Good day, ladies and gentlemen, and welcome to the Blue Bird fiscal 2018 fourth quarter earnings conference call and webcast. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Mark Benfield, Director of Investor Relations. Please go ahead.
Thanks, Keith. Welcome to Blue Bird's fiscal fourth quarter and full year 2018 earnings conference call. The audio for our call is webcast live on investors.blue-bird.com. You can access the supporting slides by clicking on the Presentations portion of our IR website. Our comments today include forward-looking statements that are subject to risks that may 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 CEO, Phil Horlock, and CFO, Phil Tighe. We will take some questions. Let's get started. Phil?
Okay. Thanks, Mark. Good afternoon, everybody, and thank you for joining us today for our fourth quarter and full year earnings call for fiscal 2018. It's been a very busy year here at Blue Bird, and for all of us, we welcome this opportunity to take you through our latest quarterly and full year results. Let's start with an overview of those financial results on slide four. Our fourth quarter results were strong, and I'm very pleased with the progress we've made this year. Our unit sales were the highest in a fourth quarter since 2008, with 3,757 buses sold. That represented a 4% increase over last year, and correspondingly, we saw a 6% growth in total net sales, which amounted to $332 million.
The higher growth in net sales versus unit sales reflects a richer product mix and, to a lesser extent, the pricing action we took late in the year to address the rapid escalation in commodity prices. A feature of our business is seasonality, and it's worth noting that fourth quarter net sales represented 32% of our full year sales, and the second half was a substantial 64% of our full year. Our Adjusted EBITDA grew 16%, or $4 million over last year to a strong $29 million, which is a solid 9% EBITDA margin. It was also our best fourth quarter result for more than 10 years. As Phil Tighe will show you later, we achieved this improvement despite escalating steel and commodity prices, as we drove fourth quarter cost reductions through our transformational initiatives, which we mentioned in our prior earnings call.
Adjusted net income and adjusted diluted earnings per share were both significantly higher than the fourth quarter a year ago, of $12 million and $0.40 respectively. On a GAAP basis, both net income and diluted earnings per share also improved from a year ago. Let's now shift to the full year. All three of our key financial metrics either met or exceeded guidance. Net sales of $1.025 billion was above the guidance range and the first time in our history that we exceeded $1 billion in net sales. That's quite a milestone for Blue Bird. At $70.4 million, Adjusted EBITDA was within guidance range and $1.5 million above last year, despite the commodity headwinds that hit us in fiscal 2018.
As we saw in the fourth quarter, we were able to offset the full-year adverse economic impact of those headwinds through our cost reduction efforts in the second half of the year. At $40 million, Adjusted Free Cash Flow beat the high end of guidance by $6 million and remains a strong feature of our business model. Adjusted net income and adjusted diluted earnings per share for the full year were both above last year by $22 million and $0.70 respectively. As we look at the underlying strength of the industry and Blue Bird's results in general, the outlook is positive. First, based on preliminary R.L. Polk registration data, about 34,000 new Type C and D school buses were bought and registered by customers in fiscal 2018.
While this is down slightly from the 35,200 unit level we saw in fiscal 2017, which was the second highest industry in 30 years, 34,000 new buses is a strong industry and well above long-term trend levels. In fact, with a strong outlook for property values and corresponding property taxes, which are the major funding source of school buses, together with the fact that 150,000 school buses on the road today have been in service for more than 15 years, we are confident on the industry outlook remaining around the 35,000 unit mark as we move into 2019. It should also be noted, too, that only about one-third of the 12,000 school districts that own and operate school buses enter the new bus market each year. There will always be some variability and noise each year in the new bus industry volume.
Second, we sold 11,649 buses in fiscal 2018, an annual growth of 3%, outpacing the industry. This is our seventh consecutive year of volume growth, and we have solid momentum. Third, we recorded our highest ever sales mix of alternative fuel-powered school bus sales at a substantial 38% of our total bus sales. This compares to the 34% mix last year, and our alternative fuel bus sales in total were up 14%. Incidentally, we achieved a record quarterly sales mix in the fourth quarter at a substantial 47% of total sales. That's leadership and real momentum in the fastest growing segment of the business.
As a reminder, in alternative fuels, we do count all of our propane, compressed natural gas, and gasoline-powered buses, as all of these are alternatives to diesel, which has been the staple fuel for years. Now, for the last several years, we've seen significant growth in alternative fuel bus sales, and I just mentioned we have not slowed down this year. We'll cover those sales again a little bit later in the presentation. Fourth point, we're passionate about product and being first to market with vehicles and features that customers want and value. Late in fiscal 2018, we successfully launched our exclusive, all-new electric-powered Type D bus, and have delivered several to customers in the fiscal year. Our Type C electric-powered bus will launch early next year, and we have a strong pipeline of customer orders that we're pursuing.
