Executive Summary / Key Takeaways

• Blue Bird Corporation has undergone a significant transformation, achieving record profitability and robust margins across its diverse powertrain portfolio, including conventional, propane, gasoline, and electric buses, demonstrating it is not solely reliant on any single fuel type.
• The company holds a market-leading position in alternative fuel school buses, leveraging exclusive engine contracts and differentiated electric vehicle technology that offers quantifiable benefits in efficiency and operating costs, providing a competitive moat.
• Strong market demand, an aging bus fleet, and substantial federal funding programs for clean school buses provide significant tailwinds, supporting a robust order backlog and management's confidence in achieving ambitious medium and long-term growth targets.
• Strategic investments in manufacturing capacity expansion (partially funded by an $80 million DOE grant) and entry into adjacent markets like commercial chassis are expected to drive future volume growth and further margin expansion towards 15%+ long-term targets.
• While supply chain constraints and recent tariff volatility, particularly impacting EV components, present near-term headwinds, management's proactive pricing actions and production flexibility are aimed at mitigating financial impact and maintaining the trajectory of profitable growth.

Setting the Scene: An Iconic Brand's Transformation

Blue Bird Corporation, an iconic American brand with roots tracing back to 1927, stands as the leading independent designer and manufacturer in the school bus industry. Unlike competitors offering broader vehicle ranges, Blue Bird distinguishes itself through a singular focus on the design, engineering, manufacture, and sale of school buses and related parts. This specialization has positioned the company as the only principal manufacturer in the U.S. dedicated specifically to school bus chassis and body production, earning a reputation for innovation, safety, and efficiency.

The company's strategic evolution has been marked by its pioneering role in alternative fuel vehicles. Over 15 years ago, Blue Bird created the alternative powered segment and remains the undisputed market leader, offering propane, gasoline, and all-electric options alongside conventional diesel. This leadership is underpinned by key partnerships, including exclusive contracts for propane and gasoline engines with Ford and Roush, recently renewed until 2030. This focus on cleaner fuels has not only contributed to higher margins and customer loyalty but also positions Blue Bird favorably against upcoming regulatory changes, such as the stringent 2027 emissions standards that will significantly increase costs for manufacturers reliant solely on diesel.

The school bus market itself presents a favorable backdrop. An aging fleet, coupled with pent-up demand following pandemic-related disruptions and supply chain challenges that previously hindered industry production, is driving robust new bus orders. Industry forecasts, such as those from ACT, project a compounded annual growth rate of 6-7% through 2030, signaling a healthy demand environment for Blue Bird's products.

Technological Edge and Competitive Moat

Blue Bird's competitive strength is significantly bolstered by its technological differentiation, particularly in alternative fuels. The company's exclusive access to Ford (F) and Roush propane and gasoline engines provides a unique offering in the market. The propane product, in particular, is highlighted for its best-in-class total cost of ownership and its ability to meet stringent 2027 emissions standards today, unlike many diesel alternatives which will require costly hardware upgrades. This exclusivity creates a distinct advantage against competitors who lack a propane offering and are heavily reliant on diesel.

In the rapidly growing electric vehicle segment, Blue Bird has established a leadership position with over 2,000 EV buses already on the road. While specific quantitative performance metrics for Blue Bird's EV technology (developed in partnership with Cummins (CMI)) are not detailed, the company emphasizes its differentiated nature and the benefits it offers in terms of clean air and reduced operating costs for school districts. Management is actively working with alternative suppliers to drive down EV costs, aiming to improve the total cost of ownership over time and achieve parity with internal combustion engines. The company is also developing new technologies, including a commercial chassis to be offered in propane or EV, scheduled for launch in 2026. This new chassis boasts features like a tight 55-degree wheel cut and high front axle clearance, designed for reliability and performance in adjacent markets.

This diversified and technologically advanced product portfolio provides Blue Bird with a significant competitive moat. While competitors like REV Group (REVG), Navistar (IC Bus), and NFI Group also participate in the school bus market, they typically have a much lower mix of alternative fuel vehicles (often less than 10-15% compared to Blue Bird's 57% in Q2 FY25). This broad, high-margin alternative fuel offering, combined with exclusive engine partnerships and a focus on safety innovations like standard three-point seatbelts and planned driver's airbags, allows Blue Bird to differentiate itself and capture market share, particularly as demand for cleaner transportation grows and regulatory pressures on diesel increase.

Financial Performance and Operational Strength

Blue Bird's strategic focus and operational improvements have translated into a period of remarkable financial performance. The company has successfully navigated supply chain constraints and inflationary pressures through a combination of manufacturing efficiencies and timely pricing actions. In fiscal year 2024, Blue Bird achieved record results, more than doubling its prior year's profit with an adjusted EBITDA of $183 million and a margin of 13.6%. This represented a six percentage point margin increase over fiscal 2023.

