Good day, and welcome to Blue Bird's fiscal fourth quarter and full year earnings conference call. Today's conference is being recorded, and at this time I'd like to turn the conference over to Mr. Mark Benfield, Executive Director of Profitability and Investor Relations. Please go ahead, sir.
Thank you, Derek. Welcome to Blue Bird's fiscal fourth quarter and full year 2019 earnings conference call. The audio for our call is webcast live on blue-bird.com under the Investor Relations tab. You can access the supporting slides on our website by clicking on the Presentations box on the IR landing page. Our comments today include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted in our latest earnings release and filings with the SEC. Blue Bird disclaims any obligation to update the information in this call. This afternoon, you will hear from Blue Bird's President and CEO, Phil Horlock, and CFO, Phil Horlock. We'll take some questions. Phil?
Well, thanks Mark. Well, good afternoon, everybody, and thank you for joining us today for our fourth quarter and our full year earnings call for fiscal 2019. We've made great progress this year at Blue Bird as we strive to improve both overall profitability and margins. We always welcome the opportunity to share our latest quarterly and full year results with you, so let's start with an overview of those financial results on slide four. As the first headline says, we had a really strong fourth quarter. In fact, it was the highest in more than 10 years, with adjusted EBITDA of about $33 million. That was $4 million higher than a year ago, representing a 15% year-over-year increase. Importantly, this is our fifth consecutive quarter where profits increased over the prior year despite higher commodity costs.
Before proceeding further, and as I mentioned on our prior earnings call, let me set the strategy that we are pursuing. Throughout this and future earnings calls, you will hear a recurring theme of how we are driving our overall profit and margin improvement through three key initiatives. First, the bus pricing that we took in late fiscal 2018 to address the escalation in tariff-led commodity costs resulted in a significant increase in our average bus selling price in fiscal 2019. Importantly, we plan to price each year to recover economic increases and did so again in July this year. Second, cost reductions that we are achieving through our transformational initiatives. We saw the results in the second half of fiscal 2018, and we continued to generate further cost savings in every quarter of fiscal 2019, and intend to do so going forward.
Third, continued leadership and growth in alternative fuels. Increasing our mix of alternative fuel-powered buses as a % of total sales is key to profit growth as we earn a superior selling price and gross margin compared with conventional fueled buses. Our growth in this segment continues to outpace the overall market by a long way, as you will hear later. All three of these actions significantly improved our results on the fiscal 2018 and are cornerstones of our plan to increase gross profit and EBITDA margins. Back to our fourth quarter results. We improved profitability despite selling 31 fewer buses than last year, although at 3,726 unit sales, it was our second highest fourth quarter volume in the past 10 years. While volume was slightly down from a year ago, fourth quarter net sales revenue of $344 million was 4% higher than last year.
The increased sales revenue mainly reflects the favorable impact of our bus pricing actions that I just mentioned and a richer mix of higher priced alternative fuel-powered buses. In fact, our average bus selling price was about $3,500 per unit higher than in the fourth quarter last year. Again, a strong 4% increase in our average bus price. Turning to the full year, we announced publicly in mid-November that we had achieved or exceeded guidance on the three metrics on which we report. First, full year adjusted EBITDA of about $82 million was within guidance at a strong $11.4 million or 16% higher than a year ago. In fact, I'm pleased to report that this was our best full year result for more than 10 years. Importantly, our adjusted EBITDA margin grew by 1.2 points to 8%.
Second, net sales revenue of $1.019 billion was above the midpoint of guidance. While this was only slightly lower than net sales a year ago, $6 million lower, in fact, it is worth noting that we sold about 600 fewer buses in fiscal 2019. This was a deliberate strategy on our part to reduce lower margin sales to dealer stocks and to forgo lower margin business that we had won last year, particularly in the third quarter of fiscal 2018. The end result was that despite selling 600 fewer buses in fiscal 2019, net sales revenue was essentially flat as we grew average bus selling price by about $4,000 a unit or 5% over fiscal 2018. The key drivers being the bus pricing we implemented, along with a much richer sales mix of higher priced alternative fuel-powered buses throughout fiscal 2019.
Adjusted free cash flow of about $36 million was approximately $7 million above the high end of guidance. Adjusted net income for the full year of $44 million and adjusted diluted earnings per share of $1.61 were down $7 million and $0.04 respectively from a year ago. It's important to note, however, that this decline is more than explained by the non-recurrence of one-time tax benefits in fiscal 2018. Phil Horlock will provide more explanation of this later. As we look at the underlying trends in the industry and Blue Bird's results, we remain very upbeat about the business fundamentals. Based on our school bus registrations, the preliminary industry for fiscal 2019 is holding firm at around 34,000 units, as it has done for the past couple of years.
