The Gorman-Rupp Company (NYSE: GRC) reports financial results
for the second quarter ended June 30, 2023.
Second Quarter 2023 Highlights
- Net sales of $171.0 million increased 43.6%, or $52.0 million,
compared to the second quarter of 2022, a 21.4% increase excluding
sales from Fill-Rite which was acquired in May 2022
- Second quarter net income was $10.5 million, or $0.40 per
share, compared to a net loss of ($1.0) million, or ($0.04) per
share, for the second quarter of 2022
- Adjusted earnings per share1 for the second quarters of 2023
and 2022 were $0.41 and $0.27, respectively
- Adjusted EBITDA1 of $33.7 million for the second quarter of
2023 increased $14.1 million, or 71.6%, from $19.6 million for the
same period in 2022
As previously announced, on May 31, 2022 the Company completed
its acquisition of Fill-Rite and Sotera (“Fill-Rite”), a division
of Tuthill Corporation.
Net sales for the second quarter of 2023 were $171.0 million
compared to net sales of $119.1 million for the second quarter of
2022, an increase of 43.6% or $52.0 million. Domestic sales
increased 50.8% or $43.2 million and international sales increased
25.7% or $8.7 million compared to the same period in 2022.
Fill-Rite sales were $42.9 million for the second quarter of
2023 compared to $13.5 million for the second quarter of 2022. In
addition to the increase from Fill-Rite, sales increased $22.6
million, or 21.4% due to an increase in volume as well as the
impact of pricing increases taken in 2022 and an annual price
increase in January 2023. Sales increased $9.0 million in the fire
suppression market primarily from increased domestic commercial
construction, $4.1 million in the industrial market and $3.9
million in the repair market due to strengthening in the broader
industrial economy, $2.6 million in the municipal market due to
domestic flood control and wastewater projects related to increased
infrastructure investment, $1.9 million in the construction market
due to strong overall conditions including infrastructure related
projects, $1.1 million in the petroleum market due to increased
demand for larger petroleum transfer pumps, and $0.2 million in the
OEM market. Partially offsetting these increases was a sales
decrease of $0.2 million in the agriculture market primarily driven
by weather conditions, where increased snowfall runoff and rain
have slowed demand.
Gross profit was $51.7 million for the second quarter of 2023,
resulting in gross margin of 30.2%, compared to gross profit of
$28.2 million and gross margin of 23.7% for the same period in
2022. The 650 basis point increase in gross margin included a 200
basis point improvement on labor and overhead leverage due to
increased sales volume and sales mix which includes a full quarter
of Fill-Rite. The increase in gross margin also included a 450
basis point improvement in cost of material, which consisted of a
reduction in LIFO2 expense of 210 basis points, a 120 basis point
improvement from the realization of selling price increases, and a
favorable impact of 120 basis points related to the Fill-Rite
inventory step-up that was recorded during the second quarter of
2022 that did not recur in 2023.
Selling, general and administrative (“SG&A”) expenses were
$24.2 million and 14.1% of net sales for the second quarter of 2023
compared to $24.1 million and 20.3% of net sales for the same
period in 2022. SG&A expenses for the second quarter of 2022
included $6.9 million of one-time acquisition costs. Excluding
acquisition costs, SG&A expenses were $17.2 million and 14.5 %
of net sales for the second quarter of 2022. The increase in
SG&A expenses, excluding acquisition costs, was due to the
inclusion of a full quarter of Fill-Rite as compared to one month
in the same period in 2022, as well as increased expenses to
support sales growth. The improvement in SG&A as a percent of
sales was primarily due to favorable leverage from increased
sales.
Amortization expense was $3.2 million for the second quarter of
2023 compared to $1.2 million for the same period in 2022. The
increase in amortization expense was due to a full quarter of
amortization attributable to the Fill-Rite acquisition compared to
one month for the same period in 2022.
