Spartan reports strong revenue growth in Q3; profits down on 'industry-wide' challenges

Specialty chassis builder Spartan Motors Inc. reports that its third quarter reflects strong revenue growth and continued profitability, but the results were negatively impacted by industry-wide challenges, including tariff-driven increases in commodity and component costs, chassis shortages, supplier component delays, freight costs and disruptions, and labor shortages.

"Our third quarter sales were up significantly year-over-year and all three of our segments remained profitable. Despite that progress, unexpected industry-wide headwinds negatively impacted our profitability for the period," said Daryl Adams, president and CEO.  "As it stands, our results were hindered by multiple external factors, which resulted in production and labor inefficiencies and shipment delays.  If not for the significant industry-wide headwinds and the operating issues we sustained as a result, we would have exceeded our internal operating plan for the quarter."

By the numbers, Spartan reported:

• Sales increased $37.0 million, or 19.6%, to $226.2 million, from $189.2 million
• Gross profit margin decreased 350 basis points to 11.6% of sales, from 15.1% of sales
• Net income decreased $8.3 million, or 61.5%, to $5.2 million, or $0.15 per share, from $13.5 million, or $0.38 per share. The prior year net income includes the benefit from a $6.3 million, or$0.18 per share, tax valuation allowance adjustment due to the company's improved financial condition
• Adjusted EBITDA decreased 17.8% to $10.6 million, or 4.7% of sales, from $12.9 million, or 6.8% of sales.
• Consolidated backlog, excluding the multi-year USPS truck body order at September 30 totaled $325.9 million, essentially flat, compared to $323.4 million the year before Including the USPS order, consolidated backlog, totaled $484.9 million compared to $537.7 million.

By segment, Fleet Vehicles and Services sales increased $39.8 million, or 50.6%, to $118.4 million. The revenue increase was primarily due to increased volume relating to USPS truck body, Reach vehicle, and upfits.   Adjusted EBITDA decreased $1.6 million to $7.2 million, or 6.1% of sales, from 11.2% of sales, a year ago.  The segment backlog, excluding the multi-year USPS truck body order, at September 30 totaled $116.2 million, up 48.6%, compared to the year before.  Including the USPS order, segment backlog totaled $275.2 million compared to $292.5 million. 

The Emergency Response segment sales decreased $5.6 million to $60.3 million, or 8.5%.  The decrease is primarily due to lower volume and unfavorable sales mix, partially offset by pricing changes realized in 2018. Adjusted EBITDA decreased $1.9 million to $0.6 million or 1.0% of sales from 3.8% of sales a year ago. The segment backlog totaled $175.7 million, down 17.6%. 

The Specialty Chassis and Vehicles segment sales increased 5.5% to $51.7 million from a year ago.  Revenues were driven mainly by a $1.9 million increase in luxury motor coach chassis sales, due to increased unit volume driven by market share gains and continued industry demand. Adjusted EBITDA increased $0.8 million to $5.9 million or 11.4% of sales from 10.5% of sales a year ago. The segment backlog totaled $34.0 million, up 6.6%.

Looking ahead, the company is optimistic.

"The underlying business fundamentals in each of our business segments remain strong, as indicated by our strong backlog, despite the increased industry-wide headwinds," said Matt Long, interim CFO.  "We remain encouraged by the continued strength of orders across all of our business segments.  As we head into the remainder of the year, we have taken proactive steps and cost reduction actions to help mitigate the unfavorable market conditions experienced in the third quarter."