for joining us. Last night, we issued our fourth quarter 2019 results. A copy of the release is available on our website at investors.revgroup.com. Today's call is being webcast and is accompanied by a slide presentation, which includes a reconciliation of non-GAAP to GAAP financial measures that we will use during this call. It is also available on our website.

Please refer now to Slide 2 of that presentation. Our remarks and answers will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These forward-looking statements are subject to risks that could cause actual results to be materially different from those expressed or implied by such forward-looking statements. These risks include, among others, matters that we have stated in our Form 8-K filed with the SEC last night and other filings we make with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call if at all.

All references on this call to a quarter or a year are to our fiscal quarter or fiscal year unless otherwise stated. Joining me on the call today are, our President and CEO, Tim Sullivan; as well as our CFO, Dean Nolden.

Please turn now to Slide 3, and I'll turn the call over to Tim.

Tim Sullivan -- Chief Executive Officer

Thank you, Drew, and thanks, everyone for joining us on today's call. Slide 3 highlights the major themes of fiscal 2019 and sets the table for how we plan to execute and deliver the results required in fiscal 2020. I'll start on the lower left and proceed clockwise.

First, we generated a good amount of cash this year. Net cash provided by operating activities was $53 million and we generated $24 million from the sale of assets, which provided significant cash for balanced capital allocation. In addition to paying over $12 million of dividends, we returned over $8 million to shareholders through stock repurchases and paid down $41 million of debt during the year. Through 2019's ups and downs, we remain disciplined regarding the use of cash and plan to continue a balanced use of capital focused on debt repayment, internal investments and opportunistic share repurchase or M&A activity.

The strategic review we initiated in the second half of fiscal 2019 involved a deep dive into our core markets and businesses, a detailed look into REV's value proposition and a new focus on where we feel we can deliver shareholder value. This led to a decision within the quarter to sell our joint venture interest in North American motor coach distribution to our JV partner, Daimler. REV coach was able to successfully restore independent sales and service of Setra motor coaches in North America. However, we mutually agreed the divestiture was a necessary step for the next phase of Daimler's plans for the North American market.

Our companywide strategic review is ongoing, but the goal has not changed. We expect a viable path to 10% EBITDA margins and we'll look to adjust the portfolio to align with our core competencies and to maximize profitability. We plan to provide an update on our long-term targets in connection with our second quarter earnings call.

2019 was a successful year for REV's product innovation and our design teams. At the American Ambulance Association Conference in Nashville this year, we announced several new innovative vehicles that increased crew comfort and overall functionality. We also continue to be a leader in voice of customer design of fire apparatus with a total of 13 new product releases in fiscal 2019. In addition, our Clean Energy team and specialty division achieved nearly zero emissions with the release of an LNG powered terminal truck.

And finally several new recreational vehicles stole the show at the September's Elkhart Open House by winning top design awards and new dealer wins. In all, REV had a record year of innovation with 36 new products released in fiscal 2019.

Moving on, fiscal 2019 was a big year for the large municipal contract awards to REV. Within the year, we announced several five-year awards, including an award from Chicago Fire Department for the largest single contract for fire apparatus ever received at our E1 business, and a five-year award by FDNY from New York for ambulance units out of our REV Orlando business. We also received a five-year transit bus award from the suburban bus division of the Regional Transit Authority of Chicago.

And finally, subsequent to closing fiscal 2019, we officially received a significant add-on award from LA County Transit. The awards are major accomplishments demonstrate in our partnership scale with municipalities of all sizes. I would note that neither of the municipal transit bus awards are reflected in our current commercial backlog and will be additive to backlog when orders are received, which is currently assumed to be within the first half of fiscal 2020.

