REV Group Lifts Outlook on Record Q3

REV Group(NYSE:REVG) reported fiscal third quarter 2025 results on September 3, 2025, achieving $644.9 million in consolidated net sales and adjusted EBITDA of $64.1 million, driven largely by record throughput and margin expansion in its Specialty Vehicles segment. Management raised full-year fiscal 2025 (period ending July 31, 2025) guidance for revenue ($2.4 billion to $2.45 billion) and adjusted EBITDA ($220 million to $230 million), reflecting ongoing operational and strategic execution, major facility expansion, and a strong balance sheet. The following insights highlight the expansion of production capacity, disciplined cost management against tariff risks, and sustained backlog normalization supporting long-term growth.

REV Group expands fire apparatus capacity by 40%

A $20 million expansion at the Spartan Emergency Response facility in South Dakota, previously announced during the fiscal second quarter 2025, is set to nearly double the plant size and add 56,000 square feet, supporting both custom and semi-custom fire apparatus. This initiative targets reduced delivery times to less than one year and addresses a $4.3 billion Specialty Vehicles segment backlog, which remains more than two years of sales even after recent throughput increases.

"Recently, we took a major step forward in our commitment to U.S. manufacturing growth and operational resilience with the groundbreaking of a major facility expansion at Spartan Emergency Response in Brandon, South Dakota. This approximately $20 million investment, which we previously announced during our second quarter earnings call, is expected to expand the facility's fire apparatus production capacity by 40% upon completion, allowing us to further meet demand for both our fully custom and semi-custom fire apparatus. These enhancements will provide opportunities to reduce delivery times and improve throughput, particularly for departments looking for high-performance solutions within a one-year delivery window. The expansion will add 56,000 square feet to our existing campus, nearly doubling the location's manufacturing footprint, and enhancing critical capabilities in painting and fabrication."
-- Mark Skonieczny, President and CEO

This expansion strategically positions REV Group to achieve industry-leading lead times, solidifying competitive differentiation as backlog trends toward normalization over the next two years.

REV Group margin expansion outpaces tariff pressures

Specialty Vehicles segment adjusted EBITDA increased $26.9 million year-over-year, Specialty Vehicles segment adjusted EBITDA margin reached 13.4%, up 370 basis points from pro forma 2024, while year-over-year incremental margins hit 28%, above previously guided 20%-25%. The company expects $5 million to $7 million in tariff impacts in the fiscal fourth quarter 2025, yet has thus far mitigated cost headwinds via inventory management and supply chain actions, despite broader machinery peer concerns over Section 232 steel and aluminum tariffs.

"Given the inventory levels we had on hand at the start of the quarter, along with the efforts of our supply chain team, we were able to mitigate a portion of the expected inflationary impacts related to tariffs within the third quarter, which resulted in delivering a 28% incremental margin year over year as compared to our prior guidance of 20% to 25% incremental margin for 2025. Specialty Vehicles segment backlog exiting the quarter was $4.3 billion. The increase versus last year was related to the continued demand for fire apparatus and ambulance units as well as pricing actions, partially offset by the benefit of the increased throughput mentioned earlier."
-- Amy Campbell, CFO

Continued margin expansion demonstrates robust operational discipline and resilience, providing earnings visibility even as tariffs introduce $20 million in annualized incremental costs beginning in the fiscal fourth quarter 2025.

REV Group demonstrates prudent capital allocation and strong cash flow

Year-to-date operating cash flow stood at $164.7 million for the first nine months of fiscal 2025, with $117.6 million returned to shareholders through buybacks and dividends year-to-date in fiscal 2025, net debt was $54 million as of July 31 and liquidity remained ample with $247.2 million available under the credit facility as of July 31, 2025. Management articulated investment priorities focused on internal growth, targeted M&A, and maintaining financial flexibility, rather than accelerating share repurchases, amid a strong free cash flow outlook for fiscal 2025 ($140 million to $150 million, raised from prior $100 million to $120 million).

"Of course, we're going to invest in our business first to make sure that we have the capacity available and drive the efficiency programs. But with our debt levels, you know, we still have to look opportunistically at M&A as well. And, so again, those are the levers we have. But, you know, internal investment into our productivity improvements are really the key that we're driving right now. But, we do have to be opportunistic when it comes to M&A when we look at what's available on the market. So we will look at opportunities as they come up. But, again, we'll be disciplined in that approach as we previously discussed."
-- Mark Skonieczny, President and CEO

REV Group’s capital allocation approach preserves the capacity for organic and inorganic growth initiatives, positioning the company to capture strategic opportunities without overextending leverage.

Looking Ahead

Management raised full-year fiscal 2025 guidance to consolidated revenue of $2.4 billion to $2.45 billion, and adjusted EBITDA of $220 million to $230 million, with Specialty Vehicles anticipated to deliver mid-teens year-over-year revenue growth and flat-to-slightly-up sequential quarterly growth for fiscal 2025. Recreational Vehicles segment guidance remains unchanged, with fiscal fourth quarter 2025 results expected to be roughly flat sequentially and full-year segment adjusted EBITDA expected to be $30 million to $35 million. Free cash flow guidance has been increased to $140 million to $150 million for fiscal 2025, backed by strong third-quarter generation, and the company has confirmed capital expenditures of $45 million to $50 million for fiscal 2025.

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This article was created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions 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.