We also launched our ultra-low NOx propane-powered bus earlier this year, which at 0.02 grams NOx per brake horsepower hour, is 10 times cleaner than both the EPA standard and any other brand of propane-powered school bus. Just last week, we received certification from the California Air Resources Board, or CARB, to begin selling our ultra-low NOx compressed natural gas-powered Type C school bus. Blue Bird was first to market, and it's exclusive to us. Fifth, we took pricing late in fiscal 2018 to cover the escalation in commodity costs, led by steel, which has impacted all automotive manufacturers. Finally, we have a number of transformational actions underway that are improving our cost structure, and we saw the favorable impact in fiscal 2018, particularly in the fourth quarter.
As we exit fiscal 2018 and move forward into fiscal 2019, we're confident in delivering profitable growth, bolstered by the impact of our transformational initiatives and the pricing we took to address commodity cost escalation late in fiscal 2018. I will cover the key fiscal 2019 guidance metrics in more detail later, but I'm pleased to inform you that the Adjusted EBITDA range will be 14%-21% higher than our fiscal 2018 results, with our fiscal 2019 Adjusted EBITDA guidance at between $80 million-$85 million, a substantial gain from fiscal 2018. This is on the path to our stated goal for an Adjusted EBITDA margin of at least 10% by 2020. All in all, these are exciting times at Blue Bird. Let me now review with you our full year 2018 key operating achievements on slide five.
We recorded a number of significant achievements in fiscal 2018, and each one will make us more competitive and support our growth going forward. We continue to be the industry leader in alternative fuel-powered school buses. While our sales grew 14% in this segment in fiscal 2018, we achieved a very strong 70% market share, with many new customers joining the Blue Bird brand for alternative fuels. I mentioned earlier that we have the class-leading propane bus from an emissions standpoint at a NOx emissions level of 0.02 grams. We already were the market leader at 0.05 grams NOx of emissions, but the best just got better in fiscal 2018. This means our propane engine emits just one-tenth of the NOx level that our competitors offer. That's real leadership.
Although outside fiscal 2018, just last week, we received the same 0.02 grams NOx certification for our Type C compressed natural gas-powered bus. That is five times cleaner than the compressed natural bus that our competitors offer. All of which is great news for our customers and even better news for the children who ride our buses and their parents. Let's move on to zero-emission school buses. We are the only nationwide school bus manufacturer today that offers electric-powered school buses in Type C and Type D configurations. We've had a great customer response to our more than 20 ride and drives across the country. We are delivering buses now to customers and have a strong pipeline of potential new customer orders. Working with industry experts, our transformational plans to improve margins are on track, driving improvements in quality, cost, efficiencies, and capacity.
We achieved significant cost savings and margin growth in the fourth quarter. This initiative is key to delivering continued profitable growth. For the first time in Blue Bird's 91-year history, buoyed by the 6% net sales growth we saw in fiscal 2018, we achieved a new milestone of $1 billion in sales. As I mentioned earlier, we also priced to recover the recent tariff-related escalation in steel and other material costs. We began to see the impact late in the fourth quarter of fiscal 2018. This will fully apply in fiscal 2019. Construction is well underway for our all-new automated paint shop, with pilot runs and validation scheduled for early next year. This is a key initiative to driving efficiency improvements as we go forward. As I mentioned earlier, we met or exceeded guidance in all three metrics that we report against.
Most significantly, we reported slightly higher profits than fiscal 2017, despite incurring substantial commodity and freight cost increases. Let's now take a closer look at our second quarter financial results on slide six. I touched on many of these earlier. Phil Tighe will run through the details later. Just to summarize, the fiscal 2018 fourth quarter and full year, total net sales Adjusted EBITDA were up in both periods versus last year. Both bus sales and parts sales were up a strong 6% in the fourth quarter, and for the full year, bus sales were up 3% and parts sales grew a little stronger at 4%. In turning now to slide seven, let's take a closer look at our alternative fuel bus sales performance. As you can see, we achieved a new full-year sales record of 4,428 alternative fuel-powered school buses, a 14% increase over last year.
As I mentioned earlier, this represents a strong 38% mix of our total bus sales, up from 34% last year. No other school bus manufacturer comes close to this level of mix. In fact, last year, over 360 new customers took delivery of their first ever alternative fuel-powered Blue Bird bus. This is a strong endorsement of our exclusive alternative fuel buses, the Blue Bird brand, and our strong dealer network. We continue to be the leader in the fastest growing school bus segment, with our market share running at about 70%, and more than 19,000 alternative fuel-powered school buses are on the road today powered by Blue Bird. We offer the widest range of alternative fuel-powered buses and the most modern and proven engine in the industry.
With our exclusive long-term partnership with Ford and ROUSH CleanTech across all alternative-fueled engines, it makes it easy for customers to grow an alternative fuel fleet. With the same engine architecture, the same transmission, and the same service requirements across all three products, propane, compressed natural gas, and gasoline is an easy move for a school district or a fleet operator. Propane is widely recognized as having the lowest total cost of ownership in the market, and is a great engine, especially our new ultra-low NOx propane bus, at one-tenth of the NOx emissions output of other manufactured buses and the EPA standard. These nitrogen oxide gases we call NOx emissions, contribute to the formation of acid rain and smog. So the best-in-class level of NOx is another great reason for choosing Blue Bird propane.
