What happened

Blue Bird (BLBD 4.65%) largely met analysts' expectations for its fiscal Q1 results and voiced optimism about the year to come. Investors liked what the company had to say, sending shares of the school bus manufacturer up as much as 41% in Thursday trading. As of 12:30 p.m. ET, the stock was up 33%.

So what

Blue Bird is a company in the middle of a tech transformation. The school bus manufacturer is focused on going green, rolling out new, more fuel-efficient buses and electric-powertrain options.

The company lost $0.30 per share in its fiscal first quarter, within range of the consensus estimate for a loss of $0.29 per share, on revenue of $235.7 million, which exceeded analysts' expectations. During the period, Blue Bird worked through most of its legacy units that have been causing margin compression over several quarters, setting the stage for improvement in the months to come.

"The Blue Bird team continued executing a rigorous plan to improve operations, reduce fixed costs, and recover economics through pricing," CEO Matthew Stevenson said in a statement. "Therefore, we are well positioned for a significant recovery over the next several quarters."

Blue Bird said that bookings for electric school buses increased by 130% in Q1 and the backlog for the new technology reached 385 buses. The company expects that backlog to grow "considerably" in the months to come thanks to new orders funded through an Environmental Protection Agency (EPA) grant program.

Blue Bird sees that EPA program generating orders for an estimated 500 to 700 electric buses, which would mean a minimum of $200 million in additional revenue.

Now what

Blue Bird raised its guidance for its full fiscal year for revenue, EBITDA, and adjusted free cash flow, and reiterated its long-term forecast for about $2 billion in annual revenue at an adjusted EBITDA margin of 12%. It was perhaps the optimistic tone from management, as much as it was the actual results, that attracted investor attention post-earnings.

Blue Bird shares are now up 72% year to date after a miserable 2022. This is a somewhat countercyclical company, as it ebbs and flows with government spending patterns more than the health of the broader economy.

Given the demands for school bus replacement, and the opportunity for local governments to improve their emissions with the help of federal funds, there is a good reason for optimism that we are in the early days of an up cycle in the school bus business.