We spent much of the fiscal third quarter earnings call discussing 2019's operational issues and labor market constraints, primarily within the F&E segment, which resulted in a downward revision to our fiscal 2019 EBITDA guidance. Today's results within F&E were largely as expected. Capacity expansion of our largest fire facility progressed throughout the fourth quarter with a new chassis line opened up on November 4. The labor churn experienced earlier in the year has stabilized at this plant and they continue to train and integrate smaller groups of new employees to the factory floor. We believe the net results of these actions within the fire division as well as shipment against a large municipal order in ambulance will provide an opportunity begin recovering the EBITDA loss to operational issues within this segment during the second half of fiscal 2019.

In fiscal 2019, select Recreation markets declined at a greater magnitude than expected as dealers destock and inventories dropped to historic lows within our Class A product lines. While this resulted in lower than expected EBITDA versus our initial fiscal 2019 guidance, the team deserves recognition for taking corrective actions to limit the financial impact and navigating end markets that were not within its control. Despite the challenges, all businesses within Recreation had a successful Elkhart Open House in September, which led to several industry awards and expanded distribution with new dealers in key high volume geographies.

As we look to fiscal 2020, we have adjusted capacity and the cost structure to meet current demand in a market that is expected to be down mid-single digits, but we do retain the ability to flex up production if needed as we build upon these recent market successes. Across to our segments, the vast majority of our supply chain lead times and material availability have returned to normal. Nevertheless, we still experience the occasional supply chain issue that negatively impacts our ability to ship product. We do not believe that this will change entirely until the trade war comes to an end. However, we believe we are successfully navigating trade impacts and the net result is opportunity in fiscal 2020 to leverage the restructuring and operational changes we have made.

Now, I'll turn the call over to Dean for a detailed review of the financials and outlook.

Dean Nolden -- Chief Financial Officer

Thank you, Tim, and good morning. As Tim discussed, we faced several challenges within fiscal 2019 and late 2018 for that matter that resulted in consolidated earnings that were below the potential of our portfolio of businesses. These businesses can do much better and on the bright side, much of the recovery to prior profitability levels and beyond is within our control. In addition, I was pleased that the predictability of our forecasting improved in the fourth quarter as the underlying business results were largely as expected based upon our revised guidance.

Tim mentioned one item that became more evident as we close the year, which is an unusual amount of catastrophic medical claim costs experienced throughout fiscal 2019, having the most significant impact in the first and fourth quarters. The first quarter impact was originally deemed to be a one quarter anomaly, but later, our experience in the fourth quarter codified the full-year trend.

The number of high-dollar claims increased 55% year-over-year amounting to approximately $7 million of total increased costs for the full year and approximately $4 million within the fourth quarter. Without this recent medical experience within the quarter, we would have landed in the middle to upper half of our revised fiscal 2019 earnings guidance as these costs not been incurred.

Starting with Slide 4, I will review our consolidated fourth quarter results and segment level performance. Consolidated net sales for the fourth quarter were $653 million, down 1% compared to the fourth quarter of last year. The decline in sales was primarily a result of lower Recreation segment shipments, partially offset by sales growth in the Commercial and the Fire & Emergency segments. Adjusted EBITDA in the fourth quarter of 2019 was $19.3 million, compared to $39.4 million in the fourth quarter 2018. The decrease in adjusted EBITDA during the quarter was driven by lower profitability within the F&E and Recreation segments mentioned earlier, partially offset by higher sales and profitability in the Commercial segment.

Now, please turn to Page 5 of our slide deck, as I move to a review of the performance of our segments. Fire & Emergency segment sales increased by 7% to $269 million for the fiscal fourth quarter, in line with our revised expectations as the volume of fire and ambulance units increased from fiscal third quarter. Within fire, sales also benefited somewhat from favorable mix to more profitable units as well as the impact from past price increases that are just beginning to cycle through our long duration backlog. The total number of ambulance units shipped within the quarter was down year-over-year. However, a favorable mix of higher-priced modular units increased sales year-over-year as we began shipping against an interim municipal order late in the quarter. While the order had a small impact on the fiscal fourth quarter, it is expected to benefit the division primarily in fiscal 2020.