In addition, as I mentioned earlier, just last week, we added an ultra-low NOx CNG bus to our line, five times cleaner than any other CNG school bus on the market. And despite our fiscal 2018 growth, in the past few months, we have seen some customers elected to push their propane purchases to fiscal 2019 in anticipation of receiving funding from the VW Clean Air Act Settlement Fund late this calendar year and beyond. That fund targets a replacement of old diesel buses with new school buses that emit low levels of NOx emissions. Our propane, compressed natural gas, and electric-powered buses are perfect choices to utilize these funds. So far, 30 states have finalized their plans to deploy the VW settlement funds, and the good news is that 40% of their funding in the first year has been set aside for school buses.
That's potentially another strong boost to the industry. We're in a great leadership position to capitalize from these funds. We also saw very strong growth of our gasoline-powered bus in fiscal 2018. It is regularly understood by technicians and mechanics who really appreciate the emissions simplicity and cold weather start capability it shares with propane. It also has a lower price point than diesel, so it really works well for those customers where acquisition price is a key concern. And gasoline is off to a great start, too, in fiscal 2019. We are taking orders for our all-new Type C and Type D electric buses, and interest across the country is strong, especially with the opportunity to fund from the VW settlement. We began delivering buses in the fourth quarter of fiscal 2018, and we're very excited about the prospect for our electric bus in fiscal 2019.
As we look forward to next year and beyond, with the broadest range of the cleanest low-NOx school buses in the industry, eight times more alternative fuel-powered buses on the road than all of our competitors combined, and still having less than 15% of school bus customers having tried an alternative powered school bus, Blue Bird is in a really strong position. So let me now turn it over to Phil Tighe, who'll take you through the financials, and I'll be back again later to cover the fiscal 2019 outlook and guidance. Over to you, Phil.
Thank you, Phil, and good afternoon, everyone. The next few slides are a summary of our financial performance for the full year and also for the fourth quarter of fiscal year 2018. You will find additional information in the appendix that deals with the reconciliations between GAAP and non-GAAP measures mentioned in this review, as well as some important disclaimers that have already been mentioned by Mark Benfield. Detailed material will be available in our 10-K, which will be filed early next week. We encourage you to read the 10-K and the important disclosures that it contains. The material we are discussing today is based on a close of September 29, 2018, for fiscal 2018, and September 30, 2017, for fiscal 2017. There were no significant changes in our critical accounting policies or in our risk factors versus the previously filed 10-K.
Let's now take a look at the summary of key results for the fourth quarter on slide nine. Phil's already talked about volume. Fourth quarter was a very good quarter for Blue Bird. We hit 3,757 units, up 4% versus the prior year, and importantly, our best fourth quarter in more than 10 years. As Phil already said, we achieved a 47% mix of alternative fuel buses in the fourth quarter, up about seven points from the prior year, and 47% is our record to date since we started our leadership of the alternative fuel industry. Our net revenue, you can see, was $331.6 million, up about $19 million versus the prior year. It was up for both bus and for parts. Both of them were up by about 6% year-over-year.
The year-to-year increase for bus was about two-thirds driven by volume, and the balance was due to a combination of higher average revenues for our buses. The average selling price for our buses in the fourth quarter was just under $84,000, which was about 2% higher than a year ago. We also benefited from the improved mix of the alternative fuel vehicles. As Phil also mentioned, we had a small percentage of our buses that actually picked up the pricing that we announced in June of 2018 to offset the impact of tariffs on steel and cost increases in other commodities. Our gross margin of 12.9% was up about 30 basis points versus a year ago, and I would add that our gross margins improved for both bus and parts. This result, of course, was despite the material cost increases driven largely by tariffs on steel.
Prices of our steel were up over 20% in the fourth quarter versus last year. Higher freight costs also up about 20% versus fourth quarter last year due to both fuel and the continuing capacity problem with driver shortages. What we did achieve, importantly, lower manufacturing costs in the fourth quarter of this year, which helped offset some of the economics increases that we talked about. These improvements in manufacturing have come about as an early indicator of the initiatives that we're undertaking to improve both our efficiencies and capacity in the plant. The three indicators of our bottom line profits are net income, adjusted net income, and Adjusted EBITDA are all favorable versus the prior year. Adjusted EBITDA, importantly at $29.1 million was about $4.1 million better than last year, an improvement of 16%. I would add that we've been studying history, obviously.
This is also our best fourth quarter EBITDA result in about 10 years, that was a pleasing result for us. The EBITDA margin improved to 8.8% for the fourth quarter, up about 80 basis points versus last year. Net income was also higher at $14.9, we achieved a return on sales of 4.4% based on net income. All in all, a good result for us on a bottom line basis. You can see that diluted earnings per share and adjusted diluted earnings per share for the fourth quarter, both of them were up substantially. We'll talk a little bit more about earnings per share when we look at the full year. Finally, the last two on this page are cash. Cash was down a touch. It ended the year at $60.3 versus $62.6 in the fourth quarter of fiscal year 2017.