Operating income was $24.3 million for the second quarter of
2023, resulting in an operating margin of 14.2%, compared to
operating income of $2.9 million and operating margin of 2.4% for
the same period in 2022. Operating income for the second quarter of
2022 included $6.9 million of one-time acquisition costs and $1.4
million of inventory step-up amortization. Excluding acquisition
costs and inventory step-up together totaling $8.3 million,
operating income was $11.2 million for the second quarter 2022
resulting in an operating margin of 9.4% of net sales. Excluding
acquisition costs and inventory step-up in the second quarter of
2022 totaling $8.3 million, operating margin in the second quarter
of 2023 increased 480 basis points compared to the same period in
2022 due to improved leverage on labor, overhead, and SG&A
expenses due to increased sales volumes and improved cost of
material partially offset by increased amortization expense.
Interest expense was $10.5 million for the second quarter of
2023 compared to $2.3 million for the same period in 2022. The
increase in interest expense was due to the inclusion of a full
quarter of interest expense and increased interest rates on the
debt financing attributable to the Fill-Rite acquisition.
Net income was $10.5 million, or $0.40 per share, for the second
quarter of 2023 compared to net loss of ($1.0) million, or ($0.04)
per share, in the second quarter of 2022. Adjusted earnings per
share1 for the second quarter of 2023 were $0.41 per share compared
to $0.27 per share for the second quarter of 2022. Adjusted
earnings per share1 for the second quarter of 2023 included an
unfavorable LIFO2 impact of $0.07 per share compared to an
unfavorable LIFO2 impact of $0.13 per share in the second quarter
of 2022.
Adjusted EBITDA1 was $33.7 million for the second quarter of
2023 compared to $19.6 million for the second quarter of 2022.
Adjusted EBITDA1 increased from organic sales growth and improved
gross margin as well as the inclusion of Fill-Rite results for the
full quarter in 2023 compared to one month in 2022.
Year to date 2023 Highlights
- Net sales of $331.5 million increased 49.8%, or $110.3 million,
compared to 2022, a 19.7% increase excluding sales from Fill-Rite
which was acquired in May 2022
- Net income was $17.0 million, or $0.65 per share, compared to
net income of $6.5 million, or $0.25 per share, in 2022
- Adjusted earnings per share1 for 2023 and 2022 were $0.68 and
$0.56, respectively
- Adjusted EBITDA1 of $62.1 million for 2023 increased $28.2
million, or 83.0%, from $33.9 million in 2022
Net sales for the first six months of 2023 were $331.5 million
compared to net sales of $221.2 million for the first six months of
2022, an increase of 49.8% or $110.3 million. Domestic sales
increased 57.2% or $90.3 million and international sales increased
31.5% or $20.0 million compared to the same period in 2022.
Fill-Rite sales were $82.8 million for the first six months of
2023 compared to $13.5 million from the acquisition date of May 31,
2022 to June 30, 2022. In addition to the increase from Fill-Rite,
sales increased $41.0 million, or 19.7% due to an increase in
volume as well as the impact of pricing increases taken in 2022 and
an annual price increase in January 2023. Sales increased $16.7
million in the fire market primarily from increased domestic
commercial construction, $7.2 million in the industrial market and
$6.0 million in the repair market due to strengthening in the
broader industrial economy, $5.7 million in the municipal market
due to domestic flood control and wastewater projects related to
increased infrastructure investment, $3.7 million in the
construction market due to strong overall conditions including
infrastructure related projects, $1.6 million in the petroleum
market due to increased demand for larger petroleum transfer pumps,
and $0.5 million in the OEM market. Partially offsetting these
increases was a decrease of $0.4 million in the agriculture market
primarily driven by weather conditions, where increased snowfall
runoff and rain have slowed demand.
Gross profit was $97.2 million for the first six months of 2023,
resulting in gross margin of 29.3%, compared to gross profit of
$53.7 million and gross margin of 24.3% for the same period in
2022. The 500 basis point increase in gross margin included a 225
basis point improvement on labor and overhead leverage due to
increased sales volume and sales mix which includes six months of
Fill-Rite for 2023 compared to one month for the same period in
2022. The increase in gross margin also included a 275 basis point
improvement in cost of material, which consisted of a favorable
LIFO2 impact of 140 basis points, a favorable impact of 60 basis
points related to the Fill-Rite inventory step-up that was recorded
in 2022 that did not recur in 2023 and a 75 basis point improvement
from the realization of selling price increases.