That's a near record level over the past 30 years and compares favorably with the average over that same period of time of 31,000 school buses. With a strong outlook for property values and corresponding property taxes, which are the major funding source for school buses, together with the fact that 190,000 school buses on the road today have been in service for more than 15 years, and school children enrollment is increasing, we are confident that the industry outlook remains around this level for the foreseeable future. We saw yet another record sales mix this year for alternative fuel-powered school buses. At a strong 48% mix of our total unit sales, this was 10 points higher than last year's, then record, of 38% mix of sales.
In fact, our fourth quarter mix was the highest ever for any quarter at Blue Bird, at a very impressive 55% of our total unit sales. We lead the industry by a long way in alternative fuel-powered school buses, that's for sure. As a reminder, in alternative fuels, we count all of our propane, compressed natural gas, electric, and gasoline-powered buses, as all of these are alternatives to diesel, which has been the staple fuel for years. For the past several years, we've been achieving significant growth in alternative fuel bus sales, and as I just mentioned, we have not slowed down this year. We'll cover alternative fuel performance in more detail a little later. As I commented earlier, we are seeing the impact of both our annual pricing and structural cost-reduction actions, as evidenced by a strong increase in our gross profit margin of 1.2 points over last year.
All in all, I'm very pleased with our fourth quarter full-year results. We increased our gross profit margin through pricing, cost reductions, and a richer mix of alternative fuel vehicles. We expect continued gross margin improvement from these actions as we move forward to fiscal 2020. All of this translated into the same 1.2 points of growth in our adjusted EBITDA margin. I will cover the fiscal 2020 guides metrics in more detail later. I am pleased to inform you that the midpoint of range for adjusted EBITDA for fiscal 2020 will be 12% above fiscal 2019 at $92.5 million. Importantly, we are on the path to our stated goal for an adjusted EBITDA margin run rate of at least 10% by the end of fiscal 2020. Let me now review our key operating achievements on slide five.
We recorded another significant achievement in the fourth quarter and full year, which will make us more competitive and support our profitable growth plans going forward. Our transformational initiatives to increase margins are on track, driving improvements in quality, cost and efficiencies, and capacity. We are seeing those results now, as evidenced by our gross profit margin increases in the past five quarters, and there is much more to come. Our all-new automated paint shop is fully operational, and every bus is now being painted in that facility. The painted buses look great, and we're beginning to see the quality and efficiency benefits that we expected. I'm going to show you later this is an important initiative to drive efficiency improvements throughout the plant. As I commented earlier, we increased our full-year school bus selling price significantly, by about $4,000 a unit, representing a 5% increase for the year.
This reflected the impact of the pricing we took in late fiscal 2018, and to a lesser extent, the 2% pricing, which covered all vehicles and options in July 2019 to cover escalating commodity costs, together with the increased mix of higher-priced alternative fuel buses. While adjusted EBITDA margin increased by 1.2 points for the full year, we achieved higher margins in every quarter of the year compared to fiscal 2018. I believe that is a strong indicator of how a consistent and effective strategy can deliver consistent improvement. As I mentioned earlier, we continue to be the undisputed leader in alternative fuel powered school buses with an impressive 48% mix of total unit sales in fiscal 2019, compared to 38% in fiscal 2018. Furthermore, our alternative fuel bus sales grew by 21% from a year ago.
When you consider that despite a flat school bus industry compared with a year ago, we achieved 21% growth in specific segments with products that are exclusive to us. That indicates a strength we have in alternative fuels. Simply put, that's leadership and real momentum in the fastest growing segment of the school bus market. Remaining on the topic of alternative fuels, we continue to see strong and growing interest in our latest product, our all-new, zero-emission electric powered school bus, which is powered by a Cummins electric drivetrain. We delivered 56 buses in fiscal 2019 and have delivered on our firm orders in our backlog for a further 70 buses so far in early fiscal 2020. We anticipate seeing many more orders for the year based on the quote activity we are dealing with today.
Needless to say, with the widest range of electric powered school buses on the market today covering Type A, Type C, and Type D configurations, we are very excited about this opportunity. Finally, we are announcing guidance for fiscal 2020 that reflects continued growth in sales and profits as we continue to deploy our three focus initiatives to drive higher growth, margin, and EBITDA margin. Namely, annual pricing to recover economics, structural cost reductions, and increased mix of alternative fuels. It's fair to say that we continue to advance the business on multiple fronts, and we are heavily focused on profitable growth. Let's now take a little closer look, rather, at our third quarter results on the financial results on slide six. I touched on many of these financial results earlier. Phil and I will run through in detail later.
