Investor Call: Blue Bird Closes 2022 with Backlog Battle, While Brighter Days Await

Saddled with a backlog of orders with low profit margins, recovering from the COVID-19 pandemic, and struggling against supply-chain slowdowns, it’s been a difficult year for Blue Bird Corporation.

But during the Q4 and end-of-year investor call for 2022, CEO Matthew Stevenson expressed confidence that the company might really turn a corner by the end of 2023. That optimism is fueled by expectations that Blue Bird will gradually work past the older low-margin backlog and into the new school bus bookings received after higher prices took effect and that supply-chain issues may diminish while Blue Bird benefits from a drop in steel prices.

“During a challenging 2022, the Blue Bird team developed and began execution of a rigorous plan to improve operations, reduce fixed costs, and recover economics through pricing,” Stevenson said. “I am confident that this plan positions the company for a significant recovery over the next several years.”

To fight inflationary pressures, Blue Bird implemented a total of 25% in price increases and partnered with their dealer network and customers to recover pricing on backlog units.

Stevenson's key takeaways from this fiscal year:

• Strong market demand and backlog.
• Continued leadership in electric vehicles and alternative fuels, with a 58% sales mix.
• Increased pricing on backlog and new orders.
• Aggressively drove cost out of the business.
• Improved parts availability, throughput, and quality.

“Looking back, FY2022 was an incredibly difficult year for Blue Bird,” said the company’s CFO, Razvan Radulescu. “Starting in Q1 with a supplier allocation that cut our volumes approximately in half, unprecedented inflation, and steel prices that almost tripled during Q2, fixed pricing on old backlog during the first half, unsuccessful production increase in Q3 and inventory accumulation, but with all the operation metrics starting to improve during Q3 and continue in Q4.”

Production during Q3 was constrained by Russia's war against Ukraine and China's recent COVID lockdowns, which resulted in new shortages, Radulescu said.

The worst, however, “is behind us now,” he said.

The company is currently poised to take advantage of the Environmental Protection Agency’s Clean School Bus Program, which awarded nearly $1 billion in rebates to school districts across the country looking to replace their older diesel bus fleets with the latest battery-electric school bus technology. Districts that applied for funding have until April to make their purchases for the first round. The next round of EPA funding, expected to come in the form of competitive grants, may come in early 2023.

Blue Bird in 2022 introduced Blue Bird Energy Services to provide comprehensive charging infrastructure for EV buses, including site engineering, permitting, construction, customizable hardware and software, warranties, and maintenance. The company also established a partnership with Lightning eMotors for a Class 5-6 electric chassis to enable a range of zero-emission vehicles, from last-mile delivery vans to motorhomes.

“In addition, we announced a repower program, which will launch in 2023, for gasoline- and propane-powered Blue Bird Vision Type C school buses,” Stevenson said. “All these developments clearly demonstrate that Blue Bird is well-positioned to shape the future of the student transportation industry.”

Net sales for Q4 were $257.7 million, up 34.1% from the same period in 2021. The company’s parts sales also saw revenue increase by $4.8 million, which was attributed to a combination of increased bus repairs due to the return of in-person schooling as the pandemic waned and higher prices for the parts.

Blue Bird reported that it sold a total of 6,822 school buses in 2022, compared with 6,679 in 2021.