F&E segment adjusted EBITDA was $7.4 million in the fourth quarter of 2019, compared to $18.5 million in the fourth quarter 2018. The decrease in adjusted EBITDA was primarily due to a reduction in gross profit margin resulting from the previously described temporary labor inefficiencies during our ongoing effort to increase production capacity at our largest fire plant. These expansion efforts are designed to decrease our growing fire apparatus backlog by several months from where it stands today. Despite these near-term challenges, we have worked with our distribution and municipal partners and have not experienced any order cancellations to date.

Backlog has grown 18% year-over-year and 7% sequentially to $833 million, and we expect fiscal first quarter 2020 to be a trough in F&E segment EBITDA dollars and EBITDA margins as we ramp production through the first half of fiscal 2020. We anticipate the result to be an improved production cadence and absorption of the associated labor costs that we have incurred within the second half of fiscal 2020. We believe our backlog will decrease throughout the second half of the year as we strive to reach a shorter backlog duration. Reduced shipment lead times will provide greater flexibility and competitive advantage for our businesses.

As shown on Slide 6, in our Commercial segment, quarterly sales were up 13% compared to the prior-year period, driven primarily by an increase in the number of municipal transit bus units sold compared to the prior year. Production of the LA County transit bus order has progressed as expected with a steady increase of units in quarterly sales throughout the past year. School bus sales reflected typical sales seasonality, decreasing approximately 40% sequentially, but were flat with the year-over-year comparable. Shuttle bus sales grew low single digits, while sales of terminal trucks and sweepers in our Specialty division were down year-over-year. While the outlook for sweepers has improved, the softness in terminal trucks marks the first year-over-year decline for terminal trucks for the past seven quarters, leading to a cautious view on the end market in the next year, similar to the Class A truck market.

Commercial adjusted EBITDA increased to $16.3 million from $9.6 million in the prior year quarter, with the increase primarily attributable to the higher number of municipal transit bus shipments and increased profitability across many of the segment's businesses. Adjusted EBITDA margin increased 260 basis points in the quarter to 7.9%. REV Production System was first rolled out within the Commercial segment during fiscal 2018, and we are seeing consistent margin performance and solid execution from these businesses. Shuttle bus has improved several hundred basis points from slightly negative EBITDA margins to now a low single digit adjusted EBITDA margin business. Further, despite sales declines of terminal trucks mentioned earlier, that business has expanded EBITDA margins within the year.

Commercial backlog at the end of fourth quarter was down 17% to $317 million compared to the end of fiscal 2018, primarily due to delivery of buses against our one large municipal contract. However, current year backlog does not include buses from the five-year Chicago Pace Transit award announced within the quarter and the add-on to the LA County Transit award, which occurred after fiscal 2019 as Tim referenced. These awards total over 400 buses and $240 million of incremental orders over their respective contract lives and we expect firm purchase orders to be additive to backlog within the first half of fiscal 2020.

Turning to Slide 7, the Recreation segment continued to reflect dealer destocking as wholesale shipments trailed retail sales across many categories. Quarterly sales in the Recreation segment declined 26% year-over-year to $174 million, primarily due to lower net sales attributable to our Class A and to a lesser extent, lower Super C, Towable and camper unit sales. The only category that grew versus the prior year was the Class B RV despite its continued chassis procurement delays.

Recreation adjusted EBITDA decreased 66% for the quarter to $77.5 million. This decrease was due to decreased profitability in most categories, primarily due to the lower wholesale shipments, partially offset by cost reduction actions taken during the year within the Class A category.

Segment backlog decreased 43% to $167 million for the -- versus the end of fiscal 2018, but was up 29% or $37 million sequentially compared to the third quarter. While we would normally expect to see an increase in backlog in the fiscal fourth quarter, we believe the accolades we received at the Elkhart Open House and other shows have driven demand for our new models, and from a new dealers in high population locations perspective where we have not been previously represented across all product categories. Much of the incremental demand resulting from these shows will not convert from backlog to sales until the first half of 2020, but provide a solid base as we begin the calendar year 2020's spring shows and selling season.