Just to summarize the fourth quarter, bus sales, parts sales, and adjusted EBITDA were all higher than a year ago. The end result was the highest fourth-quarter profit for more than 10 years. On a full-year basis, bus sales were down about 1%, parts sales were up about 7%, and adjusted EBITDA was 15% higher than a year ago, also representing the highest full-year profit for more than 10 years. Turning to slide seven, let's take a closer look at our alternative fuel bus sales performance. At 5,343 unit sales, we sold a record number of alternative fuel-powered school buses for the year, reflecting a 21% increase over fiscal 2018, which is also the prior record. As I mentioned earlier, alternative fuel bus sales represented 48% of our total sales.
In fact, through the second half of the year, alternative fuel bus sales surpassed diesel sales at a 54% mix. Again, as I mentioned previously, that includes a 55% mix in the fourth quarter, which is the highest which we've ever achieved in any quarter in this segment of the business. Now, the driving force behind the significant growth is our class-leading propane-powered school bus, where unit sales grew by a very substantial 41% over fiscal 2018. That is even more impressive when considering this is the eighth year that we've offered this propane product, which is exclusive to Blue Bird from our partners at Ford and ROUSH CleanTech. The end result is that we hold more than 80% market share in this growing segment, with over 16,000 buses on the road today. It's clear we are slowing down in this segment of the industry.
In fact, no other school bus manufacturer comes close to our alternative fuel sales mix or market share. You might find it interesting to know that just three years ago, in 2016, our alternative fuel sales mix was 26%, so we've doubled this level in just a three-year period. Back to this year, more than 150 new customers will be taking delivery of their first ever alternative fuel-powered Blue Bird bus. This is a strong endorsement of our exclusive alternative fuel buses that we provide, the Blue Bird brand, and our exclusive dealer network. I previously covered the fact that we now have about 10 electric bus orders in hand for delivery in fiscal 2020, and we expect more to follow with all the customer interest we are seeing for the newest addition to our alternative fuel lineup.
Looking forward, the vast majority of the VW mitigation funding is still ahead of us and should support a strong industry over the next three years or so, with many states earmarking specific funds for school bus purchases. We are really pleased with the success we have had so far for the funds that have been issued. In addition, all of our electric-powered buses are qualified to participate in the California Energy Commission's grant funding, which should enable school districts to purchase around 230 electric buses over the next two years. We are well-positioned to deal with that opportunity.
With the widest range of alternative fuel-powered buses, the most modern improvement engine in the industry, which is exclusive to Blue Bird through our partnership with Ford and ROUSH CleanTech, and our leadership position in low NOx emissions, we are well positioned to capitalize on the VW funding and other growth opportunities going forward. In fact, it should be recognized that reduction in NOx gases is the major criteria in funding through the VW settlement. To this point, our ultra-low NOx propane bus is certified at one tenth of the NOx emissions output of other manufacturers' buses and the EPA standard. Plus, our propane bus is widely recognized as having the lowest operating cost of any other school bus. With Blue Bird propane, you can have it all, the lowest operating cost and the lowest NOx emissions of any internal combustion engine in a school bus.
A growing number of customers understand this, and as you saw, our sales are up. We're also seeing continued strong growth of our gasoline-powered bus in fiscal 2019. It's readily understood by technicians and mechanics who appreciate the emissions simplicity and cold weather start capability that it shares with its sister product, our propane bus. It also has a lower price point than diesel, so it really works for those customers where acquisition price is a key concern. In summary, we are proud of our strong leadership position in alternative fuels and the significant growth and market share that we're achieving. With less than 15% of school districts having purchased an alternative fuel-powered school bus, we have plenty of runway ahead for continued growth. Now let's take a closer look at how we're driving cost reductions throughout Blue Bird, going to slide eight.
This is a new slide we are showing to illustrate the progression of our transformation initiatives over the past two years and into fiscal 2020. Importantly, you can see this is a cumulative approach where additional processes and tools are being added as we strive to drive down total costs. In fiscal 2018, our initial focus was on reducing purchased material costs and services through a combination of initiatives, including new commercial agreements with suppliers and resourcing, with minimal product design change. We worked extensively with alternative Alvarez & Marsal and automotive experts to ensure best practices and processes were applied, and we delivered results. In fact, you might recall that we recorded savings of over $20 million from this initiative in fiscal 2018. We continue to pursue these initiatives in fiscal 2019 and began to add design changes to our process to reduce costs without compromising quality.
