BLBD Financial Analysis

Analysis Date: 2/6/2025

Business Model

Blue Bird primarily generates revenue from the sale of school buses and aftermarket parts. They offer a variety of school buses including Type C and Type D buses with different powertrains like diesel, gasoline, propane, and electric. Revenue is generated through an independent dealer network and direct sales to major fleets and government entities.

Revenue Sources

• Sale of School Buses: This is the primary revenue driver, encompassing various types of buses (Type C, Type D) and powertrains (Diesel, Gasoline, Propane, Electric).
• Sale of Parts: Revenue from the sale of replacement parts to dealers and large fleet customers.
• Shipping and Handling Revenue: Ancillary revenue from shipping and handling services.
• Extended Warranty Income: Revenue from the sale of extended warranty contracts, recognized over the warranty period.
• Surcharges and other revenue: Includes surcharges and chassis/bus shell sales.

Income Statement Analysis

• Net sales decreased slightly by 1.2% year-over-year, primarily due to customer and product mix changes in the Bus segment, partially offset by increased Parts sales. (Con)
• Gross profit decreased by 5.1% year-over-year, with gross margin declining from 20.0% to 19.2%, mainly due to inflationary pressures and increased labor costs. (Con)
• Operating expenses increased by 6.5% year-over-year, primarily due to higher selling, general, and administrative expenses related to increased labor costs. (Con)
• Operating profit decreased by 12.9% year-over-year, reflecting lower gross profit and higher operating expenses. (Con)
• Interest expense decreased significantly by 47.3% year-over-year due to lower interest rates and reduced debt levels. (Pro)
• Other income, net, significantly increased by 338.8% year-over-year, mainly due to the sale of state emission credits and no recurrence of stockholder transaction costs from the previous year. (Pro)
• Net income increased by 9.8% year-over-year, driven by a larger increase in other income and reduced interest expenses which offset the decrease in operating profit. (Pro)

Balance Sheet Analysis

• Cash and cash equivalents increased by 6.6%, indicating improved liquidity. (Pro)
• Accounts receivable decreased significantly by 76.3%, likely due to strong collections after Q4 sales. (Pro)
• Inventories increased by 27.7%, potentially indicating anticipation of future sales or strategic component stockpiling. (Neutral - Needs further monitoring)
• Total current liabilities decreased by 2.8%, primarily driven by a decrease in accrued expenses. (Pro)
• Total stockholders' equity increased by 12.6%, driven by net income and share-based compensation. (Pro)
• Deferred tax liabilities decreased significantly by 86.8%, potentially due to changes in temporary differences. (Neutral - needs further investigation if material impact)

Capital Allocation

Blue Bird is focusing on capital allocation towards strategic investments and shareholder returns. They are reinvesting in the business through facility upgrades, lean manufacturing processes, and new product development (EV and Commercial Chassis). The company initiated a share repurchase program indicating a commitment to returning value to shareholders. Dividends were not discussed in the provided documents, suggesting a current focus on reinvestment and share buybacks over dividends.

Management Commentary

Achieved near-record adjusted EBITDA and margin in Q1 FY25, despite fewer working days. Beat Q1 guidance and maintaining full year guidance.

Market demand for school buses continues to be very strong with healthy backlog.

EV backlog is increasing, positioning Blue Bird as an undisputed leader in alternative power.

Higher ICE bus prices year-over-year and competitive in the market.

Significant improvement in plant operational performance with more stability.

Monitoring and responding to the impact of President’s Executive Orders and potential tariffs.

Lower EV mix in Q1 FY25 (6% vs 10% last year) impacted average selling price.

EPA funding pause creates uncertainty for EV deliveries, though late news suggests program continuation.

Potential tariffs pose a risk, but company plans to pass through to end-customer.

Overall Sentiment: Positive and confident. Management expresses strong confidence in achieving full-year guidance despite external uncertainties like tariffs and EPA funding pauses. They highlight record profitability, strong backlog, leadership in alternative power, and operational improvements. While acknowledging challenges, the overall tone is optimistic about sustained profitable growth and market leadership.

Recommendation

Rating: Buy

Reason for Rating: Blue Bird demonstrates strong financial performance in Q1 2025, exceeding guidance and maintaining high profitability despite a lower EV mix. The company's proactive approach to managing supply chains, pricing, and potential tariffs, coupled with robust market demand and backlog, and leadership in alternative power, supports a positive outlook. Recent news suggesting EPA funding program continuation further strengthens the EV growth prospects. The stock buyback program and focus on shareholder returns add to the investment attractiveness.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/6/2025, 10:49:34 AM