The Gorman-Rupp Company (NYSE: GRC) reports financial results
for the third quarter ended September 30, 2023.
Third Quarter 2023 Highlights
- Net sales of $167.5 million increased 8.9%, or $13.7 million,
compared to the third quarter of 2022
- Third quarter net income was $9.0 million, or $0.34 per share,
compared to net income of $2.2 million, or $0.09 per share, for the
third quarter of 2022
- Adjusted earnings per share1 for the third quarter of 2022 were
$0.25
- Adjusted EBITDA1 of $30.5 million for the third quarter of 2023
increased $4.2 million, or 16.0%, from $26.3 million for the same
period in 2022
- Total debt, net of cash, decreased $25.4 million during the
third quarter of 2023
Net sales for the third quarter of 2023 were $167.5 million
compared to net sales of $153.8 million for the third quarter of
2022, an increase of 8.9% or $13.7 million. The increase in sales
was 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. Domestic sales increased 10.1% or $11.7 million and
international sales increased 5.2% or $2.0 million compared to the
same period in 2022.
Sales increased $4.2 million in the fire suppression market
primarily from increased domestic commercial construction, $3.5
million in the construction market due to overall strong conditions
including infrastructure related projects, $2.7 million in the
industrial market and $2.4 million in the repair market due to
strengthening in the broader industrial economy, $2.0 million in
the OEM market, and $1.0 million in the petroleum market due to
increased demand for larger petroleum transfer pumps. Partially
offsetting these increases was a sales decrease of $1.8 million in
the municipal market due to the timing of domestic flood control
and wastewater projects, and a decrease of $0.3 million in the
agriculture market primarily driven by weather conditions that have
slowed demand.
Gross profit was $48.1 million for the third quarter of 2023,
resulting in gross margin of 28.7%, compared to gross profit of
$40.6 million and gross margin of 26.4% for the same period in
2022. The 230 basis point increase in gross margin included a 320
basis point improvement in cost of material, which consisted of a
reduction in LIFO2 expense of 130 basis points, a favorable impact
of 40 basis points related to the amortization of acquired
Fill-Rite customer backlog which occurred in the third quarter of
2022 and did not reoccur in the third quarter of 2023, and a 150
basis point improvement from the realization of selling price
increases. The increase in gross margin was partially offset by a
90 basis point increase in labor and overhead expenses, which
included approximately 60 basis points of one-time expenses related
to the relocation and expansion of Fill-Rite’s manufacturing
facility in Lenexa, Kansas.
Selling, general and administrative (“SG&A”) expenses were
$23.2 million and 13.9% of net sales for the third quarter of 2023
compared to $22.1 million and 14.4% of net sales for the same
period in 2022. The increase in SG&A expenses was due to
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 $3.0 million for the third quarter of
2023 compared to $3.2 million for the same period in 2022.
Operating income was $21.9 million for the third quarter of
2023, resulting in an operating margin of 13.1%, compared to
operating income of $15.3 million and operating margin of 10.0% for
the same period in 2022. Operating margin in the third quarter of
2023 increased 310 basis points compared to the same period in 2022
due to improved margin on material costs, and improved leverage on
SG&A and amortization expenses due to increased sales
volumes.
Interest expense was $10.5 million for the third quarter of 2023
compared to $7.6 million for the same period in 2022 due to
increased interest rates.
Other income (expense), net was $0.4 million of expense for the
third quarter of 2023 compared to expense of $5.3 million of
expense for the same period in 2022. The $5.3 million expense for
the third quarter of 2022 included non-cash pension settlement
charges of $4.8 million. The pension settlement charge resulted
from retirees electing to receive the lump sum payments upon
retirement.
Net income was $9.0 million, or $0.34 per share, for the third
quarter of 2023 compared to net income of $2.2 million, or $0.09
per share, in the third quarter of 2022. Adjusted earnings per
share1 for the third quarter of 2022 were $0.25 per share. Adjusted
earnings per share1 for the third quarter of 2023 included an
unfavorable LIFO2 impact of $0.06 per share compared to an
unfavorable LIFO2 impact of $0.11 per share in the third quarter of
2022.
Adjusted EBITDA1 was $30.5 million for the third quarter of 2023
compared to $26.3 million for the third quarter of 2022. Adjusted
EBITDA1 increased primarily from sales growth and improved gross
margin.