Selling, general and administrative (“SG&A”) expenses were
$47.4 million and 14.3% of net sales for the first six months of
2023 compared to $39.9 million and 18.1% of net sales for the same
period in 2022. SG&A expenses for the first six months of 2022
included $6.9 million of one-time acquisition costs. Excluding
acquisition costs of $6.9 million, SG&A expenses were $33.0
million and 14.9% of net sales for the first six months of 2022.
The increase in SG&A expenses, excluding acquisition costs, was
due to the inclusion of Fill-Rite for the full six month period in
2023 as compared to one month in the same period in 2022, as well
as increased expenses to support sales growth. The improvement in
SG&A as a percent of sales was primarily due to favorable
leverage from increased sales.
Amortization expense was $6.4 million for the first six months
of 2023 compared to $1.4 million for the same period in 2022. The
increase in amortization expense was due to the inclusion of six
months of amortization attributable to the Fill-Rite acquisition
compared to one month for the same period in 2022.
Operating income was $43.4 million for the first six months of
2023, resulting in an operating margin of 13.1%, compared to
operating income of $12.4 million and operating margin of 5.6% for
the same period in 2022. Operating income for the first six months
of 2022 included $6.9 million of one-time acquisition costs and
$1.4 million of inventory step-up amortization. Excluding
acquisition costs and inventory step-up together totaling $8.3
million, operating income was $20.7 million for the first six
months of 2022 resulting in an operating margin of 9.4% of net
sales. Excluding acquisition costs and inventory step-up in 2022
totaling $8.3 million, operating margin in the first six months of
2023 increased 370 basis points compared to the same period in 2022
due to improved leverage on labor, overhead, and SG&A expenses
due to increased sales volumes and improved cost of material
partially offset by increased amortization expense.
Interest expense was $20.7 million for the first six months of
2023 compared to $2.3 million for the same period in 2022. The
increase in interest expense was primarily due to the inclusion of
six months of interest expense in 2023 compared to one month for
the first six months of 2022 on the debt financing attributable to
the Fill-Rite acquisition, as well as increased interest rates in
2023 as compared to 2022.
Net income was $17.0 million, or $0.65 per share, for the first
six months of 2023 compared to net income of $6.5 million, or $0.25
per share for the first six months of 2022. Adjusted earnings per
share1 for the first six months of 2023 were $0.68 per share
compared to $0.56 per share for the first six months of 2022.
Adjusted earnings per share1 for the first six months of 2023
included an unfavorable LIFO2 impact of $0.13 per share compared to
an unfavorable LIFO2 impact of $0.18 per share in the first six
months of 2022.
Adjusted EBITDA1 was $62.1 million for the first six months of
2023 compared to $33.9 million for the first six months of 2022.
Adjusted EBITDA1 increased from organic sales growth and improved
gross margin as well as the inclusion of Fill-Rite results for the
full six months of 2023 compared to one month in 2022.
The Company’s backlog of orders was $249.8 million at June 30,
2023 compared to $264.7 million at June 30, 2022 and $267.4 million
at December 31, 2022. Incoming orders for the first six months of
2023 were $321.0 million, or an increase of 12.0% compared to the
same period in 2022, and a decrease of 13.8% excluding
Fill-Rite.
Net cash provided by operating activities for the first six
months of 2023 was $37.9 million compared to $6.7 million for the
same period in 2022 driven by increased earnings before
depreciation, amortization, and LIFO2 expense, and improved cash
flow from better working capital management. Capital
expenditures for the first six months of 2023 were $13.3 million
and consisted primarily of machinery and equipment. Capital
expenditures for the full-year 2023 are presently planned to be in
the range of $18 - $20 million. Total debt, net of cash, decreased
$14.1 million during the second quarter of 2023.
