Blue Bird Corporation (BLBD 4.08%), which describes itself as the leading independent designer and manufacturer of school buses in the U.S., should perhaps find its way onto more investors' radar screens. The company has increased its profitability profile significantly over the last year. Small-cap investors who also favor value plays may benefit from following this diminutive but growing producer of large vehicles.
For context, let's review the company's fourth-quarter 2019 earnings report, released Wednesday, keeping in mind that all comparative numbers below refer to the prior-year quarter.
Blue Bird: The big-picture numbers
|Metric||Q4 2019||Q4 2018||Change (Decline)|
|Revenue||$343.5 million||$331.6 million||3.6%|
|Net income||$11.6 million||$14.8 million||(21.6%)|
|Diluted earnings per share||$0.43||$0.52||(17.3%)|
Highlights from the quarter
- Unit sales dipped by less than 1 percent to 3,726 vehicles. But the company improved its revenue by 3.6% as a result of price increases instituted last year to absorb commodity inflation from import tariffs.
- Blue Bird noted that the price increases, coupled with a growing mix of alternative-fuel buses, improved revenue per unit by nearly $4,000 during the full calendar year.
- Gross margin improved by 70 basis points to 13.6%, a result of cost savings from the company's "transformational initiatives" program started in the last fiscal year.
- Net income dipped due to increased selling, general, and administrative expenses versus the prior year, and slightly higher interest and income tax expenses.
- Adjusted EBITDA improved by 15% to $33.4 million, and marked the highest fourth-quarter adjusted EBITDA that Blue Bird has generated in 10 years. Full-year adjusted EBITDA of $81.8 million increased by 16% and also represented a 10-year earnings record.
- While the school bus industry saw flat sales in 2019, Blue Bird enjoyed 21% growth in its alternative-fuel bus sales. The manufacturer is a leader in this category and has brought several new models to market, including a zero-emissions electric school bus that features a Cummins electric drivetrain.
In Blue Bird's earnings conference call, CEO Phil Horlock noted that the company purposely sold about 600 fewer buses in fiscal 2019 versus the prior year, as it culled lower-margin models and focused on shifting its mix to alternative-fuel buses. The move to higher-demand products, supported by ongoing productivity enhancements, bodes well for shares, which are currently priced at just 10 times forward earnings. In discussing the near-term outlook for sales, as well as Blue Bird's current product mix, Horlock offered a mini investment thesis for the stock:
With a strong outlook for property values and corresponding property taxes, which are the major funding source for school buses, together with the fact that the 190,000 school buses on the road today have been in service for more than 15 years and schoolchildren enrollment is increasing, we are confident that the industry outlook remains around this level for the foreseeable future.
We saw yet another record sales mix this year for alternative-fuel-powered school buses. At a strong 48% mix of our total unit sales, this was 10 [percentage] points higher than last year's [then-record] of 38% mix of sales. In fact, our fourth-quarter [alternative-fuel bus] mix was the highest ever for any quarter at Blue Bird at a very impressive 55% of our total unit sales.
We lead the industry by a long way in alternative-fuel-powered school buses. ... As a reminder, in alternative fuels, we count all of our propane, compressed natural gas, electric, and gasoline-powered buses, as all of these are alternatives to diesel, which has been the staple fuel for years. For the past several years, we've been achieving significant growth in alternative-fuel bus sales.
Earnings guidance for the new fiscal year
Blue Bird issued a fiscal 2020 outlook alongside earnings that anticipates revenue of $1.02 billion to $1.05 billion. The midpoint of the target will represent a 1.6% increase over fiscal 2019 sales, even as the company continues to shrink production volume of lower-margin product lines. Management is again aiming for a mid-teens advance in adjusted EBITDA, and forecasts a full-year range of $90 million to $95 million.
Shares have returned a decent (but not spectacular) 13% year to date. I suspect another year like fiscal 2019 may bring more attention to this dynamic company, with further stock appreciation to follow.