Year to date 2023 Highlights
- Net sales of $498.9 million increased 33.0%, or $123.9 million,
compared to 2022, a 17.2% increase excluding sales from Fill-Rite
which was acquired in May 2022
- Net income was $26.0 million, or $0.99 per share, compared to
net income of $8.8 million, or $0.34 per share, in 2022
- Adjusted earnings per share1 for 2023 and 2022 were $1.02 and
$0.81, respectively
- Adjusted EBITDA1 of $92.6 million for 2023 increased $32.4
million, or 53.8%, from $60.2 million in 2022
- Cash provided by operating activities of $71.7 million
increased $59.2 million from $12.5 million 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 first nine months of 2023 of $498.9 million
increased 33.0% or $123.9 million compared to net sales of $375.0
million for the same period in 2022. The increase in sales was due
to the inclusion of a full nine months of Fill-Rite sales compared
to four months of sales included in the prior year as well as an
increase in volume and the impact of pricing increases taken in
2022 and an annual price increase in January 2023. Domestic sales
increased 37.5% or $102.2 million and international sales increased
21.3% or $21.7 million compared to the same period in 2022.
Sales increased $31.4 million in the industrial market primarily
due to the inclusion of a full nine months of Fill-Rite sales
compared to four months of sales included in the same period of the
prior year. In addition to the increase from Fill-Rite, industrial
sales increased $10.0 million due to the strengthening in the
broader industrial economy. Sales increased $27.7 million in the
agriculture market due entirely to the inclusion of a full nine
months of Fill-Rite sales compared to four months of sales in the
prior year period. Sales increased $24.1 million in the
construction market primarily due to the inclusion of a full nine
months of Fill-Rite sales compared to four months of sales included
in the prior year period. In addition to the increase from
Fill-Rite, construction sales increased $7.2 million due to overall
strong conditions including infrastructure related projects. Sales
increased $21.0 million in the fire market primarily from increased
domestic commercial construction, $8.4 million in the repair market
due to strengthening in the broader industrial economy, $3.9
million in the municipal market due to domestic flood control and
wastewater projects related to increased infrastructure investment,
and $2.4 million in the OEM market. Sales in the petroleum market
increased $4.9 million primarily due to the inclusion of a full
nine months of Fill-Rite sales compared to four months of sales
included in the prior year period as well as increased demand for
larger petroleum transfer pumps.
Gross profit was $145.3 million for the first nine months of
2023, resulting in gross margin of 29.1%, compared to gross profit
of $94.3 million and gross margin of 25.1% for the same period in
2022. The 400 basis point increase in gross margin included a 300
basis point improvement in cost of material, which consisted of a
favorable LIFO2 impact of 130 basis points, a favorable impact of
30 basis points related to the Fill-Rite inventory step-up that was
recognized in 2022 that did not recur in 2023 and a 140 basis point
improvement from the realization of selling price increases. The
increase in gross margin also included a 100 basis point
improvement on labor and overhead leverage due to increased sales
volume and sales mix which includes nine months of Fill-Rite sales
for 2023 compared to four months for the same period in 2022.
Selling, general and administrative (“SG&A”) expenses were
$70.7 million and 14.2% of net sales for the first nine months of
2023 compared to $62.1 million and 16.6% of net sales for the same
period in 2022. SG&A expenses for the first nine months of 2022
included $7.0 million of one-time acquisition costs. Excluding
acquisition costs of $7.0 million, SG&A expenses were $55.1
million and 14.7% of net sales for the first nine months of 2022.
The increase in SG&A expenses, excluding acquisition costs, was
due to the inclusion of Fill-Rite expenses for the full nine month
period in 2023 as compared to four months 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 $9.4 million for the first nine months
of 2023 compared to $4.5 million for the same period in 2022. The
increase in amortization expense was due to the inclusion of nine
months of amortization attributable to the Fill-Rite acquisition
compared to four months for the same period in 2022.
Operating income was $65.3 million for the first nine months of
2023, resulting in an operating margin of 13.1%, compared to
operating income of $27.7 million and operating margin of 7.4% for
the same period in 2022. Operating income for the first nine months
of 2022 included $7.0 million of one-time acquisition costs, and
$1.4 million of inventory step-up amortization. Excluding
acquisition costs and inventory step-up totaling $8.4 million,
operating income was $36.1 million for the first nine months of
2022 resulting in an operating margin of 9.6% of net sales.