That was, I think, a good result. You've seen the picture of the new paint shop that we're building. Our CapEx spending in the fourth quarter was up by more than $14 million versus the prior year, all based on the spending in the paint shop. We still managed to come in with cash only down about $2 million year-over-year. Debt at $142 million finished slightly better than planned, there were no borrowings on the revolver. I would point out that the debt shown is at the end of September, it was prior to us drawing $50 million of incremental debt to fund the tender offer. We'll talk about that a little more on a later slide.
If we move to slide 10, that will take you through the same set of metrics for the full year. You can see the volumes up 3%, as we already mentioned, the best result in more than 10 years. It is a good result. As Phil said, the industry appears to have been a little soft towards the end of fiscal year 2018, I would add that R.L. Polk registrations do tend to take a few months to mature. I think we might see it creep up a little bit. It's very clear from our discussions with dealers at some school districts that they are waiting to take advantage of the VW mitigation funds, which are quite important to them and help the school district save a substantial amount of money. Alternative fuel represented 38%, which is up 14%.
I'll point out, Phil's already done a great job of this, alternative fuel includes propane with ultra-low NOx, gasoline, CNG with ultra-low NOx, and electric buses. We are the only OEM to offer this range of alternative fuel vehicles, I think it gives us a strong advantage going forward. One other point I would make is seasonality continues to be a challenge. Our second half sales were 7,500 units. A record. Our first half sales were about 4,146 units. You can see the production imbalance, 7,500 units in the second half versus 4,100 in the first half. That does give us some heartache in terms of overtime and a little bit of stress on our suppliers in terms of ramping up from first half to second half.
I think the team is doing a good job to address that, although it will continue to be a challenge because it's a fact of life of our industry where people want to have their buses in the second half for the start of the new school years. We are seeing positive results with some of the work we're doing on efficiencies to make sure that the plant can operate with high efficiency and high quality at substantially higher volumes. Our net revenue of $1.025 billion was a great result, as mentioned, the first time that Blue Bird has hit more than $1 billion on the net revenue metric. This was a big achievement for us. That number was up about $34 million, and it was really driven by higher bus volume. We had 332 more units worth about $27 million.
That was 80% of the increase. On a full year, our bus average selling price was also up. Our average price ended up at $82,600, up about $400 a unit, which is worth about $5 million. Our revenue from sales of parts continued to improve. We picked up another $2 million on parts, and that's a positive feature for us. As we've previously talked about, we did put a price increase in. That only impacted a small number of units in the fourth quarter due to the length of our ordering cycle and the fact that we have firm pricing for orders placed. We will talk about that a little more. Gross margin of 11.9% was unfortunately down about one point versus a year ago. It really was driven by the large increases in tariffs and higher freight costs.
It was also driven by a business mix where we did accept some relatively low-margin business to fill some production gaps in the second half due to a number of school districts delaying their ordering until fiscal year 2019. I would point out that if you want to take a look at the map, if we took the tariff-related and freight cost increases out, our margin would have been at least equal to the fiscal year 2017 margin. I think that's something to keep in mind as you look at the results. Again, when we look at the bottom line results of net income, adjusted net income and Adjusted EBITDA, all of them were positive versus the prior year. The $70.4 million of Adjusted EBITDA was up $1.5 million or about 2%, and we've got a bridge where we'll walk you through that.
The EBITDA margin of 6.9% was slightly lower than last year. Again, absent the impact of tariffs and freight, that would have been better. Net income was $30.8 million, which represented an improvement of $2 million or almost 7%. Return on sales of 3%. Diluted earnings per share, we were pleased with this number at $1.08 per share versus $0.74 in the prior year. Adjusted diluted earnings per share came in at $1.77, which was up by $0.70 and almost 70% versus the prior year. There is some information at the back of the presentation on this, and there's a more fulsome explanation in the 10-K. Our weighted average diluted shares outstanding were 28.6 million at the end of 2018 and 24.9 million at the end of 2017.
Net income available to common stockholders was $28.9 million in 2018 and $18.4 million in 2017. The fiscal year 2017 number was impacted by the dividends that we paid to preferred shareholders of $4.3 million in 2017. The repurchase of preferred shares of about $6 million also in fiscal year 2017. Neither of those occurred to the same extent in fiscal year 2018. We've already talked about cash and debt. They are the same numbers that we talked about when we looked at the fourth quarter, so I won't belabor that. If we go to slide 22, you will see a bridge for the fourth quarter walking from $25 million in fiscal year 2017 up to $29 million in fiscal year 2018. You will see that bus volume was up about 149 units. Parts was up about a half a million.
Economics was unfavorable year-over-year in the fourth quarter by about $8.5 million, primarily steel, which was up 26%, and freight up about 21%. You see the $11.2 million, which was transformational cost initiatives and efficiencies and operating cost savings. That $11 million helped us to more than offset the incremental cost of the economics and achieve an improvement year-over-year that we've already talked to. We were pleased to see this come in. We've been working hard on the transformational initiatives all year. While the transformational initiative is not all of the $11 million, it does represent a fairly substantial portion of the savings. The good news is that's on about one-quarter or one-third of our annual volume. There is a lot more to come as we look at the full year of next year.