Scott A. King, President and CEO commented, “Our strong organic
sales growth of over 21% marked our eighth consecutive quarter of
year-over-year double-digit increases, as we continued to see
strength across the majority of our markets. Along with sales,
Adjusted EBIDTA continues to improve increasing 320 bps as a
percentage of sales compared to the second quarter of last year as
we have benefited from pricing actions taken throughout 2022 and
have leveraged our labor and overhead costs with the increase in
sales. Our backlog is down from the record level we saw at the end
of the first quarter but remains elevated, which positions us well
for the remainder of the year. We believe that our inventory levels
have peaked and that we will see a reduction in the second-half,
which will further contribute to our improvements in cash flow. We
remain focused on delivering long term sustained growth and
improving our debt leverage.”
About The Gorman-Rupp Company
Founded in 1933, The Gorman-Rupp Company is a leading designer,
manufacturer and international marketer of pumps and pump systems
for use in diverse water, wastewater, construction, dewatering,
industrial, petroleum, original equipment, agriculture, fire
suppression, heating, ventilating and air conditioning (HVAC),
military and other liquid-handling applications.
(1) Non-GAAP Information
This release includes certain non-GAAP financial data and
measures such as adjusted earnings, adjusted earnings per share,
and adjusted earnings before interest, taxes, depreciation and
amortization. Adjusted earnings is earnings excluding non-cash
pension settlement charges, one-time acquisition costs,
amortization of step up in value of acquired inventories, and
amortization of customer backlog. Adjusted earnings per share is
earnings per share excluding non-cash pension settlement charges
per share, one-time acquisition costs per share, amortization of
step up in value of acquired inventories per share, and
amortization of customer backlog per share. Adjusted earnings
before interest, taxes, depreciation and amortization is net income
(loss) excluding interest, taxes, depreciation and amortization,
adjusted to exclude non-cash pension settlement charges, one-time
acquisition costs, amortization of step up in value of acquired
inventories, amortization of customer backlog, and non-cash LIFO
expense. Management utilizes these adjusted financial data and
measures to assess comparative operations against those of prior
periods without the distortion of non-comparable factors. The
inclusion of these adjusted measures should not be construed as an
indication that the Company’s future results will be unaffected by
unusual or infrequent items or that the items for which the Company
has made adjustments are unusual or infrequent or will not recur.
Further, the impact of the LIFO2 inventory costing method can cause
results to vary substantially from company to company depending
upon whether they elect to utilize LIFO2 and depending upon which
method they may elect. The Gorman-Rupp Company believes that these
non-GAAP financial data and measures also will be useful to
investors in assessing the strength of the Company’s underlying
operations and liquidity from period to period. These non-GAAP
financial measures are not intended to replace GAAP financial
measures, and they are not necessarily standardized or comparable
to similarly titled measures used by other companies. Provided
later in this release is a reconciliation of adjusted earnings,
adjusted earnings per share, and adjusted EBITDA which includes
descriptions of actual adjustments made in the current period and
the corresponding prior period.
(2) LIFO Inventory Method
The majority of the Company’s inventories are valued on the
last-in, first-out (LIFO) method and stated at the lower of cost or
market. Current cost approximates replacement cost, or market, and
LIFO cost is determined at the end of each fiscal year based on
inventory levels on-hand at current replacement cost and a LIFO
reserve. The Company uses the simplified LIFO method, under which
the LIFO reserve is determined utilizing the inflation factor
specified in the Producer Price Index for Machinery and Equipment –
Pumps, Compressors and Equipment, as published by the U.S. Bureau
of Labor Statistics. Interim LIFO calculations are based on
management’s estimate of the expected year-end inflation index and,
as such, are subject to adjustment each quarter. When inflation
increases, the LIFO reserve and non-cash expense increase.