Our current industry view aligns with industry experts and we anticipate the overall market to be down mid-single digits. However, we feel the strength of our product lineup provides opportunity to take market share in this environment, and we will benefit from a full year of the Class A production cost reduction tailwinds initiated during 2019.

Slide 8 provides a brief review of consolidated results for fiscal 2019. Net sales of $2.4 billion is up 1% versus fiscal 2018, while consolidated adjusted EBITDA margin declined 200 basis points, primarily due to previously discussed operational efficiencies within the F&E segment and larger-than-expected market declines within Recreation, offset by improved mix and execution within the Commercial segment.

As Tim noted, net cash provided by operating activities for fiscal year 2019 was $52.5 million compared to a net cash use of $19.2 million in fiscal 2018. The increase in cash from operating activities for fiscal year 2019 compared to the prior year was primarily related to improved net working capital efficiency. This improvement is evidence of our ongoing efforts to significantly improve our working capital efficiency over the long term. Uses of that cash involved a regular quarterly dividend totaling $12.5 million for the year, opportunistic share repurchases totaling $8.3 million, debt repayment of $41 million and $21 million of capital expenditures.

Net debt at October 31, 2019 was $373 million, versus $409 million at the end of fiscal 2018, with $226 million of availability under our ABL revolving credit facility. Our net leverage ratio at the end of fiscal year 2019 was 3.7 times. Within the quarter, we worked with our bank partners to reach an agreement to raise our maximum leverage ratio to 4 times from 3.5 times through the end of the third fiscal quarter of 2020, and we were in compliance under all financial covenants under the ABL facility and term loan as of October 31, 2019.

Please turn to Slide 9 for a review of our outlook for fiscal 2020. We're estimating that net sales for fiscal 2020 will be in the range of $2.45 billion to $2.6 billion, representing a 5% year-over-year growth at the midpoint. Net income is expected to be between $11 million to $31 million, an increase of $35 million at the midpoint. We anticipate adjusted EBITDA to be in the range of $105 million to $120 million, representing a 10% increase year-over-year at the midpoint. And we are planning on $20 million to $25 million in capex, with net cash from operations of $50 million to $70 million for the year.

Our forecast for interest expense is estimated to be in the range of $27 million to $31 million, as we expect to continue to use free cash to pay down debt, and our effective tax rate is expected to be in the range of 26% to 28%. Absent the impacts of any potential future acquisition activities plus cash we are planning to generate from non-operating activities, we are targeting an additional $30 million to $60 million of debt reduction during fiscal year 2020, which combined with our expected midpoint of adjusted EBITDA guidance will reduce our leverage ratio to just under 3 times at fiscal year-end.

Slide 10 compares fiscal 2019 actual adjusted EBITDA quarterly run rate to the expected run rate at the midpoint of fiscal 2020 guidance. It is important to note that our fiscal first quarter typically has fewer working days available due to several holiday breaks. This naturally leads to less completions within the fiscal first quarter. This impact is compounded by the final inspections scheduled by our customers before acceptance of delivery, which are also affected by the holidays. Nevertheless, we are striving to smooth the run rate of our businesses' EBITDA and expand -- and expect the second, third and fourth quarters of fiscal 2020 to start benefiting from this improvement and the improvement in performance within the F&E segment after a trough in the first quarter.

With that, I will turn the call back to Tim for some closing comments.

Tim Sullivan -- Chief Executive Officer

Thanks, Dean. Clearly, 2019 was a difficult and disappointing year, but I am pleased with how we are positioned for 2020. I spent this week in our largest ambulance and fire plants, both of which enjoy healthy backlogs. Our plant structural changes are in place and we believe they are manned to the levels we required to effectively execute on these backlogs consistent with our plan. We expect both fire and ambulance will ramp as we progress during the year and that we will effectively manage the odd supply chain issues that erupt as carry over from the trade war. All of this reinforces our confidence in our plan and our belief that our guidance for the year is achievable.

Operator, we'd now like to open up the call for questions.