This momentum has carried into fiscal year 2025. For the second quarter ended March 29, 2025, Blue Bird reported record net sales of $358.9 million, a 3.7% increase year-over-year, driven by higher unit bookings and favorable product mix in the Bus segment. Gross profit saw a significant increase of $7.2 million, leading to a gross margin of 19.7%, up 130 basis points from the prior year, primarily due to pricing actions outpacing cost increases and favorable mix. Adjusted EBITDA reached a quarterly record of $49.2 million, or 13.7% of net sales, a 7.6% increase from Q2 FY24.

For the first half of fiscal 2025, net sales were $672.7 million, a 1.4% increase, with Adjusted EBITDA of $95.0 million, or 14.1% of net sales. While operating profit saw a decrease due to increased selling, general, and administrative expenses (including share-based compensation and labor costs), the strong gross profit performance and lower interest expense contributed to robust bottom-line results. The Parts segment, while seeing slight sales fluctuations, consistently delivered high gross margins exceeding 50%, breaking the $100 million annual sales barrier in FY24.

The company's liquidity position is strong, with $130.7 million in cash and cash equivalents and $143.3 million available under its revolving credit facility as of March 29, 2025. Debt levels have decreased, and the company is in compliance with its credit facility covenants, benefiting from favorable Level I pricing based on its Total Net Leverage Ratio.

Free cash flow for the first half of fiscal 2025 was $40.6 million, reflecting increased capital expenditures as profitability allows for reinvestment in the business.

Strategic Investments and Future Outlook

Blue Bird is strategically investing to capitalize on market opportunities and drive future growth. A major initiative is the expansion of its Fort Valley, Georgia facility, supported by an $80 million grant from the Department of Energy as part of a $160 million total investment. This project will add a 600,000 square foot facility for Type D and EV production, increasing total single-shift capacity to 14,000 units annually and creating 400 new jobs. With a projected IRR of 28% and payback in less than two years after production starts (expected late 2026/early 2027), this expansion is a key pillar for long-term profitable growth.

The company's entry into the commercial chassis market with propane and EV options starting in 2026 represents an expansion into adjacent, higher-margin segments. Furthermore, the Micro Bird joint venture's acquisition of a new plant aims to double its production capacity over time, contributing to overall volume growth.

Management's outlook reflects confidence in the company's trajectory. For fiscal year 2025, guidance is confirmed with net revenue in the range of $1.4 billion to $1.5 billion and Adjusted EBITDA between $190 million and $210 million, representing a margin of 13.5% to 14.5%. This includes an updated EV unit sales forecast of 800 to 1,000 units for the year. Adjusted free cash flow is projected at $60 million to $80 million, including $30 million in extraordinary CapEx for the new plant.

Looking further ahead, the medium-term outlook (FY26/FY27) targets volumes up to 10,000 units, revenue around $1.6 billion, and Adjusted EBITDA of $225 million (14% margin). The long-term target (starting 2028 and beyond) aims for revenue of $1.85 billion to $2 billion (11,000-12,000 units) and EBITDA of $270 million to $300+ million, pushing margins towards 14.5% to 15%+. These targets are supported by expected growth in EV mix, the new commercial chassis business, and the Micro Bird expansion.

Risks and Mitigation

Despite the positive outlook, Blue Bird faces notable risks. Ongoing supply chain constraints continue to pose challenges, potentially impacting production volume and costs. Material cost and supply inflation pressures persist. Recent governmental policy changes, particularly new tariffs on imported components (especially the 145% tariffs on certain Chinese EV parts), are increasing costs and creating uncertainty, leading the company to potentially push out some EV builds in Q4 FY25. The timing and certainty of future rounds of the EPA Clean School Bus Program funding (beyond Rounds 2 and 3) also present a degree of risk, although management remains confident in the program's continuation due to its bipartisan support and public health benefits.

Blue Bird is actively implementing mitigation strategies. Periodic price increases are designed to offset rising costs, including those from tariffs and the new union contract. The company is working with suppliers to identify alternative sourcing options and is strategically prioritizing production based on funding certainty. Political engagement efforts are underway to support the continuation of federal funding programs. The company's diversified product portfolio across multiple fuel types also provides flexibility to adapt to shifts in market demand or funding availability for specific technologies.

Conclusion

Blue Bird Corporation has successfully transformed its business, moving from navigating significant operational and supply chain challenges to achieving record profitability and establishing a strong foundation for future growth. Leveraging its market leadership in alternative fuel school buses, exclusive engine partnerships, and differentiated EV technology, the company is well-positioned to capitalize on robust market demand, an aging fleet, and substantial government funding for clean transportation.

While near-term headwinds from tariffs and supply chain volatility require careful management, Blue Bird's strategic investments in capacity expansion and market diversification, coupled with a proven ability to execute and maintain pricing discipline, support a compelling investment thesis. The company's trajectory towards achieving and potentially exceeding its long-term targets of 15%+ EBITDA margins underscores the structural improvements made and the significant opportunities ahead in the evolving school bus and adjacent commercial vehicle markets.