The Gorman-Rupp Company (NYSE: GRC) reports financial results
for the first quarter ended March 31, 2023.
First Quarter 2023 Highlights
- Net sales of $160.5 million increased 57.1%, or $58.3 million,
compared to the first quarter of 2022, a 17.9% increase excluding
sales from Fill-Rite which was acquired in May 2022
- First quarter net income was $6.5 million, or $0.25 per share,
compared to net income of $7.5 million, or $0.29 per share, for the
first quarter of 2022
- Adjusted earnings per share1 for the first quarter of 2023 and
2022 were $0.27 and $0.29, respectively
- Adjusted EBITDA1 of $28.4 million for the first quarter of 2023
increased $14.1 million, or 98.7%, from $14.3 million for the same
period in 2022
- Incoming orders of $167.0 million increased 49.1% when compared
to the same period in 2022, an increase of 12.3% excluding
Fill-Rite
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 quarter of 2023 were $160.5 million
compared to net sales of $102.2 million for the first quarter of
2022, an increase of 57.1% or $58.3 million. Domestic sales
increased 65.4% or $47.4 million and international sales increased
36.7% or $10.9 million compared to the same period in 2022.
Fill-Rite sales, which are primarily domestic, were $40.0 million
for the first quarter of 2023.
Excluding Fill-Rite, sales in our water markets increased 20.1%
or $14.5 million in the first quarter of 2023 compared to the first
quarter of 2022. Sales increased $7.7 million in the fire
suppression market, $3.1 million in the municipal market, $2.1
million in the repair market, and $1.9 million in the construction
market. Partially offsetting these increases was a sales decrease
of $0.3 million in the agriculture market.
Excluding Fill-Rite, sales in our non-water markets increased
12.8% or $3.8 million in the first quarter of 2023 compared to the
first quarter of 2022. Sales increased $3.1 million in the
industrial market, $0.4 million in the petroleum market, and $0.3
million in the OEM market.
Gross profit was $45.5 million for the first quarter of 2023,
resulting in gross margin of 28.4%, compared to gross profit of
$25.5 million and gross margin of 25.0% for the same period in
2022. The improvement in gross margin was due primarily to leverage
from increased sales volume and sales mix which includes Fill-Rite
in 2023. The 340 basis point increase in gross margin was driven by
a 270 basis point improvement from labor and overhead leverage due
to increased sales volume and a 70 basis point improvement in cost
of material. Gross margin for the first quarter of 2023 includes 40
basis points of amortization expense related to the Fill-Rite
acquired customer backlog. The acquired customer backlog will be
fully amortized during the second quarter of 2023.
Selling, general and administrative (“SG&A”) expenses were
$23.2 million and 14.5% of net sales for the first quarter of 2023
compared to $15.9 million and 15.5% of net sales for the same
period in 2022. The increase in SG&A expenses is primarily due
to the inclusion of Fill-Rite. The improvement in SG&A as a
percent of sales was due to favorable leverage from increased
sales.
Amortization expense was $3.2 million for the first quarter of
2023 compared to $0.2 million for the same period in 2022. The
increase in amortization expense was due to $3.0 million in
amortization attributable to the Fill-Rite acquisition.
Operating income was $19.1 million for the first quarter of
2023, resulting in an operating margin of 11.9%, compared to
operating income of $9.5 million and operating margin of 9.3% for
the same period in 2022. Operating margin increased 260 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 partially offset by increased amortization expense.
Interest expense was $10.2 million for the first quarter of
2023. No interest expense was recorded in the first quarter of
2022. The interest expense was due to debt financing attributable
to the Fill-Rite acquisition.
Net income was $6.5 million, or $0.25 per share, for the first
quarter of 2023 compared to net income of $7.5 million, or $0.29
per share, in the first quarter of 2022. Adjusted earnings per
share1 for the first quarter of 2023 were $0.27 per share compared
to $0.29 per share for the first quarter of 2022.
Adjusted EBITDA1 was $28.4 million for the first quarter of 2023
compared to $14.3 million for the first quarter of 2022. Adjusted
EBITDA increased from organic sales growth and improved gross
margin as well as the acquisition of Fill-Rite.
The Company’s backlog of orders was $270.6 million at March 31,
2023 compared to $195.5 million at March 31, 2022 and $267.4
million at December 31, 2022. Fill-Rite added $11.1 million to the
backlog at March 31, 2023 when compared to March 31, 2022. Incoming
orders during the first quarter of 2023 increased 49.1% when
compared to the same period in 2022, and increased 12.3% excluding
Fill-Rite.
Net cash provided by operating activities for the first three
months of 2023 was $18.6 million compared to $6.2 million for the
same period in 2022 driven by increased earnings before
depreciation, amortization, and LIFO expense, and improved cash
flow from accounts receivable and accounts payable. Capital
expenditures for the first three months of 2023 were $6.5 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
$6.8 million during the first three months of 2023.
Scott King, President and Chief Executive Officer, commented,
“We continued to deliver strong organic growth with a sales
increase of nearly 18% during the quarter, which contributed to our
improved gross margin. Incoming orders also continued at a good
pace, with total incoming orders during the quarter of $167 million
our backlog remains at record levels. Inventory grew as planned
during the quarter to support our order volume and backlog, while
we expect a reduction in inventory levels during the second-half of
the year. We are focused on delivering long term sustained growth
and continuing to improve margins.”
