DutchScenery
A lot of times with common durable goods, we just take them for granted and don’t ask where they come from, who made them, or what the business surrounding that manufacture looks like. A prime example of this is school buses.
Today we’ll be looking at a long-time school bus manufacturer, Blue Bird Corporation (NASDAQ:BLBD). A bus-maker since the 1930’s, the modern incarnation of Blue Bird is in the process of reinventing its industry, long making the old-fashioned belchers of diesel smoke and now one of the leaders in the creation of alternative powered buses, including electric vehicles.
Blue Bird just recently released earnings for Q1 decisively beating the estimates not just for that quarter, but offering new, higher guidance for the rest of fiscal 2024. The stock price surged, of course, but even at a 52-week high, there is still value to be found here. Let’s look deeper.
Better Guidance
Seasonality means that Q1 is traditionally the weakest quarter for Blue Bird, but when we start throwing around terms like “record” profits, we can see why the stock price has done what it did this month.
But this is less about what already happened, admirable though it is, and more about what is going to happen through 2024, a topic that was heavily focused on in the earnings transcript.
Those record results in Q4 and Q1 are indeed impressive, and with a backlog of 4,600 school buses the rest of the year is looking extremely promising. We don’t know how fast these orders will be filled, but it seems sure to keep the workforce busy.
Full year guidance is another record, $130 million EBITDA, a continued focus on electric vehicles. In Q1 a record 206 EV was sold. Between EV, propane, and gasoline, the collected alternative-powered vehicles in their portfolio, they amounted to 66% of their sales in 2023. Better still, the sale price was some 26% higher in Q1 than previously realized in 2023.
The big order to keep a close eye on is from the LA Unified schools, which wants 180 EV buses, the expectation is that they’ll be delivered in late 2024 and the deal, unlike a lot of them, was not in any way EPA-funded.
The EPA’s Clean School Bus program is providing a growing amount of funding for schools to buy the more environmentally friendly alternative buses, including both EV, for which there is competition, and propane-powered buses, which none of their substantial competition produces anymore.
| 2021 | 2022 | 2023 | Q1 | |
| Operating FCF | ($54 million) | ($24 million) | $120 million | $217,000 |
| Investing FCF | ($11 million) | ($6 million) | ($9 million) | ($2.9 million) |
| Financing FCF | $33 million | $30 million | ($43 million) | $995,000 |
(source: 10-K and most recent 10-Q from SEC)
A solid 2023 was a good year for free cash flow, while the expectations for a strong 2024 should make things even better. Cash flow is important here, as the money is not just for paying down the debt, reduced by $15 million over the past year, and paying for a substantial share buyback program put into place.
By the Numbers
| Cash and Equivalent | $77 million |
| Inventories | $142 million |
| Total Current Assets | $243 million |
| Total Assets | $431 million |
| Total Current Liabilities | $188 million |
| Long-Term Debt | $93 million |
| Stockholder Equity | $75.6 million |
(source: most recent 10-Q from SEC)
Cash on hand rose quite a bit as a result of a juicy free cash flow in 2023. Long-term debt, paid down over the past year, is also down a bit, a very positive sign.
Unfortunately, the price/book value of Blue Bird is extremely high, especially after the recently announced secondary public offering, meaning the company is trading at a big premium to assets. That’s not necessarily unwarranted after such strong performances, but it means the value we’re looking for has to come from somewhere else.
| 2021 | 2022 | 2023 | Q1 | |
| Net Sales | $684 million | $801 million | $1.1 billion | $318 million |
| Gross Profit | $72 million | $37 million | $139 million | $64 million |
| Operating Profits | $6.5 million | ($40.7 million) | $51.6 million | $38 million |
| diluted EPS | (1￠) | ($1.48) | 74￠ | 81￠ |
(source: most recent 10-K and 10-Q from SEC)
In 2021 and 2022, sales were down of course, due to COVID. Like everything else, the COVID-19 pandemic hit the economy hard and had many municipalities moving to postpone buying new buses.
Blue Bird is necessarily going to have to handle being in a cyclical industry. The good news is right now, since 2023, they’re in a strong market condition. Analyst estimates for 2024 and 2025 are even better, with EPS of $2.35 and $2.51, respectively.
That means a PE ratio of 14 and forward PE of 13.1, both of which fit neatly into the value range, especially when one considers how much net sales are growing year over year. The net sales going forward will, per analysts, be 1.25 billion and 1.41 billion, so the growth into a strong cycle is only going to continue.
The Risks
Unfortunately even with everything seemingly going right, there are risks like a new pandemic that could scare those school districts into putting off sales, or just plain an economic downturn that impacts sales.
Supply chain disruptions, once again a function of COVID-19 at first, remains a concern. Shipping costs are coming down and supplies seem to be available, at least for now.
Reliance on single-source suppliers could easily become a problem though. A lot of parts go into the creation of school buses, whether diesel or otherwise, and if some part shortage happens, it could delay a lot of deliveries, which could seriously impact the bottom line.
The unionization of their workforce might also be a long-term concern, as labor stoppages could delay things badly, and could raise a cost of production.
Two other concerns mentioned in official company reports are the reliance on dealerships to sell buses, and the somewhat substantial debt making the bottom line vulnerable to interest rate fluctuations.
Conclusion
Blue Bird’s industry might not be huge, but with 146,000 buses in service for 15 years or more, and the increase in general of student population means there are going to be plenty of opportunities to keep making sales at any rate, and the growing focus on environmentally friendly alternative power sources should guarantee Blue Bird is under serious consideration for the new sales.
Q1 in particular was just spectacular, and while good news seems at least somewhat baked into the price at these levels, I wouldn’t be afraid to pay 13-14 times earnings for any company that is so well poised for growth.
I’m going to put Blue Bird as a definite buy. Diversification is important, and school buses are definitely a niche industry that I would be comfortable to be in. It obviously would be nice to buy in at a lower price than current available, but even now it is not unreasonable, and billions of EPA funds meant for clean school buses should find their way into Blue Bird’s coffers.