In this second phase, we also focused heavily on the build, launch, testing, and validation of our all-new robotic paint facility, which also necessitated plant arrangements to optimize our process. As Phil will show you later, we have continued to achieve further significant savings in fiscal 2019 from these actions. As we now enter fiscal 2020, phase 3 now supplements the earlier processes by driving down the cost of production, both from a fully operational robotic paint facility and from focused plant productivity initiatives. Our new automated paint facility provides the opportunity to reduce rework with increased first-time run capability, to reduce labor and material costs through robotic application of paint, to achieve savings in warranty expense, and to deliver higher straight-time capacity.
Importantly, with the new paint facility attached to the exterior of our present assembly building, we are freeing up space within the plant to allow more efficient line rearrangements of taxing stations and the addition of several stations for more efficient operations and improved quality control. We have deployed industrial engineering resources to optimize in-station workflow in the newly arranged production line. We are applying engineering resources to focus on design for manufacturing capability, targeted at reducing production costs and improving quality and rework, and we are confident of achieving significant efficiencies. In fact, many more efficiency actions are planned over the next few years in this area. This systemic and cumulative approach to driving down total costs over multiple years is key to achieving high gross profit and EBITDA margins. We'll continue to share our results with you in our quarterly earnings calls.
Let me now turn it over to Phil Horlock, who will take us through the financials, and I'll be back later to cover the fiscal 2020 outlook and guidance. Over to you, Phil.
Well, thank you, Phil. Good afternoon, everyone. The next few slides are a summary of our financial performance for the fourth quarter and the full year of 2019. The material we're discussing today is based on the close of September 28, 2019, and September 29, 2018. The detailed material will be provided in our 10-K. That will be filed tomorrow. We encourage all of you to read the 10-K and the important disclosures that it contains. In addition, the appendix attached to today's presentation deals with reconciliations between GAAP and non-GAAP measures mentioned in this review, as well as important disclaimers that Mark Benfield has already talked to.
Similar to our third quarter review, we have no new accounting pronouncements adopted in the fourth quarter, although, as we have previously mentioned, we did adopt a number of new standards in the first quarter. They are discussed in detail on footnote two in the 10-K, which, as I said, will be available tomorrow. You will note minor changes to some of the risk factors from the previously published 10-K. These are really just trying to keep the risk factors up to date with the latest conditions. Finally, I would suggest that we had a very important audit in fiscal year 2019. This was the first time that we did a fully integrated audit, controls-based. We have come through with an unqualified audit. I think this was an important achievement for Blue Bird with its first controls-based, fully integrated audit.
Now if we move to slide number 10, this is a summary of the fourth quarter. You can see fourth quarter for fiscal 2019 and fiscal 2018 in a better worse. Much of this Phil's already touched upon, so I'll try to skip through it without getting into too much repetition. You do see the volume. Phil talked about it's the second-highest result in 10 years. I would point out that our average volume over the 10 years is about just under 3,000 units. The fiscal 2019 volume was actually 25% higher than the 10-year average. I think this is an important fact to keep in mind, the high level of volume that we get in fourth quarters.
Our net revenue, again, up by $11.9 million or about 3.6%, and you saw previously the breakout of that between bus and parts, with both bus and parts contributing to the improvement in the fourth quarter. Interestingly, the bus revenue per unit you see below that is well up. It's up by almost $3,500 or just over 4%. Really, when you look at the increase in net revenue, the higher bus revenue per unit plays the major role in achieving that increase because, as we pointed out, our volumes were down by about 30 units versus last year. Again, our revenue per unit is high due to pricing actions taken in 2018 and 2019 to offset the impact of inflation, including commodity costs. It's also up because of a higher mix of alternative fuel vehicles, and Phil has mentioned that.
Also, I would suggest a very successful program that we've implemented, to improve the revenue that we make on each bus sale. This has been the focus of a lot of attention over the last two years by our sales team. Gross margin at 13.6% is about 70 basis points better than a year ago. This is really the result of both the higher average revenue and the impact of the cost reductions from our transformational cost initiative. We'll talk a little bit more about that when we get to the bridge. In the fourth quarter, I'll point out that we had a net income of $11.6 million. That was about $3.3 million lower than the prior year. This was driven largely by higher interest expenses and higher taxes. On an adjusted basis, our net income came in at $20 million, which was about equal to the prior year.
We've already touched on the adjusted EBITDA at $33.4 million, is up almost 15%, we'll go through that on a bridge in a slide after the next. EBITDA margin improved to 9.7% for the fourth quarter versus 8.8% last year at an improvement of 94 basis points. We have improved the margin in each quarter in the last year and also on a quarter-by-quarter basis on a year-over-year. Diluted earnings per share was down, as a result of the lower net income. Adjusted diluted earnings per share at $0.74, was about $0.04 higher than the same period last year. Finally, I would point out our cash, ended at $71 million, up by almost $11 million compared to last year. The end of the fourth quarter is traditionally the high point of our cash, and it's very much to do with the seasonality of our business.