Questions and Answers:

Operator

[Operator Instructoins] Our first question comes from the line of Joel Tiss with BMO Capital Markets. Please proceed with your question.

Joel Tiss -- BMO Capital Markets -- Analyst

Well, I'm shocked. Usually, I don't even make it to last. How is it going?

Tim Sullivan -- Chief Executive Officer

Good, Joe [Speech Overlap]

Joel Tiss -- BMO Capital Markets -- Analyst

Yes, there you go. What I'm -- can you talk a little bit more about like the restructuring that still needs to be done for 2020 and kind of how it unfolds and what are we looking at?

Tim Sullivan -- Chief Executive Officer

There is none. The restructuring is behind us. We right-sized our Decatur operation. We've ramped structurally in man-wise or manpower wise Ocala, and we've done the same at REV Orlando, we're done. That's why we're optimistic about our plan. We think that we're positioned now just to execute on a really nice backlog across most of our business segments.

Joel Tiss -- BMO Capital Markets -- Analyst

Any commentary on pricing of the new business that's going to flow through in 2020?

Tim Sullivan -- Chief Executive Officer

The backlogs are good. If we expect to get to 10% EBITDA margins, that means that we have to have a healthy and quality backlog and we expect those to play out as we move through 2020.

Dean Nolden -- Chief Financial Officer

And Joel, this is Dean. The downside of our -- some of our delays in shipments in 2019 has an upside in 2020 obviously with -- in particular, fire with the long backlogs. We're just starting to see some of those previous price increases come through in the fourth quarter, but we are expecting to benefit from those in a bigger way in 2020.

Joel Tiss -- BMO Capital Markets -- Analyst

Okay. And then the last one, can you give us any sort of a timeframe on when you think you can get close to or in the ballpark of those 10% EBITDA margins?

Tim Sullivan -- Chief Executive Officer

As we talked about, we still have a couple of laggards, that would be the Decatur Class As and with the pressure in the marketplace right now that's going to be a bit of a struggle as we go through 2020. It's still a focus. In shuttle bus, we think we'll improve year-over-year, but we will probably not get to a 10% EBITDA margin performance in shuttle bus. Across the other businesses, we're close to or there, they kind of ebb and flow, but we're very comfortable with how we're positioned on those margins.

Dean Nolden -- Chief Financial Officer

And as I think, Joel, as Tim said, we are going to come back to you with our second quarter conference call with an update to our longer-term financial guidance.

Joel Tiss -- BMO Capital Markets -- Analyst

Okay, all right, thank you so much.

Operator

Our next question comes from the line of Andy Casey with Wells Fargo Securities. Please proceed with your question.

Andy Casey -- Wells Fargo Securities -- Analyst

Good morning, and thanks.

Dean Nolden -- Chief Financial Officer

Good morning, Andy.

Andy Casey -- Wells Fargo Securities -- Analyst

Good morning, Dean. On the $50 million to $70 million operating cash flow guidance, do you expect that to be pretty back half loaded with Q4 being the high point, I mean that Q4 this year wasn't typically as high as it usually would be. So I'm wondering if you've returned to seasonality pre-2019 and then with some anticipated asset sales, should we expect the $30 million to $60 million debt reduction to be spread through the year or should that also be concentrated in the back half?

Dean Nolden -- Chief Financial Officer

Yes, hey, Andy. So in the fourth quarter of 2019, one of the things that kind of created the little bit different characteristic was the ramping and the timing of the shipments in our -- particularly in our fire division. So we've got more inventory than we might normally have at the end of the fiscal year. I would expect 2020 to be stronger in the fourth quarter for sure from a cash flow perspective, but we're working very hard to reduce the seasonality. It may not go away in the short-term, but reduce the seasonality from a working capital perspective.

Having said that, I still believe the second half of the year will be our strongest cash flow generation, but we're working to improve or reduce the amount of use in the first half as well. So, hopefully, the plan is to be smoother, but second half will be strong again and fourth quarter will return to more prior year levels, as you said.

