SEGUIN, Texas, May 4, 2022 /PRNewswire/ — Alamo Group Inc. (NYSE: ALG) today reported results for the first quarter ended March 31, 2022.
Highlights for the Quarter
- Net sales of $362.0 million, up 16.3%
- Vegetation Management net sales of $221.0 million, up 20.2%
- Industrial Equipment net sales of $141.0 million, up 10.8%
- Income from operations of $29.1 million, up 14.5%
- Net income of $18.5 million, or $1.55 per diluted share, up 5.8%
- Adjusted net income of $19.4 million, or $1.63 per diluted share, up 11.4% (1)
- Trailing twelve-month EBITDA of $165.7 million, up 2.2% from full year 2021(1)
- Backlog of $917.8 million, up 102.8% compared to prior year first quarter-end
Results for the Quarter
First quarter 2022 net sales were $362.0 million compared to $311.2 million in the first quarter of 2021, an increase of 16.3%. Gross margin improved in the quarter compared to the first quarter of 2021 but was negatively impacted by continued higher material and transportation costs and supply chain disruptions which resulted in material shortages throughout the quarter. First quarter net income improved 5.8% to $18.5 million, or $1.55 per diluted share, compared to net income of $17.5 million, or $1.47 per diluted share in the first quarter of 2021. The Company completed an excise tax audit covering a 5-year period which resulted in a one-time $1.3 million expense in the first quarter of 2022. Excluding this charge, adjusted net income was $19.4 million or $1.63 per diluted share.(1) The Company’s backlog at the end of the first quarter of 2022 was $917.8 million, an increase of $465.3 million, or 102.8%, from the backlog at the end of the first quarter of 2021, and up 14.6% from the end of calendar year 2021.
The Company’s results for the first quarter continued to be materially impacted by persistent pandemic-related headwinds including supply chain disruptions, cost inflation and, to a lesser extent, skilled labor shortages.
Results by Division
The Vegetation Management Division had a strong first quarter of 2022 as markets remained solid and orders increased compared to the first quarter of 2021. The Division’s first quarter net sales were $221.0 million, up 20.2% compared to $183.9 million for the same period in 2021. The increase in sales was driven by strong retail demand for agricultural, forestry, tree care, and governmental mowing products in both North America and Europe.
The Division’s income from operations for the first quarter 2022 was $18.3 million, up 9.5% compared to $16.8 million for the first quarter of 2021. Complementing a very strong performance from its North American operations, were positive results in the United Kingdom, France, Brazil and Australia. The Division was negatively impacted by supply chain issues, higher material and freight costs and related surcharges which eroded margins and contributed to lower manufacturing efficiencies.
Comments on Results
Jeff Leonard, Alamo Group’s President and Chief Executive Officer, commented, “The Company continued to perform well, setting new records for sales and earnings for a first quarter. First quarter net sales of $362 million set an all-time company record for sales in a quarter and both of our operating divisions reported healthy, double-digit sales growth compared to the first quarter of 2021. As has been the pattern in recent quarters, customer demand has remained quite strong in virtually every market we serve, as evidenced by the record order bookings received in the first quarter. Strong order activity also resulted in our order backlog moving significantly higher and again setting a company record.
“However, in the first quarter of 2022, we did not experience improvement in the performance of our supply network. In fact, in some areas, the supply chain situation became more difficult. In previous quarters, supply chain disruptions and resulting shortages had more of an impact on our Industrial Equipment Division. During the first quarter of 2022, however, both of our operating divisions were negatively affected by component shortages. This was partly due to the emerging wave of COVID in China and the resulting lockdowns in areas of the country that are significant producers of industrial equipment and parts. These lockdowns exacerbated the backlog of cargo that is waiting to load in China’s ports, a situation that is becoming increasingly critical.
“Accelerating cost inflation also adversely impacted the Company and caused a seventy basis point compression of our first quarter operating margin compared to the first quarter of last year. The impact of inflation we experienced across a wide spectrum of purchased materials and components was partially offset by reductions in steel prices during the quarter. Rapidly rising freight costs and associated surcharges are a growing concern that also impacted our margin during the quarter. The price increases we implemented at the end of 2021 helped to minimize the overall effect of supply chain cost inflation on our operating margin during the quarter but obviously, the situation is dynamic. We continue to monitor our costs closely and will take further price actions, without hesitation, to protect margin.
“In January, several of our larger North American facilities lost production capacity temporarily as a number of our skilled employees fell ill with the Omicron variant of COVID-19. Our facilities in Europe also experienced a further wave of COVID-related illness during the quarter. By re-scheduling work shifts and adding modest overtime, we were able to recover some of the lost production time in February and more still in March. It is worth mentioning that the skilled labor shortages that we experienced in previous quarters improved somewhat during the first quarter as our focus on retention and recruitment began to produce the benefits we have been targeting.
“Turning now to the performance of our two operating divisions. Our Vegetation Management Division produced strong results in the first quarter. This Division’s markets remained buoyant and order bookings improved by over 28% compared to the end of the first quarter of 2021. Against the backdrop of the strong ordering activity and a constrained supply chain, backlog increased by 97% compared to the end of the first quarter of 2021. Net sales in this division rose over 20% in the quarter with all of its business groups individually contributing double digit sales growth. An outstanding performance by the Division’s North American agricultural products operations was particularly gratifying, while another strong performance from its forestry and tree care businesses also contributed very nicely. Governmental mower sales in Europe and North America were notably stronger, also up by double digits, in the first quarter. Our South American operations, while smaller in scale, continued to develop positively with net sales that more than doubled compared to the first quarter of last year. In spite of the strong reported sales growth, this Division’s sales were constrained by supply chain issues to a greater extent than in previous quarters. This Division sources more components from Europe and China relative to our Industrial Equipment Division. Consequently, recent events in these regions had a more significant impact in this quarter which was reflected in the Division’s gross margin that compressed by 145 basis points relative to the first quarter of 2021. While a portion of the erosion in margin was attributable to lower efficiency due to the worsening supply chain situation, higher costs for inbound freight and related surcharges had a more significant, negative impact. Still, driven by strong top line growth, the Division’s operating income improved by 9% to $18.3 million, 8.3% of sales.
“Looking ahead to our second quarter, there seems to be no supply chain relief in sight nor do we anticipate any near-term moderation in the cost inflation we are experiencing. In April, steel prices began moving higher again and that’s obviously concerning. We continue to monitor our cost structure closely and will implement further pricing measures to protect margins. Realistically, with the COVID outbreak in China, worsening severe congestion at Chinese ports, and logistics problems generally, it is unlikely we will see meaningful supply side improvement during the second quarter and perhaps not for the rest of 2022.
“Given the significant supply disruptions that were evident, I’m very pleased with the Company’s record-setting sales and earnings performance in the first quarter. The full credit for this performance goes to our thousands of dedicated employees around the world who continue to find creative ways to work through, or around, the many setbacks being presented by the turbulent supply chain situation. While the operating environment remains very challenging, and new challenges continue to arise, I’m confident that we will continue to identify and quickly implement solutions that will allow Alamo Group to maintain good momentum in sales and earnings for the remainder of the year.”
SOURCE Alamo Group Inc.