If you go to slide 24, this walks from full year to full year, $68.9 million in fiscal year 2017, walking up to $70.4 million. Oh, sorry, I've got the wrong slide number. It's 12. Yep. Slide 12, my apologies for that. Walk-forward for the full year, $68.9 million up to $70.4 million. Volume and mix was. Well, volume was up by about 330 units. We did have adverse mix, as I mentioned previously. Parts improved by about $1.1 million. Material economics, the full year impact for us was about $18.5 million. I think there's a few people who will be trying to figure out what the real impact of steel is on Blue Bird. I'll just comment that just over 50% of everything we buy has some steel content in it.
Anything from a seat frame as a part of the seats to an engine block as a part of an engine will be steel. The bigger part of the steel content for us is all the metal that we use to build the body and chassis of the bus, because remember, our school buses are all steel as a part of the safety protocol for the children that it carries. We have, I think, about 17,000 pounds of steel in the body of the bus, something around that. When we look at economics on steel for the year, we have it anywhere from 1% of the components where steel is a small piece. We got about a 1% increase on some components to more than 30% increase on raw steel and on some of the commodities with very high steel content.
That drove a lot of the $18.5 million. Freight was also up by a substantial amount of money, about 28% in the full year, driven by two factors, increased diesel costs and a shortage of drivers and trucks. You look at the $18.5 million, and we should reflect upon the fact that we had almost or very little pricing to offset that. The pricing that we have taken as of June, we expect to fully reflect this number if it continues to form part of our cost base moving forward. We see the full impact of transformational cost initiatives and other efficiencies of $26.5 million in the full year. I would point out to you that the transformational cost initiatives really only started to come into play in the second half of the year.
There was only a small amount of it in the first half. This is a very encouraging feature for us for the future, where we have really, I think, moved the needle on cost structure in Blue Bird to provide us a very solid base for the future guidance that Phil is going to talk about and our long-term objectives. Very quickly, I want to point out on the next slide, which is 15, the free cash flow. 13, is it? I can't read. That's all right. Sorry, 13. I'm having a bad day with page numbers. Free cash flow is on page 13. I've had that verified. For the full year, our free cash flow came in at $40 million. Our guidance, you might recall, was between $30 million and $34 million, so we were very pleased with where it came in at.
If you take a look down the list to Adjusted Free Cash Flow, every item was favorable year-over-year with the exception of CapEx, which was up about $23 million. That is basically related to that large paint shop that we're building, which will be a state-of-the-art paint shop and give us great paint on our buses and higher efficiencies and lower cost to boot, which is a pretty good achievement. As far as we're concerned, the $40 million was a very favorable outcome on Adjusted Free Cash Flow. I'll turn to my last page, and I'll try to get the number right. It looks like it's slide number 14, and that is our net debt leverage and liquidity. You can see the net debt was $82 million. That's debt net of cash.
We had a net leverage ratio of 1.7, and that compares very favorably to our covenant of four, and we had liquidity of $153 million at the end of the year. I would point out that the debt that we reflect here does not include the increase to our term loan that we took in October. There is another $50 million you will see in debt when we do our first quarter earnings report. Having said that, if you sort of pro forma'd that in and looked at it, the 1.7 net leverage ratio would end up at about 2.2, and that's still well under the four, which is our covenant. We think we're in a pretty good position when it comes to net debt and our requirements for our banks and for liquidity.
I'll turn it over to Phil, who promises he knows all the page numbers that I don't know, and he can wrap up and show you our guidance for the year.
Okay. Well, thanks, Phil. Thanks for that. Let's now focus on the fiscal 2019 outlook and our full-year guidance and turn to slide 16. Just talking about the industry first. With recent industry trends running at 34,000 to 35,000 units annually, we are at some 30-year highs on the industry, and we do anticipate another strong year in fiscal 2019. The industry, probably around 35,000 units. That's what we think we're going to be. We see continued growth in housing prices and property taxes being a big factor there, along with new funding from the Volkswagen settlement fund, obviously supports our position. I think all in all, we don't see this industry turning down. We see it solid, strong, and continuing. The demand is clearly there.
Now, our plans for fiscal 2019 focus on key elements of improving gross margin and EBITDA margin from three key areas. First is the impact of the cost recovery pricing that we took in late fourth quarter to address the escalating commodity costs and freight costs that Phil clearly showed you in the bridge earlier. This will have a full annual benefit in fiscal 2019. Second, the full-year impact of the transformational cost reduction initiatives that we implemented in late fiscal 2018. Again, I think you clearly saw those, particularly on that fourth quarter bridge. You saw the improvements we were making later in the year. That obviously will have a favorable full-year effect as we move into 2019. We're going to continue that initiative, too. This is a key thing. This isn't just a one year and it's over.