Just a little interesting factoid for you, the $326 million of net revenue that we achieved in the fourth quarter was about 90% of the total net revenue we achieved in the first half of the year. Again, this is a very seasonal business. Finally, debt was $183 million. That was up about $41 million, and that was more than all due to the debt that we raised in October of 2018 to fund the tender offer. If we move now to slide number 11, this is a look at the same metrics, the same layout and metrics for the full year versus the prior one, which was fourth quarter. You can see there, volumes were down about 600 or so units, versus the prior year.
Although, again, the results for the full year was about the third highest in the past 10 years, and again, substantially higher than the average for the 10 years, around 18% higher. Our net revenue was down by about $6 million, or 0.6%. Net revenue for bus in total was down by $10.5 million or 1.1%, while parts was up by $4.4 million or 7.1%. I should stop here and mention parts. They are consistently improving revenue on a year-over-year basis. I took a look at it since 2016, parts have increased their revenue by 20%, and we see further opportunities ahead with some of the new products that they are introducing. Revenue per unit for bus, and you can see, was up by almost $4,000. Again, it's the same conditions that drove the higher revenues in the fourth quarter of 2019.
The mix of pricing to offset inflation and commodities, as well as higher mix of alternative fuels and a very focused effort on revenue generation on all of our deals. Our gross margin at 13.1%, was about 120 basis points better than a year ago. Again, for the same reasons, higher revenues and the very successful transformation cost initiatives. Our net income of $24.3 million was a deterioration of $6.5 million versus the prior year. That is more than accounted for by taxes. You might recall that in 2018, in fact, I think it was in the third quarter of 2018, we had a large tax credit due to the release of a provision. So tax was more than account for the reduction in the net income year-over-year, as we had no such large credit in 2019.
I would point out also that on an adjusted basis, net income was $43.5 million. Adjusted EBITDA, we will talk about when we get to the bridge, but $81.8, was a very strong performance for Blue Bird, and particularly pleasing given the fact that we had lower volume than the prior year. The margin improved by 120 basis points. Again, a solid performance, I believe, for fiscal year 2019. Earnings per share were down again, really as a result in the full year of the change in tax. In fiscal 2019, for those of you who, when you read through the 10-K, our effective tax rate was, I believe, about 26%. You see we paid pretty much normal taxes in fiscal year 2019, and we had a credit in fiscal 2018. Adjusted diluted earnings per share of $1.61 compared to $1.77 last year.
Cash and debt obviously are the same numbers from the fourth quarter. If we move to slide 13, which is the fourth quarter bridge. Some takeaways there. You can see the impact of both the pricing actions and the transformational initiatives adding $8 million of profit in the fourth quarter. Pricing actions of $5 million is actually net of all economics and tariff changes that we received in fiscal year 2019. Coming out with positive profit contribution was a good achievement. Of course, $3 million for the transformational initiatives for the new activities in the fourth quarter was very powerful. We have a negative there for $3.3 million. It's called manufacturing launch and OpEx here. It's really a combination of manufacturing inefficiencies and some supplier issues that we struggled with.
The manufacturing inefficiencies were largely due to some of the inefficiencies we faced in the plant as we were going through the launch of the paint shop. There was fairly significant changes to the plant going on. We were also doing a number of other things in the plant that will improve our ongoing efficiencies, but they caused us to work a lot of overtime and have some level of inefficiency in the fourth quarter. Because of the seasonality, a number of our suppliers, including some of the new ones that we brought in under our Transformational Initiatives Program, really struggled with the ramp-up in the volume in the fourth quarter. We were forced to do some emergency sourcing to keep production going, and we were forced into some premium freight costs. That contributed.
I think it's important to note that we will get out of that type of spending as now the paint shop's on board and progressively in 2020, the other initiatives in the plant will take hold. Assuming that by the fourth quarter of fiscal year 2020, we don't have that sort of activity, that's an additional point of margin that you would see there, remembering that total revenue was in the $300 million range. We'll move on to slide 14, which is the same look, the bridge for the full year. Again, I think some key takeaways from this slide. The two big numbers that contributed to the incremental profits were again, pricing net of economics of $9 million. This was a very good result for us.
I will remind you, particularly many of you who have been following this for some time, that the general consensus in the school bus industry was that you can't price for anything other than major regulatory changes. I think we have found that working with our dealers and with our customers, they understand that costs go up, therefore prices go up. I think this is a positive step forward to us in maintaining margins and improving margins going forward. The transformational initiatives of $18 million, again, this was a good result for us. I think Phil mentioned that we made $20 million through this in 2018. In two years, we've contributed close to $40 million through the transformational initiatives. This is an ongoing program. We're very excited about where it's going to take us in the future.