Andy Casey -- Wells Fargo Securities -- Analyst

Okay, thanks. And then on the debt reduction cadence, should that be spread through the year or concentrated back half?

Dean Nolden -- Chief Financial Officer

I think that will be in the back half of the year, third and fourth quarter.

Andy Casey -- Wells Fargo Securities -- Analyst

Okay, thank you very much.

Operator

Our next question comes from the line of Courtney Yakavonis with Morgan Stanley. Please proceed with your question.

Courtney Yakavonis -- Morgan Stanley -- Analyst

Hi, and thanks, guys. Just wanted to just follow-up on the comment about dealer inventories, I think you said that are at the lowest level for the Class A side, can you just comment on where you see inventories for Class B and C? And just remind us of your overall exposure among the three groups?

Tim Sullivan -- Chief Executive Officer

Yes, they're actually low across the Board of the dealer network through 2019 really moved their inventories down, which is not a bad thing, that just means that they're rightsizing their retail inventory for what they expect the market demand to be. So it's across the Board. I don't think any particular class has been more destocked than another one, but they are -- the dealers are telling us now that they feel that they are very comfortable with their inventory levels, which means that the orders for 2020 is to be fairly steady as we move through the year assuming the market remains fairly flat.

Dean Nolden -- Chief Financial Officer

And Courtney, I think...

Courtney Yakavonis -- Morgan Stanley -- Analyst

Go ahead.

Dean Nolden -- Chief Financial Officer

...to remind you of the allocation in the Class A is the largest portion of our Recreation business, still 50%-ish Class B, we think will grow as a percent in 2020 because that will be the stronger category we believe with the healthy demand plus the return of chassis availability, we expect that's 15% of the overall business, Class C is another 20% and then Towable is the rest.

Courtney Yakavonis -- Morgan Stanley -- Analyst

Okay, great, thanks. I think on the last call, you had talked about kind of reevaluating the Class As within the portfolio, have you finished that analysis or is that something that's still in the cards?

Tim Sullivan -- Chief Executive Officer

No, I think it's -- we've completed the analysis and we know where we stand with the A's. Obviously, we repositioned them to be at the higher end of the Class A market and we're actually -- we believe we're actually taking some share with our product right now, but it is margin challenge, which means that we will keep an eye on it as we move forward.

Courtney Yakavonis -- Morgan Stanley -- Analyst

Got you. And then you had made a comment, labor turnover is down for the F&E plants that you talked about on the last call. I think you also had mentioned on the last call that you are retaining some labor within ambulance. So, can you just talk about is ambulance appropriately staffed now that you have this order coming through or is there still some excess labor there and then also just labor turnover kind of across the portfolio aside from just as F&E plants that you talked about?

Tim Sullivan -- Chief Executive Officer

Yes, if you go back to what we talked about in Q3, we were trying to ramp significantly the Ocala plant right in the middle of the summer time, which could have been worse. I think I made a comment on the call that to retain 85 people, we have to hire over 200. We can retain them, the temperatures outside were 100 degrees with 100% humidity and people that were starting the manufacturing jobs for the first time in their lives. So this isn't for me. We felt that once we got into the fall that, that will stabilize and that's exactly what's happened. We believe historically, if we can get workers in the fall, winter and spring, they'll usually muscle through the summer time in Florida.

So that's the dilemma that we had to ramp. It couldn't hit us at a worse time. Having said that, we remained exactly where we need to be right now to hit our guidance in our Florida plants and quite frankly across the Board. We've had unusually good stability and I think part as because the business has been steady, unemployment is low as you know across the Board, but our turnover is at the lowest it's been since I've been here in five years, which is a good sign that people are feeling good about what they do, where they're working and what we're doing as a company. Quite frankly, we're doing a really nice job across the Board on healthcare, on safety, on things like that, that are creating them to be a good culture or they want to be part of a better culture, let's put it that way and that's helped a lot to stabilize our workforce.