We are continuing to do that and run it throughout our organization. Third, the plant facility and process improvements we are making to increase manufacturing efficiencies next year. All these three factors are all about driving margin improvements, particularly on the gross margin side, down to the bottom line, EBITDA margin. Now we've set our financial targets for fiscal 2019 to be on the glide path towards our previously communicated EBITDA margin goal of at least 10% by fiscal 2020. Let's turn to slide 17 to present our fiscal 2019 full-year guidance. Net sales guidance is between $990 million and $1,025 million, which will be down anywhere from $35 million to flat versus last year.
We are being prudent in planning our sales outlook, recognizing that we may have to push out some unit sales as we launch our new paint shop and make other facility and process improvements in the plants. These type of production launch losses are typical for an automotive company undertaking significant facility upgrades, and our approach will be clear to minimize that impact as much as possible. I want to stress we're being somewhat prudent in our planning base here in giving that sales number. Adjusted EBITDA guidance is now between $80 million-$85 million, a significant $10 million-$15 million, or 14%-21% increase over fiscal 2018. We will be exiting fiscal 2018 with significant run rate savings from our cost reduction efforts that are already implemented, which will favorably impact fiscal 2019 and will continue to pursue new efficiencies.
Adjusted Free Cash Flow is between $24 million-$28 million and continues to be a strong feature of our business model. While this is down $12 million-$16 million from our fiscal 2018 result, this is more than explained by the significant capital spending we will incur in 2019 for facility upgrades, particularly our new paint shop as it launches. In wrapping up, I believe we had a strong fiscal 2018 performance, both operationally and financially, and we were able to offset the unexpected rapid rise in commodity costs led by the impact of the steel tariffs. I think I'd also be remiss if I didn't mention some of the shareholder initiatives that we implemented this year. Buyback programs and the tender offer late in our fiscal year to drive shareholder value across to our shareholders.
We are exiting fiscal 2018 with significant run rate benefits from cost reductions and cost recovery pricing taken in late fiscal 2018. These run rate benefits will help us drive significant profit and margin growth in fiscal 2019. As I said earlier, Adjusted EBITDA predicted to be 14%-21% higher than fiscal 2018. Our plans and our guidance both align with this, and we'll continue to update you on our progress each quarter. Well, that concludes our formal presentation. I'll now pass it back to our moderator, Keith, to begin the Q&A session.
Thank you. Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing the star key followed by the digit one on your touch-tone telephone. Star one for questions. Please make sure the mute function on your phone is turned off so the signal can be read by our equipment. Star one for questions or comments, and we'll pause a moment to assemble our queue. We'll take our first question from Eric Stine with Craig-Hallum. Please go ahead.
Hi, everyone. Thanks for taking the questions.
Hi, Eric.
Eric.
Hi. Maybe just starting with alternative fuels, I know that you've been pretty clear about the expectation that because of the Volkswagen funding, that propane, some volume's pushing into fiscal 2019, but it's still the gasoline number being, I think, 600 more or so than the propane number for fiscal 2018. Does that do anything to change your view that longer term propane is probably the higher component of the overall mix? Is that changing a little bit that you think gasoline actually could be number 1 for you?
Well, it's a good question, Eric. They're both extremely well, obviously, for us. Gasoline have probably exceeded our expectations, to be honest. I think there's been quite a bit of a pushback against the complexity of diesel, and everyone understands gasoline is pretty easy. What we've been seeing, though, this year is even some of our guys who first got into gasoline two years ago, who haven't actually tried propane, they're now actually trying propane. I think gasoline actually we're finding is a good leading tool for getting someone into a less familiar alternative fuel such as propane. I honestly believe, I think all the time, there's no question to me, we're going to see the pressure on NOx emissions, the pressure on the total cost of ownership. Propane is the best product. It really is.
I think I really truly believe that we've seen it consistently, that folks in school districts are waiting to say, "Look, I've got Volkswagen money coming. It's coming late in the year." Gasoline, by the way, is not funded by the Volkswagen settlement. You can't buy a bus with Volkswagen settlement funds for gasoline. You can buy propane, compressed natural gas, you can buy electric, and you can buy the clean diesel. I do think we've seen it clearly time after time. People say, "I'm just going to hold off on my propane because I got some money coming for that, but I'll take a gas bus right now." I feel very confident about both, and I think over time you'll see propane, I think, recovering that trend and growing heavily in the next few years.
Got it. Then in terms of the revenue guide, and it sounds like you're given that the industry is near its highs and maybe not in uncharted territory, but pretty strong, that you're being conservative. Maybe how are you factoring in Volkswagen funding into that guide, knowing that that funding is going to play out over a number of years?
Doing at this stage is I am just being what you said, I'm being somewhat prudent. We have a pipeline, and we track very carefully-
Yeah
where the monies are for Volkswagen by state. We go after each one of those, particularly working with our partners at ROUSH CleanTech for the propane and CNG side of the business. I think we're managing a pipeline. I think as we go through the year, we'll keep updating you on where things stand.
