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(Adds analyst's comments, details; updates share movement)
By Aniruddha Basu
BANGALORE, Feb 14 (Reuters) - Automotive chassis maker Spartan Motors Inc (SPAR.O) posted a strong quarterly profit that beat Wall Street estimates by a wide margin, driven by robust sales at its chassis and emergency vehicle team units, sending its shares up by as much as 16 percent.
"The long and the short of it was that revenues were higher than anybody expected on the Street. It was a much better revenue in all segments," Robins Group analyst Frank Magdlen said.
Sales at Spartan Chassis, the company's largest operating unit, rose 86 percent to $211.2 million in the fourth quarter, riding on growth in military orders and service, parts and accessories business.
The military business is expected to peak in the second and third quarters of 2008 due to a number of July deliveries coming up, but may decline substantially in the fourth quarter, Magdlen said.
The military is only ordering a specific number of Mine Resistant Ambush Protected (MRAP) vehicles, but its demand for these vehicles have dipped, which is why the business is expected to drop in the fourth quarter, Magdlen added.
Spartan, which makes chassis assemblies for recreational vehicles (RV) and fire and rescue trucks, is one of the many companies that have rushed into the market for the new class of heavy-duty military vehicles, designed to reduce U.S. combat deaths from roadside bombs in Iraq and Afghanistan.
"This is a market that didn't even exist in 2004. It was an opportunistic expansion of their product lines," Magdlen said.
Spartan's military business accounted for about 55 percent of the company's fourth-quarter revenue, while the RV business accounted for about 22 percent.
The company, however, said it expects a tough market for RV in 2008. While the RV industry had a difficult 2007, Spartan managed to grow market share and ship more units in the year compared to 2006.
Spartan's consolidated backlog rose 46 percent to about $338.4 million as of Dec. 31, 2007 on increased orders from its military customers. It expects to fill its current backlog by October 2008.
For the latest fourth quarter, the company's net income rose to $8.2 million, or 25 cents a share, from $3.3 million, or 10 cents a share a year ago. Net sales almost doubled to $237.6 million.
Analysts were expecting earnings of 19 cents a share, before items, on revenue of $213.2 million, according to Reuters Estimates.
Emergency vehicle team unit's sales rose 67 percent, reflecting higher production rates.
Gross margins, however, fell to 12.7 percent, from 16.8 percent a year ago, mainly due to rising material costs and ramp up in capacity.
"We are focused on improving margins in all our product lines in 2008, but consolidated margin may decline this year as the military business becomes a higher percentage of total sales," Chief Financial Officer Jim Knapp said in a conference call with analysts.
However, analyst Magdlen said that even though the military business has smaller gross margins, it also has smaller selling, general and administrative expenses.
Spartan shares were up about 4 percent at $8.66 in late afternoon trade on Nasdaq. They touched a high of $9.75 earlier in the session. (Additional reporting by Dhanya Ann Thoppil; Editing by Himani Sarkar)