Excluding acquisition costs and inventory step-up in 2022,
operating margin in the first nine months of 2023 increased 350
basis points compared to the same period in 2022 due to improved
margin on material costs, and improved leverage on SG&A expense
due to increased sales volumes partially offset by increased
amortization expense.
Interest expense was $31.1 million for the first nine months of
2023 compared to $9.9 million for the same period in 2022. The
increase in interest expense was primarily due to the inclusion of
nine months of interest expense in 2023 compared to four months for
the first nine 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.
Other income (expense), net was $1.4 million of expense for the
first nine months of 2023 compared to expense of $7.1 million of
expense for the same period in 2022. The $7.1 million expense for
the first nine months of 2022 included non-cash pension settlement
charges of $6.4 million.
Net income was $26.0 million, or $0.99 per share, for the first
nine months of 2023 compared to net income of $8.8 million, or
$0.34 per share, for the first nine months of 2022. Adjusted
earnings per share1 for the first nine months of 2023 were $1.02
per share compared to $0.81 per share for the first nine months of
2022. Adjusted earnings per share1 for the first nine months of
2023 included an unfavorable LIFO2 impact of $0.19 per share
compared to an unfavorable LIFO2 impact of $0.30 per share in the
first nine months of 2022.
Adjusted EBITDA1 was $92.6 million for the first nine months of
2023 compared to $60.2 million for the first nine 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 nine months of 2023 compared to four months in the same period
in 2022.
The Company’s backlog of orders was $237.5 million at September
30, 2023 compared to $266.7 million at September 30, 2022 and
$267.4 million at December 31, 2022. Incoming orders for the first
nine months of 2023 were $476.7 million, or an increase of 6.9%
compared to the same period in 2022.
Net cash provided by operating activities for the first nine
months of 2023 was $71.7 million compared to $12.5 million for the
same period in 2022 driven by increased earnings before
depreciation, amortization, and LIFO2 expense, and improved cash
flow from working capital management. Capital expenditures for the
first nine months of 2023 were $16.9 million and consisted
primarily of machinery and equipment. Capital expenditures for the
full-year 2023 are presently planned to be approximately $20
million. During the first nine months of 2023, total debt was
reduced by $28.1 million and cash increased $11.4 million.
Scott A. King, President and CEO commented, “We continued to see
strong sales across the majority of our markets which, along with
improved gross margins and SG&A leverage, resulted in an
increase in Adjusted EBITDA of 16% over the third quarter of last
year. Although down from the record levels we saw earlier in the
year, our backlog remains strong and at elevated levels. As
expected, we saw our inventories decrease from their second quarter
peak which contributed to an improvement in debt, net of cash, of
over $25 million during the third quarter. I am pleased that during
the quarter we completed the planned relocation and expansion of
Fill-Rite’s manufacturing facility in Lenexa, Kansas. This
expansion nearly tripled the size of the prior facility and
provides additional capacity for Fill-Rite’s continued growth. We
remain optimistic about our outlook and will continue to focus on
delivering long-term sustained growth and shareholder value.”
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 EBITDA”). 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 LIFO2
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
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Net sales
$
167,456
$
153,792
$
498,946
$
375,026
Cost of products sold
119,322
113,229
353,631
280,727
Gross profit
48,134
40,563
145,315
94,299
Selling, general and administrative expenses
23,233
22,076
70,664
62,125
Amortization expense
3,026
3,176
9,398
4,498
Operating income
21,875
15,311
65,253
27,676
Interest expense
(10,475
)
(7,556
)
(31,147
)
(9,878
)
Other income (expense), net
(416
)
(5,323
)
(1,385
)
(7,079
)
Income before income taxes
10,984
2,432
32,721
10,719
Provision for income taxes
2,006
211
6,746
1,951
Net income
$
8,978
$
2,221
$
25,975
$
8,768
Earnings per share
$
0.34
$
0.09
$
0.99
$
0.34
The Gorman-Rupp Company
Condensed Consolidated Balance
Sheets (Unaudited)
(thousands of dollars, except
share data)