I wouldn't commit that we'll get the same level of savings, but we will continue to get positive savings going forward. It has reduced our cost structure in total, which is very pleasing. You'll see the full-year cost of the inefficiencies and some of the seasonal costs that I mentioned on the prior page. We had about $10 million in total. Again, very important number to look at. If the challenge is in front of the Blue Bird team to make this go away, it will add a point to our bottom line margin, and that's a very important factor in us moving towards the margin that we've been talking about of 10+% going forward. We move on to the next slide, which is the free cash flow. Again, $35.5 million of adjusted free cash flow in fiscal 2019.
This was about 4.7 lower than 2018, significantly higher than the midpoint of the guidance that we issued for 2019. I believe it's about $10 million higher than the midpoint. The result is more than accounted for by higher trade working capital. That was up a bit in the full year versus a reduction last year. By higher CapEx, which we had been talking about, and we expected as we were continuing to build the paint shop, and by higher cash taxes. They combined to offset the improvement resulting from higher EBITDA profits. I'd point out that free cash flow was $20 million, and this was $4 million better than the prior year.
It is a good result for us to get the adjusted free cash flow of $35, when we were going through the period of building and launching the new paint shop. That was a pleasing result to us. My last slide is on net debt leverage and liquidity. You can see our debt and our year-end cash, our net debt was $112 million. Our net leverage ratio was 2.1, still comparing very favorably to our covenant of 3.75. Our liquidity at year-end was $164 million, which was a very strong result for the company. With that, I'll turn you back to Phil Horlock, who'll talk more about the outlook for 2020, and our position on guidance. Over to you, Phil.
Okay. Thanks, Phil. Let's turn to slide 17 and take a look first at our 2020 outlook. As the headline says, our outlook reflects a continuation of our margin growth plan that we've been implementing over the last couple of years. Now, the school bus industry running at about 34,000 units a year over the past two years, which are, I should remind you again, 30-year highs. We do anticipate another strong year in fiscal 2020, with industry just around that same level. As we've consistently stated, our plans for continued profit growth focus on achieving significant gross margin and EBITDA margin improvement from three key areas. First, annual cost recovery pricing. We priced in late fiscal 2018 and again in July 2019 when we took a 2% price increase on all vehicles and options.
The latter will have a full annual revenue impact in fiscal 2020 that will of course be favorable. Second, continued transformational cost reductions. I explained earlier the various areas we're addressing as we expanded our processes, tools, and our focus. We saw a significant favorable profit impact in both fiscal 2018 and fiscal 2019, and we expect significant benefits again in fiscal 2020 and beyond. Manufacturing efficiencies and quality improvements will be a key added area of focus in 2020 and beyond. Third, as we have been doing for several years, we're looking to pursue growth to maintain our leadership position in alternative fuels, which command a superior margin and higher customer loyalty, which is always good for business.
Our financial targets fiscal 2020 are on a glide path towards our previously communicated EBITDA margin goal of a run rate of at least 10% by the end of fiscal 2020. We do expect the second half of 2020 to be around that level or higher. Let's now take a look at what all this means for 2020 guidance. Turn to slide 18. Net sales guidance is between $1.02 billion to $1.05 billion, which would be $2 million to $32 million higher than fiscal 2019. Just to reinforce the point, this is not a plan entirely based on growing volume, but rather a prudent margin-focused approach to drive higher profits and cash flow. adjusted EBITDA guidance is now between $90 million and $95 million, a significant $8 million to $13 million, or an 11% to 18% increase over fiscal 2019.
As a reminder, we're in a very seasonal business, as Phil mentioned, with typically two-thirds of our sales occurring in the second half of the fiscal year. That said, we expect fiscal 2020 to follow a similar pattern, with the vast majority of our profits and the improvement over fiscal 2019 being earned in the second half of the year. Adjusted free cash flow is between $30 million-$35 million and continues to be a strong feature of our business model. Although it is slightly down from our fiscal 2019 result, this is more than explained by unique spending to support planned upgrades that we're continuing to do and design changes that drive higher productivity in 2019 and beyond. In wrapping up, we had a strong fiscal 2019 performance, both operationally and financially, and achieved or exceeded guidance on all metrics on which we report.
Our guidance for fiscal 2020 reflects significant profit and margin growth over fiscal 2019 and is supported by the continuation of the strategy and plans we've put in place over the past two years. That concludes our formal presentation, and I'll now pass it back to our moderator, Derek, to begin the Q&A session.