Forward-Looking Statements
In connection with the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995, The Gorman-Rupp Company
provides the following cautionary statement: This news release
contains various forward-looking statements based on assumptions
concerning The Gorman-Rupp Company’s operations, future results and
prospects. These forward-looking statements are based on current
expectations about important economic, political, and technological
factors, among others, and are subject to risks and uncertainties,
which could cause the actual results or events to differ materially
from those set forth in or implied by the forward-looking
statements and related assumptions. Such uncertainties include, but
are not limited to, our estimates of future earnings and cash
flows, general economic conditions and supply chain conditions and
any related impact on costs and availability of materials,
integration of the Fill-Rite business in a timely and cost
effective manner, retention of supplier and customer relationships
and key employees, the ability to achieve synergies and cost
savings in the amounts and within the time frames currently
anticipated and the ability to service and repay indebtedness
incurred in connection with the transaction. Other factors include,
but are not limited to: company specific risk factors including (1)
loss of key personnel; (2) intellectual property security; (3)
acquisition performance and integration; (4) the Company’s
indebtedness and how it may impact the Company’s financial
condition and the way it operates its business; (5) general risks
associated with acquisitions; (6) the anticipated benefits from the
Fill-Rite transaction may not be realized; (7) impairment in the
value of intangible assets, including goodwill; (8) defined benefit
pension plan settlement expense; (9) LIFO2 inventory method, and
(10) family ownership of common equity; and general risk factors
including (11) continuation of the current and projected future
business environment; (12) highly competitive markets; (13)
availability and costs of raw materials and labor; (14) cyber
security threats; (15) compliance with, and costs related to, a
variety of import and export laws and regulations; (16)
environmental compliance costs and liabilities; (17) exposure to
fluctuations in foreign currency exchange rates; (18) conditions in
foreign countries in which The Gorman-Rupp Company conducts
business; (19) changes in our tax rates and exposure to additional
income tax liabilities; and (20) risks described from time to time
in our reports filed with the Securities and Exchange Commission.
Except to the extent required by law, we do not undertake and
specifically decline any obligation to review or update any
forward-looking statements or to publicly announce the results of
any revisions to any of such statements to reflect future events or
developments or otherwise.
The Gorman-Rupp Company Condensed Consolidated Statements of Income
(Unaudited) (thousands of dollars, except per share data)
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Net sales
$
171,024
$
119,067
$
331,490
$
221,234
Cost of products sold
119,366
90,828
234,309
167,498
Gross profit
51,658
28,239
97,181
53,736
Selling, general and administrative expenses
24,193
24,114
47,430
39,936
Amortization expense
3,182
1,218
6,373
1,435
Operating income
24,283
2,907
43,378
12,365
Interest expense
(10,485
)
(2,322
)
(20,672
)
(2,322
)
Other income (expense), net
(536
)
(1,846
)
(969
)
(1,756
)
Income before income taxes
13,262
(1,261
)
21,737
8,287
Provision from income taxes
2,785
(265
)
4,740
1,740
Net income
$
10,477
($
996
)
$
16,997
$
6,547
Earnings per share
$
0.40
($
0.04
)
$
0.65
$
0.25
The Gorman-Rupp Company Condensed Consolidated Balance Sheets
(Unaudited) (thousands of dollars, except share data)
June 30,
December 31,
Assets
2023
2022
Cash and cash equivalents $
12,173
$
6,783
Accounts receivable, net
101,875
93,059
Inventories, net
115,816
111,133
Prepaid and other
10,957
14,551
Total current assets
240,821
225,526
Property, plant and equipment, net
136,047
128,640
Other assets
26,133
11,579
Goodwill and other intangible assets, net
500,649
507,085
Total assets $
903,650
$
872,830
Liabilities and shareholders' equity