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 (1) adjusted earnings per share, which is earnings
per share excluding amortization of customer backlog per share, (2)
adjusted earnings before interest, taxes, depreciation and
amortization, referred to as “adjusted EBITDA”, which is net income
(loss) excluding interest, taxes, depreciation and amortization,
adjusted to exclude amortization of customer backlog and non-cash
LIFO2 expense, and (3) free cash flow, which is adjusted EBITDA
less capital expenditures and dividends. 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 per share, adjusted EBITDA, and free cash flow
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. Pre-tax
LIFO expense was $2.0 million for the first quarter of 2023 and
$1.8 million for the first quarter of 2022.
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) LIFO 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 March 31,
2023
2022
Net sales
$160,466
$102,167
Cost of products sold
114,943
76,670
Gross profit
45,523
25,497
Selling, general and administrative expenses
23,237
15,878
Amortization expense
3,191
161
Operating income
19,095
9,458
Interest expense
(10,187
)
-
Other income (expense), net
(433
)
90
Income before income taxes
8,475
9,548
Provision from income taxes
1,955
2,005
Net income
$6,520
$7,543
Earnings per share
$0.25
$0.29
The Gorman-Rupp Company Condensed
Consolidated Balance Sheets (Unaudited) (thousands of dollars,
except share data) March 31, December 31,
Assets
2023
2022
Cash and cash equivalents
$12,231
$6,783
Accounts receivable, net
97,474
93,059
Inventories, net
116,758
111,133
Prepaid and other
10,960
14,551
Total current assets
237,423
225,526
Property, plant and equipment, net
132,191
128,640
Other assets
11,518
11,579
Goodwill and other intangible assets, net
503,886
507,085
Total assets
$885,018
$872,830
Liabilities and shareholders'
equity Accounts payable
$31,989
$24,697
Current portion of long-term debt
17,500
17,500
Accrued liabilities and expenses
45,845
43,016
Total current liabilities
95,334
85,213
Pension benefits
9,860
9,352
Postretirement benefits
22,237
22,413
Long-term debt, net of current portion
418,575
419,327
Other long-term liabilities
7,572
5,331
Total liabilities
553,578
541,636
Shareholders' equity
331,440
331,194
Total liabilities and shareholders' equity
$885,018
$872,830
Shares outstanding
26,178,248
26,094,865
The Gorman-Rupp Company
Condensed Consolidated Statements
of Cash Flows (Unaudited)
(thousands of dollars, except
share data)
Three Months Ended March 31,
2023
2022
Cash flows from operating activities: Net income
$6,520
$7,543
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
7,044
2,933
LIFO expense
2,032
1,804
Pension expense
808
760
Stock based compensation
465
682
Amortization of debt issuance fees
740
-
Other
14
-
Changes in operating assets and liabilities: Accounts receivable,
net
(4,264
)
(9,211
)
Inventories, net
(7,533
)
(6,119
)
Accounts payable
7,236
2,256
Commissions payable
961
727
Deferred revenue and customer deposits
859
1,253
Income taxes
1,534
1,912
Accrued expenses and other
2,909
668
Benefit obligations
(703
)
957
Net cash provided by operating activities
18,622
6,165
Cash flows from investing activities: Capital additions
(6,450
)
(3,473
)
Other
426
89
Net cash used for investing activities
(6,024
)
(3,384
)
Cash flows from financing activities: Cash dividends
(4,567
)
(4,436
)
Treasury share repurchases
(1,028
)
(918
)
Proceeds from bank borrowings
5,000
-
Payments to banks for borrowings
(6,375
)
-
Other
(34
)
(32
)
Net cash used for financing activities
(7,004
)
(5,386
)
Effect of exchange rate changes on cash
(146
)
97
Net increase (decrease) in cash and cash equivalents
5,448
(2,508
)
Cash and cash equivalents: Beginning of period
6,783
125,194
End of period
$12,231
$122,686
The Gorman-Rupp Company Non-GAAP Financial Information (thousands
of dollars, except per share data) Three Months Ended
March 31,
2023
2022
Adjusted earnings per share: Reported earnings per share –
GAAP basis
$0.25
$0.29
Plus amortization of acquired customer backlog
0.02
-
Non-GAAP adjusted earnings per share
$0.27
$0.29
Three Months Ended March 31,
2023
2022
Adjusted earnings before interest, taxes, depreciation and
amortization: Reported net income – GAAP basis
$6,520
$7,543
Plus interest expense
10,187
-
Plus provision for income taxes
1,955
2,005
Plus depreciation and amortization expense
7,044
2,933
Non-GAAP earnings before interest, taxes, depreciation and
amortization
25,706
12,481
Plus amortization of acquired customer backlog
650
-
Plus non-cash LIFO expense
2,032
1,804
Non-GAAP adjusted earnings before interest, taxes, depreciation and
amortization
$28,388
$14,285
Three Months Ended March 31,
Non-GAAP Free Cash Flow
2023
2022
Non-GAAP adjusted earnings before interest, taxes, depreciation and
amortization
$28,388
$14,285
Less capital expenditures
(6,450
)
(3,473
)
Less cash dividends
(4,567
)
(4,436
)
Non-GAAP free cash flow
17,371
6,376
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version on businesswire.com: https://www.businesswire.com/news/home/20230426005862/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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