Courtney Yakavonis -- Morgan Stanley -- Analyst

Great, thanks. And then just lastly on the Commercial side, I think you give us some visibility into the Chicago and LA County add-on, but I think you talked about a Commercial contract that won't be recurring next year in 2020. Can you just talk about how large that contract was and how much of an impact it might have on typical seasonality in that business?

Tim Sullivan -- Chief Executive Officer

Yes, that was a New York contract, it was a New York Transit contract that we fulfill that of our Collins plant. It was about 400 units, dollar-wise what was it? DO you guys remember?

Dean Nolden -- Chief Financial Officer

$30 million, some like that.

Tim Sullivan -- Chief Executive Officer

Yes. And that was kind of a one-off situation. It's a good contract, because we broke into New York on a transit deal, but those things, you have to work through their normal product lifecycle and that will come back around, but it's not repetitive for 2020 or probably '21 or '22.

Dean Nolden -- Chief Financial Officer

And Courtney, that was -- that really benefited us a lot in 2019 in the first quarter -- fiscal first quarter, which is unusual from a seasonality perspective for that Collins business. So that's what's not repeating, it will affect us most in the first quarter of 2020 on a year-over-year perspective.

Courtney Yakavonis -- Morgan Stanley -- Analyst

Okay, great. Thank you.

Operator

Our next question comes from the line of Mig Dobre with Robert W Baird. Please proceed with your question.

Mig Dobre -- Robert W. Baird -- Analyst

Thank you. Good morning, everyone. Just a quick clarification maybe in Recreation, you talked about the market being down, call mid-single-digit. But as far as your view on destocking, do you expect to be able to produce next year close to retail or is there still something to be done? I understand you're looking to gain some share, but if we're leaving share issues aside, is it fair to say that next year, you can produce in line with retail?

Tim Sullivan -- Chief Executive Officer

Yes, let me give you some stats, Mig. The overall market was down 16% in RV across the Board on all classes last year. Class A though was down about 27%, 28%, a big reduction. The industry is projecting a minus 3% to 4%, which we think is a little conservative. So, they're still expecting to be down a little bit, but with the destocking that was done in '19, we're expecting kind of flat year-over-year for RV. So, we're not expecting down, but we are expecting flat.

Mig Dobre -- Robert W. Baird -- Analyst

I see, OK. And that's for the segment as a whole?

Tim Sullivan -- Chief Executive Officer

Yes, that's the segment as a whole, but with the destocking that was done it to the level the destocking was done across the various different classes. We think we will be flat if not a little bit up, like we said with market share gain. So, if the industry is down 3% to 4%, we've planned flat just because we think our Bs are going to be up a little bit, we think our As are going to be up a little bit year-over-year and will be steady in our Cs in our Towables.

Mig Dobre -- Robert W. Baird -- Analyst

Okay. And then if we're thinking about your companywide revenue guidance, 5% growth with RV, you are providing some clarity here. How do we get to that 5% number when we're looking at the other two segments?

Dean Nolden -- Chief Financial Officer

Yes, Mig, this is Dean. Good morning. So, as we ramp up in F&E benefit from the larger orders in ambulance and improve on our production and shipment cadence in fire, we expect kind of high-single-digit growth year-over-year in F&E, again, more back half loaded because of the fire portion of that business. And we expect kind of low to mid-single-digit growth in Commercial, although we are going to see good continued strong results from -- for example, municipal transit bus business -- municipal transit business we talked about the weakness and lack of transparency in Specialties that kind of offset as well as that one contract in Collins. So altogether, that should get you pretty close to the midpoint of our revenue guidance.

Mig Dobre -- Robert W. Baird -- Analyst

Okay. That's really helpful. Last question for me in F&E, it sounds to me like 2020 is going to be kind of -- it's going to be a difficult year to model to put it bluntly, there has been a lot of noise over the past couple of years in terms of these labor inefficiencies and you're making progress. You also have a volume ramp that we have to take into account, but you're saying that Q1 is going to start slower. So, just to kind of level set us, are you expecting margins to be down in Q1 and then what sort of pace of recovery in margin do you see through the year? Thank you.