Accounts payable $
29,161
$
24,697
Current portion of long-term debt
17,500
17,500
Accrued liabilities and expenses
49,526
43,016
Total current liabilities
96,187
85,213
Pension benefits
10,368
9,352
Postretirement benefits
22,092
22,413
Long-term debt, net of current portion
411,405
419,327
Other long-term liabilities
22,239
5,331
Total liabilities
562,291
541,636
Shareholders' equity
341,359
331,194
Total liabilities and shareholders' equity $
903,650
$
872,830
Shares outstanding
26,079,115
26,094,865
The Gorman-Rupp Company
Condensed Consolidated Statements
of Cash Flows (Unaudited)
(thousands of dollars, except
share data)
Six Months Ended June 30,
2023
2022
Cash flows from operating activities: Net income
$
16,997
$
6,547
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
14,158
7,201
LIFO expense
4,440
6,004
Pension expense
1,617
3,357
Stock based compensation
1,606
1,413
Amortization of debt issuance fees
1,481
237
Other
30
-
Changes in operating assets and liabilities: Accounts receivable,
net
(8,645
)
(11,713
)
Inventories, net
(8,959
)
(10,687
)
Accounts payable
4,435
938
Commissions payable
142
392
Deferred revenue and customer deposits
2,365
(1,269
)
Income taxes
2,374
(1,045
)
Accrued expenses and other
2,235
1,273
Benefit obligations
3,580
4,044
Net cash provided by operating activities
37,856
6,692
Cash flows from investing activities: Capital additions
(13,270
)
(8,445
)
Payment for acquisitions
-
(526,301
)
Other
367
208
Net cash used for investing activities
(12,903
)
(534,538
)
Cash flows from financing activities: Cash dividends
(9,148
)
(8,869
)
Treasury share repurchases
(1,029
)
(918
)
Proceeds from bank borrowings
5,000
445,000
Payments to banks for borrowings
(13,750
)
-
Debt issuance fees
-
(15,165
)
Other
(534
)
(65
)
Net cash provided by (used for) financing activities
(19,461
)
419,983
Effect of exchange rate changes on cash
(102
)
(503
)
Net increase (decrease) in cash and cash equivalents
5,390
(108,366
)
Cash and cash equivalents: Beginning of period
6,783
125,194
End of period
$
12,173
$
16,828
The Gorman-Rupp Company Non-GAAP Financial Information (thousands
of dollars, except per share data)
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Adjusted earnings: Reported net income – GAAP basis
$
10,477
($
996
)
$
16,997
$
6,547
Plus pension settlement charge
-
1,261
-
1,261
Plus one-time acquisition costs
-
5,446
-
5,446
Plus amortization of step up in value of acquired inventories
-
1,111
-
1,111
Plus amortization of acquired customer backlog
344
171
857
171
Non-GAAP adjusted earnings
$
10,821
$
6,993
$
17,854
$
14,536
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Adjusted earnings per share: Reported earnings (loss) per
share – GAAP basis
$
0.40
($
0.04
)
$
0.65
$
0.25
Plus pension settlement charge
-
0.05
-
0.05
Plus one-time acquisition costs
-
0.21
-
0.21
Plus amortization of step up in value of acquired inventories
-
0.04
-
0.04
Plus amortization of acquired customer backlog
0.01
0.01
0.03
0.01
Non-GAAP adjusted earnings per share
$
0.41
$
0.27
$
0.68
$
0.56
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Adjusted earnings before interest, taxes, depreciation and
amortization: Reported net income – GAAP basis
$
10,477
($
996
)
$
16,997
$
6,547
Plus interest expense
10,485
2,322
20,672
2,322
Plus provision (benefit) for income taxes
2,785
(265
)
4,740
1,740
Plus depreciation and amortization expense
7,114
4,268
14,158
7,201
Non-GAAP earnings before interest, taxes, depreciation and
amortization
30,861
5,329
56,567
17,810
Plus pension settlement charge
-
1,597
-
1,597
Plus one-time acquisition costs
-
6,894
-
6,894
Plus amoritization of step up in value of acquired inventories
-
1,406
-
1,406
Plus amortization of acquired customer backlog
434
217
1,085
217
Plus non-cash LIFO expense
2,409
4,200
4,440
6,004
Non-GAAP adjusted earnings before interest, taxes, depreciation and
amortization
$
33,704
$
19,643
$
62,092
$
33,928
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230728499266/en/
Brigette A. Burnell Corporate Secretary The Gorman-Rupp Company
Telephone (419) 755-1246
For additional information, contact James C. Kerr, Chief
Financial Officer, Telephone (419) 755-1548.
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