Okay. No, fair enough. Last one for me, just on the EBITDA guide. Maybe just talk about the puts and takes. It looks like you're guiding to around 8% to 8.5% margin. Fourth quarter, you just did 8.8%, and you really have had very minimal impact from the price increases. Is that where you've set it? Is that based on what you alluded to right at the end of your comments that there is an operational, when the paint shop comes on, that might impact some volumes and might impact some things operationally, or is there something else to factor into where you've set it?
Yeah. Let's talk about that paint shop issue first. You're absolutely right. What we've done is we've been prudent to recognize that you tend to get launch losses. You don't turn a paint shop on and start building 65 buses a day painting. You start it off building two, three or four. We may have some losses that we can't recover during the fiscal year just because our capacity on our line, we just might be limited. We've been prudent on that. That's why you see that little downtick there on the sales side.
What was the second part of your question? I'm sorry. What was the second part you asked me?
Well, just is that the reason?
Oh.
Is that the primary reason for it, or are there other things we should factor in because you still haven't really gotten the impact of the price increase?
Yeah. I think that's a market environment thing. I want to make it stick, and we've got it on there on every vehicle now, that pricing.
Yeah.
I think, again, I'm just going to keep you updated every quarter. I would actually portray this year 2019 as obviously our goal is here to improve the margin. You heard it right. I'd like to be at least the mid-eights, some such around that number on the margin, 8.4%, 8.5% on our pathway to 10. The way we put the guidance together, it's a very much a, I call it cost-led margin improvement plan. If we can pick up on the revenue too, and you're right, we've set ourselves some good pricing end of the year, that will help us as well. Right now, at this early point of the year, the early juncture in the year when we're just putting guidance out there, this is in our control.
Obviously, we know our costs, we know where our cost base is, we feel comfortable with putting this guidance out. As I say, through the year, we'll keep updating you and if it needs it.
Okay. Thank you very much.
Okay.
Ladies and gentlemen, as a reminder, star one for questions. We'll go next to Matthew Koranda with ROTH Capital Partners.
Hey, guys. Thanks.
Hey, Matt.
Hey, Matt.
I just wanted to clarify the revenue outlook. Industry units look like they're up about 1,000 units for fiscal 2019. You're putting through pricing. It sounds like you have customers that potentially use Volkswagen settlement money, which I assume would be a positive, but maybe you're not counting on that yet. The revenue guide is essentially kind of flat to down a touch. I know you alluded to, and you just kind of talked about the paint shop and potential production inefficiencies, does that mean that you're just taking less? That you're going to turn away bookings this year to be prudent and cautious on the startup? Just clarify that for me.
Well, what we're trying to do is I said I pushed them out. We may end up slipping some of those into fiscal 2020 is a way to think about it. The last thing I want to do is tell a customer, "We're not going to take care of you." Now, obviously, I also want to recognize that. We're committed to improving the margins here. When I look at the business deals we've got, if we are going to be somewhat more constrained on capacity because we've got a lower paint shop capability initially, we're going to be somewhat selective, too, in the business we bid on, probably a little bit more. Right now, we're seeing how it goes. We're on track with our paint shop. We're feeling good about it. I did use the word prudent in there for a reason, obviously.
It's our first time we've put guidance out there. We're very mindful of this. I'd rather us minimize any of those launch losses and take every opportunity we can get, Matt. Right now, that's what we choose. We chose to show it this way and just recognize there may be some launch losses along the way.
Okay. On the EBITDA outlook, could you guys walk us through, you provided the waterfall charts for the fiscal year 2018 EBITDA walk, but is it possible to sort of get a walk to 2019 based on the midpoint of your $80 million-$85 million in EBITDA guidance for the year?
Matt, this is Phil. We don't normally do that. I think what we would do is think about providing it on a quarterly basis. On a high level, though, unless something changes, we will continue to see some escalation of new tariffs coming out of China. We have to be a bit prudent worrying about that. We're looking at steel, while it's nudged down a little bit versus the heights that it hit in 2018, it's still substantially above where it was in the first half of fiscal year 2018. We think we may see a little bit more there. We are starting to see fuel prices down versus the high level they got to in fiscal year 2018, yet they're still up a bit and, as you've read undoubtedly, OPEC talking about cutting capacity. That could lead us to a higher fuel price again.
On the trucking industry, we've started to see that there's some easing on the capacity, we haven't seen it in rate at the present time. I think all in all, we know we've got a lot of good news coming in cost. We are, as Phil said, being fairly prudent on how we measure sales going forward until we see how the paint shop launches and how some of the other things move. We could have some negative news in there. We're obviously protecting against any other cost increases that come around at us.
Hey, Matt, maybe I know in the last guidance, we sort of put a visual out there for 2019. I think we didn't put any numbers on. We put some bars on them, I think, on a bridge that we did. Remember that. We did that. I think what I would characterize it a bit like this, if you think about a bridge running from 2018 to 2019, how do I get from $10 million-$15 million up? If you look at the market, what I call the market, the volume and the pricing sort of offset. If we've got some launch losses, I'm taking a bit more price initially, they'll about wash out. That will be neutral. At the same time, you're going to see economics below the chart. Obviously, it's a full-year effect of economics, too. Steel, in fact, the tariffs came on in the mid-year.
