SEGUIN, Texas, Nov. 3, 2021 /PRNewswire/ — Alamo Group Inc. (NYSE: ALG) today reported results for the third quarter ended September 30, 2021.
Alamo Group’s net sales for the third quarter of 2021 were $338.3 million compared to net sales of $291.8 million in the third quarter of 2020, an increase of 16%. Net income for the quarter was $17.5 million compared to $20.0 million in the previous year’s third quarter
The Company’s Agricultural Division net sales in the third quarter of 2021 were $119.3 million compared to $95.5 million in the prior year’s third quarter, an increase of 25%. The Division’s income from operations for the quarter was $14.1 million compared to $11.7 million in 2020, an increase of 21%. For the first nine months of 2021, the Agricultural Division’s net sales were $334.9 million versus $266.4 million in the prior year, an increase of 26%. The Division’s income from operations for the first nine months of 2021 was $37.1 million compared to $26.0 million in the prior year, an increase of 43%.
The Agricultural Division continues to benefit from high customer demand and low dealer inventories. Supply chain disruptions and input cost increases continued to constrain shipments and pressure margins, but this Division was somewhat less affected by these issues as compared to the Company’s Industrial Division.
Comments on Results
Jeff Leonard, Alamo Group’s President and Chief Executive Officer, commented, “This was certainly an interesting quarter in that we experienced both sustained market tailwinds as well as persistent headwinds in the form of cost inflation, skilled labor shortages and supply chain disruptions. Activity in our markets remained at a healthy level during the third quarter across all segments of our business. The strong market momentum we carried out of the second quarter continued, with third quarter order bookings and ending backlog again setting all-time records for the Company. Our sales improved nicely relative to the third quarter of 2020, but declined modestly from the level achieved in the second quarter of 2021 as persistent labor and supply chain shortages disrupted our operations. The sales mix was also less favorable as somewhat higher spare parts sales declined modestly this quarter as a percentage of our total sales.
“While thankfully the Company experienced fewer problems directly related to COVID-19 illness, the efficiency of our manufacturing operations was negatively impacted during the third quarter as shortages of both purchased materials and skilled labor disrupted our normal production cadence. These supply chain and people related shortages constrained sales growth during the quarter in both of our operating divisions, but most notably in our Industrial Division where the supply chain impact was more significant. Results for the third quarter of 2021 were also adversely impacted by the combined effects of material cost inflation, and sharply higher transportation costs that were incurred to meet customer requirements. Third quarter sales, general and administrative costs were also higher than the comparison period because salaries and accruals for profit sharing and management incentive plans were frozen in the third quarter of 2020 in response to the impact of COVID-19. Selling costs were also higher as sales commissions increased and our sales teams began to travel more frequently with increased trade show attendance. The Company also incurred higher administrative costs resulting from the timing of certain stock based compensation expenses as well as certain one-time costs associated with the CEO succession process, both of which contributed to a significantly higher effective tax rate for the third quarter.
“Our Agricultural Division continued to perform at a very high level in the third quarter in spite of some mixed signals from the markets. While corn and soybean prices declined somewhat relative to the levels achieved in the second quarter, they remained at historically good levels. Cattle prices rose steadily through July and August before giving back the gains in September to end the quarter slightly lower. Finally, tractor sales rose modestly compared to the third quarter 2020 but with the gains more concentrated in the higher horsepower machines. Dealer inventories also remained low, and have not yet recovered to levels evident before the pandemic. Against this backdrop, demand for the Agricultural Division’s products remained strong and the Division’s sales increased by 25% compared to the third quarter of 2020. A favorable product mix supported by solid contributions from operations in the U.K., Europe, Brazil and Australia contributed to this Division’s earnings in the quarter.
“Looking ahead to the fourth quarter, I expect we will continue to experience the same headwinds associated with cost inflation, supply chain disruptions and skilled labor shortages that we experienced to a greater degree in the third quarter. These challenges are not expected to improve significantly in the short term. However, the one-time administrative costs we encountered this quarter are not expected to repeat. I also expect that our effective tax rate will return to a more traditional level in the fourth quarter.