September 30,
December 31,
Assets
2023
2022
Cash and cash equivalents
$
18,189
$
6,783
Accounts receivable, net
99,385
93,059
Inventories, net
103,525
111,133
Prepaid and other
12,030
14,551
Total current assets
233,129
225,526
Property, plant and equipment, net
135,600
128,640
Other assets
25,099
11,579
Goodwill and other intangible assets, net
497,549
507,085
Total assets
$
891,377
$
872,830
Liabilities
and shareholders' equity
Accounts payable
$
24,704
$
24,697
Current portion of long-term debt
19,688
17,500
Accrued liabilities and expenses
58,054
43,016
Total current liabilities
102,446
85,213
Pension benefits
8,625
9,352
Postretirement benefits
21,996
22,413
Long-term debt, net of current portion
390,492
419,327
Other long-term liabilities
21,038
5,331
Total liabilities
544,597
541,636
Shareholders' equity
346,780
331,194
Total liabilities and shareholders' equity
$
891,377
$
872,830
Shares outstanding
26,193,998
26,094,865
The Gorman-Rupp Company
Condensed Consolidated Statements
of Cash Flows (Unaudited)
(thousands of dollars, except
share data)
Nine Months Ended September
30,
2023
2022
Cash flows from operating activities: Net income
$
25,975
$
8,768
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
21,196
14,161
LIFO expense
6,414
9,767
Pension expense
2,426
8,963
Stock based compensation
2,335
2,107
Contributions to pension plans
(2,250
)
(2,000
)
Amortization of debt issuance fees
2,247
977
Other
1,282
-
Changes in operating assets and liabilities: Accounts receivable,
net
(6,515
)
(13,514
)
Inventories, net
656
(20,761
)
Accounts payable
230
3,437
Commissions payable
(531
)
319
Deferred revenue and customer deposits
2,053
(2,526
)
Income taxes
2,186
206
Accrued expenses and other
5,499
(4,019
)
Benefit obligations
8,456
6,623
Net cash provided by operating activities
71,659
12,508
Cash flows from investing activities:
Capital additions
(16,917
)
(11,268
)
Payment for acquisitions
-
(526,301
)
Other
608
327
Net cash used for investing activities
(16,309
)
(537,242
)
Cash flows from financing activities: Cash dividends
(13,732
)
(13,306
)
Treasury share repurchases
(1,028
)
(918
)
Proceeds from bank borrowings
5,000
445,000
Payments to banks for borrowings
(33,125
)
(4,375
)
Debt issuance fees
-
(15,217
)
Other
(519
)
(97
)
Net cash provided by (used for) financing activities
(43,404
)
411,087
Effect of exchange rate changes on cash
(540
)
(1,259
)
Net increase (decrease) in cash and cash equivalents
11,406
(114,906
)
Cash and cash equivalents: Beginning of period
6,783
125,194
End of period
$
18,189
$
10,288
The Gorman-Rupp Company Non-GAAP Financial Information (thousands
of dollars, except per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Adjusted earnings: Reported net income – GAAP basis
$
8,978
$
2,221
$
25,975
$
8,768
Plus pension settlement charge
-
3,759
-
5,021
Plus one-time acquisition costs
-
122
-
5,568
Plus amortization of step up in value of acquired inventories
-
-
-
1,111
Plus amortization of acquired customer backlog
-
514
857
685
Non-GAAP adjusted earnings per share
$
8,978
$
6,616
$
26,832
$
21,153
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Adjusted earnings per share: Reported earnings per share –
GAAP basis
$
0.34
$
0.09
$
0.99
$
0.34
Plus pension settlement charge
-
0.14
-
0.19
Plus one-time acquisition costs
-
-
-
0.21
Plus amortization of step up in value of acquired inventories
-
-
-
0.04
Plus amortization of acquired customer backlog
-
0.02
0.03
0.03
Non-GAAP adjusted earnings per share
$
0.34
$
0.25
$
1.02
$
0.81
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Adjusted earnings before interest, taxes, depreciation and
amortization: Reported net income – GAAP basis
$
8,978
$
2,221
$
25,975
$
8,768
Plus interest expense
10,475
7,556
31,147
9,878
Plus provision for income taxes
2,006
211
6,746
1,951
Plus depreciation and amortization expense
7,038
6,960
21,196
14,161
Non-GAAP earnings before interest, taxes, depreciation and
amortization
28,497
16,948
85,064
34,758
Plus pension settlement charge
-
4,759
-
6,355
Plus one-time acquisition costs
-
154
-
7,048
Plus amortization of step up in value of acquired inventories
-
-
-
1,406
Plus amortization of acquired customer backlog
-
651
1,085
868
Plus non-cash LIFO expense
1,974
3,762
6,414
9,767
Non-GAAP adjusted earnings before interest, taxes, depreciation and
amortization
$
30,471
$
26,274
$
92,563
$
60,202
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231026550845/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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