Thank you, sir. Ladies and gentlemen, if you'd like to ask a question at this time, please signal by pressing star one on your telephone keypad.
If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one on your telephone keypad to signal for a question. We will first go to Justin Clare with Roth Capital Partners. Please go ahead.
Hi, everyone. Thanks for taking my questions.
Hi, Justin.
First off, I guess I wanted to ask you about your expectations for unit sales and then revenue per unit in fiscal 2020. Based on the guidance, it looks like we could see modest growth in both. I was wondering if I could just get a little bit more detail there. Are you expecting, I guess, a smaller price increase in 2020 than what we saw in 2019?
First of all, we don't actually issue guidance metric for volume, Justin. We don't do that. We give you the three things we mentioned. We give sales, we give profits, and we give adjusted free cash flow. I think when we look at the market, we're going to look at what the inflation has been, what economics in general and various indices have been. Round about the same time frame, probably July time, we look at some action in 2020 on pricing. That will be it. All depending on what the economics is that we're seeing out there in the industry. We'll make it industry-based. That's basically the way we look at this. When I talked before about the growth in sales, you can see it goes from a fairly moderate number to probably about 3% over FY 2019.
I think I mentioned that we're trying to just tell you that we're not banking on a big volume surge. If we see opportunities, we're going to go after them. We aren't banking on that. Rather, we want to keep working those three angles. Higher revenue per unit drives better margins. Reducing costs drives better margins. Finally, increased mix of alternative fuels, which also improves better margins. I should remind you that we've come a long way in our business over the last several years, and we have roughly about 1/3 of the market. That's our market share as we track it. We're in a good position. If we see opportunities, we're going to take them.
Okay, great. You mentioned the alternative fuel mix. Can you talk a bit more about that and how you see it evolving in 2020? Q4 was the highest level you ever reached for the company. Can you see the alternative fuel mix continue to increase next year?
I think it should naturally because I think we've got a lot of momentum going right now. We've got the VW funds ahead of us. We've got a remarkable growth in propane. I'm very pleased with that. I think certainly our products are the best in the market by a mile. That's why we're recognized for that. You look at fuel economy, you look at cost of ownership, we're the best in that. Obviously we've got electric vehicles too. We're the only one of the major manufacturers presently to offer that vehicle. Yeah. Again, we're not ready to put a mixed number on that. I don't think if you'd asked me a year ago, would we have grown 10 points of mix at that entity? I probably would've said that's a little rich. Heck, the last half of the year, we were over 50%.
That for the first time ever, those alternative fuels overtook diesel in sales. We're pretty bullish on the outlook for that, and I wouldn't want to put a number on that right now.
Could you speak a little bit about where you are seeing strength within your different alternative fuel offerings, from gasoline to propane, electric vehicles? Are you seeing more demand or greater growth in demand for one area versus another?
I'd say, well, certainly in 2019, we saw a tremendous surge in propane. You still saw, I think, they were pretty close. The total sales of gasoline and propane were very similar. You have to recognize, the VW mitigation funds that are available don't include gasoline. You can include your clean diesel, you can include propane, CNG, and electric. Gasoline doesn't really get to look account benefit from those funds. Probably has explained a little bit why we had a significant surge in 2019. Of course, those funds, we're only $150 million into a $600 million allocation for our school bus industry. I would think we could still expect to see propane doing very well. I wouldn't discount gasoline. Gasoline is an easy pop for someone who's worried about new technology.
Believe it or not, we do have customers out there who think propane's a new technology, and we have to educate and train and give them demo buses. Gasoline, though, is a really easy solution, right? Everyone drives gasoline cars. Technology's simple. It could be easy to buy the fuel. Technicians love it. I guess what I'm telling you is I think we'll see continued growth in both really going forward. I think there's a recognition those products are just great for our school bus industry. electric vehicles, I wouldn't discount that either, but I think it's always going to be a case with electric vehicles with the price of them. It's whether there's routes available. California has been obviously the leader in state grant support. In fact, the Volkswagen Environmental Mitigation Trust provide, again, funding for that.
Of course, you can buy a lot more propane buses than you can buy electric buses with the same amount of money. What we're seeing is people trying electric because there are funds available. I think we're going to see growth in all of that, and I'm just pleased we're in a good position to be there to capitalize on it.
Okay, great. Thank you. I will pass it on.
Thank you.
Thank you. Ladies and gentlemen, as a reminder, that is star 1 to signal for a question at this time. We'll next move to Eric Stine with Craig-Hallum. Please go ahead.
Yes. Hello. It's Aaron Spychalla for Eric. Thanks for taking the questions.
Aaron.
