Business Overview
Blue Bird Corporation (NASDAQ: BLBD) is an American manufacturer and the leading provider of school bus vehicles in North America. The firm serves North American school districts with a range of vehicle types in their portfolio, including:
Source: December 2023 Company Presentation [1]
Why I like Blue Bird Corporation?
Financial Performance
In 2023, Blue Bird showed significant increases in both revenue and profit, underscoring the market's interest in Blue Bird's portfolio of fossil-fuel and alternative fuel vehicles.
Source: Google Finance
Increasing Margins
Blue Bird has not only increased its earnings and income but has also made notable enhancements in operational effectiveness, which is evident in the diverse aspects of its profit margins.
Source: Jika Widgets
Further factors to think about
Market leader: Operating for almost a century, Blue Bird holds an industry leading 30% market share and its dominance is even more evident in alternative fuel buses (e.g electric), at 60% of market share.
Government Spending: In 2021, the U.S. government established the EPA Clean School Bus Program, a $5b funding scheme designed to distribute $1b each year through to 2026 in the form of grants and rebates for school districts to invest in electric, propane, and compressed natural gas school buses as well as related charging infrastructure.
Robust Sales in Electric Vehicles: In Q1 2024, Blue Bird sold a record 210 electric school buses, representing a 56% increase compared to the same quarter in the previous year [4]. The company also noted that electric school buses now account for 9% of Blue Bird's revenue, up from 6% last year [4].
Growing production capacity: On the 31st of May 2023, Blue Bird Corporation opened a new Electric Vehicle (EV) Build-up Center onto the company's existing 40,000-square-foot manufacturing facility in Fort Valley.
Expanding addressable market: Expanded product range with the addition of electric vehicle commercial chassis option.
Future outlook: Blue Bird’s order backlog levels are currently standing at 5,900 units, representing nearly 30% increase from the previous quarter [4].
Managements comments: Looking ahead, Phil Horlock, CEO of Blue Bird Corporation made the following remarks during the most recent quarterly conference call:
“Based on our strong start to the year and additional visibility into the 2024 operating environment, we have increased our full year financial guidance for Adjusted EBITDA to $155 million, with a 12% margin. That will be an all-time full-year record for Blue Bird, and we look forward to a sustained profitable growth in the coming years, particularly as the global supply-chain recovery progresses.” [4]
Risks
Although I’m bullish on Blue Bird’s future prospects, the main risk to my thesis is the supply constraints and cyclical nature of the school bus industry. Now, while supply chain constraints are easing, there are select constraints across the industry which are still limiting industry production and deliveries. But Blue Bird are very engaged with those constrained suppliers with on-site support at supplier plants and Blue Bird are managing the situation very well. On that point, the evidence is clear with their bus deliveries in 2023 being 25% higher than last year.
Aside from supply risks, Blue Bird’s revenues are at risk of stagnating or even declining once the current cycle is over, even if industry is currently in a replacement cycle. That said, the company could still grow its adjusted EBITDA margins in the future as alternative fuel buses’ share of total unit sales increases due to their higher margins than their diesel counterparts.
An additional risk factor to consider is Blue Bird’s bid to ramp up capacity has to be considered in relation to Blue Bird's first "collective bargain agreement with the United Steelworkers." As a result, Blue Bird cautioned the union contract's potential to "influence the fiscal '24 margin outlook." However, Blue Bird has demonstrated resilient pricing power, bolstering its revenue growth potential. Therefore, management has taken "proactive pricing actions taken" in view of possible margin compression in the second half of Blue Bird's fiscal year, mitigating execution risks.
Concluding Thoughts
Blue Bird has turned things around impressively since its lows in 2022, exceeding the expected results in the last 12-18 months. Over the course of the next 12 months, the company's increased production and focus on EV's means they will continue seeking advantages from favorable macroeconomic changes. Ultimately, the strong foundation, growth potential, and competitive standing of the company make it a compelling narrative to monitor closely.
Source list
[1]Investor Presentation, December 2023
[2]Blue Bird Opens EV Build-Up Centre to Expand Electric School Bus Production Capacity
[3] Blue Bird Corp.: The Unlikely Champion in the EV Market Race
[4]Blue Bird Reports Fiscal 2024 Second Quarter Record Results; Raises 2024 Guidance and Long-Term Outlook
Blue Bird Corporation - Blue Bird Reports Fiscal 2024 Second Quarter Record Results; Raises 2024 Guidance and Long-Term Outlook (blue-bird.com)