Now having said that, the futures look pretty good to us. They look better than they are right now. Nevertheless, there is some additional economics, we think. As Phil showed you, our transformational cost reductions that we took, those initiatives that took place were very much the second half of the year. That's going to exceed the economics. That's the way we look at it. Flat on the market factors, negative below the line in economics, but a big bar going up, I guess, on cost reductions, which we're in control of. That's what we feel good about it, because we've already done the vast majority of that stuff is already implemented.
Okay. That's helpful, guys. I was kind of thinking about it in terms of, I guess you referenced only half a year of sort of transformational cost initiative efficiencies, all that stuff from that $26.5 million that you got in 2018.
Yep.
If I just sort of apply roughly that as a plus up to the $70 on the bridge, and I assume flat pricing and economics, then you're still factoring in, I guess, a fair amount of headwind from the material economics is kind of how I was thinking about it. Is that a fair way to characterize it?
Yeah, it's a good way, Matt, but remember that the big increases in commodity costs also came through in the second half of our fiscal year. We will see that as well.
Right. There's still some residual leftover. Okay.
Yeah.
Lastly, just in terms of the free cash flow outlook, could you help us with CapEx? It's down substantially in 2019. You referenced some spending initiatives in paint shop and everything, what exactly is CapEx in your guidance?
Hey, just one second. Did I mention about CapEx being up in 2019? That's when we're really going to finish finalizing the paint shop.
That offline.
Again, it's something we don't tend to report at this point in terms of 2019, but it's certainly higher than 2018. The vast majority of the paint shop spending we're going to see in 2019 versus 2018.
Matt, think about it this way. What we've done thus far is put up the majority of the building for the paint shop. None of the expensive stuff that goes in the building has been paid for yet.
Got it. Guys, I'll jump back in queue. Thank you.
Matt. Yep.
At this time, we have no further questions in the queue. We do want to give everyone a final opportunity to signal by pressing star one for any questions or comments, and we'll pause a moment to reassemble our queue. We'll take our next question from Chris Moore, CJS Securities.
Hey, guys. Maybe I could just stay on the EBITDA a little bit longer. Just from a big picture standpoint, the 10% that we're talking about in fiscal 2020, are you still looking at that as kind of cost driven versus 2019? Or is there more assumptions in terms of a little bit of revenue leverage that's coming from there? Just trying to understand the timing in 2019, obviously not all that cost benefit's going to be shown, but trying to understand kind of big picture where that incremental increase could come from.
I think, okay, let me take a crack at that, Chris. When we look at it, because we have a three-year plan we've put together, and 2019 is like the midpoint of our three-year plan is the way we've looked at it, 2018, 2019, and 2020. When we look at 2020, the transformation initiatives, they're going to carry through. We are implementing things in 2019 that will have a full-year effect in 2020, particularly on the design side of our business that we're working through right now. We've appointed a leader of that. We feel good about that. The transformation initiatives will definitely continue to grow, improve our margin through to 2020. The other thing is I am confident that we'll continue to increase our mix of alternative fuel vehicles, which do carry a better margin for us.
We've shown a consistent track record of able to do that. I think we will continue to do that. Those are the two main pieces of it. I think when you look at our product lineup that we've got, we have just such a broad range of especially powertrain offers that no one else has. I feel confident about the opportunity to continue to acquire customers and grow the business. Growing the business, alternative fuel mix, and the continued focus on cost reductions. That's our bread and butter, I think, for 2020.
Got it. Just one, maybe I can do this offline. In terms of a share count that you're looking at for next year after the buyback, etcetera, what's a reasonable number to be looking at?
Hey, Chris, I've got a cap table I can share with you after the call.
Fair enough. All right. I think that's it. Thanks, guys.
Thanks, Chris. Yep.
We'll take our next question from John Sullivan with Olstein Capital Management.
Hi. Just not to belabor the CapEx comments, I was just curious as to, once the paint shop and some of the initiatives are done, maybe heading into 2020, what's a more normal level of capital expenditure?
Maybe $15 million-$20 million a year. Probably about $20 million. There's things we want to do. I think when we've been doing the paint shop, we realized there are things we'd like to do to upgrade these plants and keep it going. I think we're looking maybe peaking at $20 million, low point $15 million as a range.
Perfect. Thank you.
Okay.
At this time, we have no further questions in the queue. I would like to turn the conference back to your speakers for any additional or closing remarks.
Yeah, thanks, Keith. This is Phil Horlock again. I want to thank everyone for joining us today on the call. We do appreciate your continued interest in Blue Bird. I think there were some great comments and great questions that we had. We are focused on profitable growth, and we intend to deliver on our commitments, particularly around the margin improvement area. That's a key growth initiative for us this year and next year. We're well positioned for growth today, and I believe in the future. Please don't hesitate to contact our Head of Investor Relations, Mark Benfield, should you have any follow-up questions. Thanks again from all of us at Blue Bird, and have a great day.
Ladies and gentlemen, this concludes today's conference. We appreciate your participation.