Maybe first for us, on that Volkswagen funding, it sounds like we're still early in that process and that's an important part as you go after some of these conquest accounts. Can you just talk a little bit about how you see that rolling out in fiscal 2020 and the next couple of years? I did see on the slide it talked about $600 million, and I thought in the past that was maybe closer to $3 billion. Just maybe, can you give us some color there?
Yeah. Well, the $3 billion, the $2.9 billion covers the entire gamut of transportation. You're into transit buses, you're into school buses, you're into port authorities, you're into forklift trucks, you're into everything. When we say $600 million, what I can tell you is that's specifically carved out for school buses. That's a guarantee. There's still a lot of activity within the balance that hasn't been carved out for anything yet.
Right.
Still got to be sorted out. The specific amount for school buses is $600 million. I think it's a good sign. I don't think there's any other industry, as I recall, within that $2.9 billion Volkswagen emissions settlement that actually had such a big carve-out. There's still some work to do to decide where is that money going to go exactly. $150 million has taken about 18 months, I'd say, to get there. I think the pace will pick up. The interesting thing is, with that money, Aaron, you've got 10 years to spend it and a minimum of three years to actually spend it. Somewhere between three and 10 years, that funding will last. I think we may have seen a quick surge when the money became available. Something similar may happen next year. It might tail off a little bit.
I think we're in a pretty good position. I will say that within that $150 million that went so far, we had a really nice share of it, particularly with our propane products. We've got a nice chunk of that allocated to Blue Bird products.
All right. Thanks for the color. Then maybe on the free cash flow guidance, down a little bit year-over-year at the midpoint. Can you just talk about some of the moving parts there? Is CapEx, are you targeting a similar amount here in fiscal 2020? Is there any kind of working capital items there? Then maybe just your broad thoughts on capital allocation, since it is obviously still a really strong free cash flow number.
We don't intend to give details within it, but I'll give you an example. On the capital expenditures, as we move into what we call design changes to try and drive productivity improvements, you're into now buying new tools, modifying tools. That's expensive. That does take cash. It takes money. The things we're doing to the plant, where we did a lot of station modification rearrangements, that's real hard investment money you've got to spend. We're doing nothing, obviously, like a paint shop spending that we did over the last couple of years. There's still a bit of residual money left on that will hit 2020 as well, as we commission that plant early in 2020 and we had to do some work on that.
I think when we're looking at overall, the reason we're spending a little less cash flow is because we are investing in initiatives that will drive profitability. We're making sure that what we spend will increase profitability going forward for us. That's the whole point.
All right. Then maybe last for us, I know you obviously don't guide by the quarter, but just since we're almost through the first quarter, understand the seasonality there. Are you looking for an increase year-over-year from a volume or revenue standpoint? I would assume that some of these initiatives. You mentioned the paint shop being at full production here. Would you expect slightly better profitability year-over-year?
Well, for the full year, absolutely. When you look at the first quarter, we actually launched that late in October. In fact, we took an extended shutdown in October to be able to do that. During that shutdown period, we did a lot of plant rearrangements. As such, we actually delayed coming back into production compared with a year ago. When you look at that first quarter, which for us is October to December, you've got Thanksgiving holidays, you've got extended plant shutdown, we've got the Christmas holidays, we shut down again there. There's a limited number of work days.
What I'm telling you is that while we feel very good about the full year, obviously that's why we got a guidance out there, I think it's true to say there might be a little bit less volume to plow than the first quarter because we took an extended shutdown to ensure that when that paint shop was up and running, it was running day one in painting buses. There's a little less capacity available for us in the first quarter than we had last year. Obviously, we'll catch that up, no problem. It's not like we've lost sales. We catch all that up back in the second and third and fourth quarters.
Right. Okay. Understood. Thanks for all the good color. Congrats on the quarter.
Thanks, Aaron. Thank you.
Thank you. We have no additional questions in the queue at this time, but as a reminder, that's star one. We'll pause for a brief moment for additional questions. Thank you. It does appear we have no further questions at this time. I'd like to turn the conference back over to Mr. Phil Horlock for any additional or closing remarks.
Okay. Thanks, Derek. Thanks to all of you for joining us on the call today. We do appreciate your continuous interest in Blue Bird. I hope you can see by our fiscal 2019 results and our outlook for next year that we are entirely focused on total profit growth and margin growth, and we intend to deliver on our commitments. We're well positioned for growth today and in the future. Please don't hesitate to contact our Head of Profitability and Investor Relations, Mark Benfield, should you have any follow-up questions. Thanks again from all of us here at Blue Bird, and have a great evening.
Thank you. Once again, that does conclude today's call. Again, we thank you for your participation. You may now disconnect.