Dean Nolden -- Chief Financial Officer

Yes, Mig, this is Dean again. Yes, we talked about margins for F&E to be the trough in Q1. So yes, on a year-over-year basis, we expect them to be down. When you think at a higher level about F&E, our incremental margins should be above 20%, 25%, maybe 30% depending on the mix of the products and how custom, and what types they are, but I think for a full year, we're going to be more in the teens -- mid-teens incremental margin with less than the first half and then back to those higher levels in the second half. So hopefully that -- as we ramp up, so hopefully that helps you model it better.

Mig Dobre -- Robert W. Baird -- Analyst

Very helpful. Thank you guys.

Operator

Our next question comes from the line of Jerry Revich with Goldman Sachs. Please proceed with your question.

Ben Burud -- Goldman Sachs -- Analyst

Hi, good morning, everyone. This is Ben Burud on for Jerry.

Dean Nolden -- Chief Financial Officer

Good moring, Ben.

Ben Burud -- Goldman Sachs -- Analyst

I was -- good morning. I was hoping you could maybe step us through in a little more granularity, all the moving pieces in F&E operationally in the first half. Can you just give us an idea of how this new labor has performed in terms of manufacturing these obviously, complex machines? And give us an idea of how maybe product quality has stacked up, just some more granularity on? Obviously, the restructuring is behind us or the real hard work, but from an operational point of view, what exactly is playing out over the next six months?

Tim Sullivan -- Chief Executive Officer

Yes, it's good question. I think, obviously, we have a lot of new employees that we've hired, so we can ramp. We will not sacrifice quality, which means that we will ramp slowly. We will have labor inefficiencies in Q1 that will improve in Q2 and get really good in Q3 and Q4, because we don't want to overdo it. If we go too fast, quite frankly, we sacrifice quality, and we have a lot of new people on the floor right now. They've all been trained. We train them really during the fourth quarter and that's another reason why our fourth quarter was the way we guided it and the way it resulted, lot of labor inefficiencies as we are training the new employees, but it will ramp through the year and that's what we're projecting, but the people are in place were manned to the levels we need to be manned and the efficiencies will improve as we move through the year.

Ben Burud -- Goldman Sachs -- Analyst

Got it. And then if I just step through the segments in terms of what's embedded in the guide from a EBITDA perspective, if I just may be pick out R&D -- RV for now, excuse me. Based on what you mentioned a question or two ago, it sounds like you're forecasting or embedding I should say, flat revenue growth, but I'm assuming your guys also embedding margin contraction year-over-year in that segment as well. Is that the right way to think about RV EBITDA?

Dean Nolden -- Chief Financial Officer

Yes, there is some margin contraction, I guess, from some of the mix. But given the $5 million we talked about of restructuring benefits, we will probably be closer to flattish from an EBITDA perspective as well.

Ben Burud -- Goldman Sachs -- Analyst

Got it. Thank you very much.

Operator

There are no further questions in the queue. I'd like to hand the call back to you, Tim Sullivan, for closing remarks.

Tim Sullivan -- Chief Executive Officer

Well, thanks again, everyone for joining us today. Obviously, we've gone through a really tough patch in 2019, but we feel good about our plan for 2020. We feel good how we're positioned, hopefully that came across in the call today. Obviously, the proof is in the pudding as we move through the year, but we're excited to turn the corner and or I should say maybe the page and put 2019 behind us, it was a tough year. Looking forward to talking to you all again in March and as always, contact us if you have any additional questions.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Drew Konop -- Vice President, Investor Relations

Tim Sullivan -- Chief Executive Officer

Dean Nolden -- Chief Financial Officer

Joel Tiss -- BMO Capital Markets -- Analyst

Andy Casey -- Wells Fargo Securities -- Analyst

Courtney Yakavonis -- Morgan Stanley -- Analyst

Mig Dobre -- Robert W. Baird -- Analyst

Ben Burud -- Goldman Sachs -- Analyst

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