SEGUIN, Texas — On March 7, Alamo Group Inc. (NYSE: ALG) reported results for the fourth quarter and year ended Dec. 31, 2016.
- Net sales for the fourth quarter of $205.5 million, down 8.4% from previous year's record level
- Net income for the fourth quarter of $7.6 million, or $0.65 per diluted share
- Excluding non-cash charge relating to pension plan termination adjusted net income for the fourth quarter was $9.4 million, or $0.81 per diluted share
- Net sales for full year of $844.7 million, down 4.0% from the previous year’s record level
- Net income for full year of $40.0 million, or $3.46 per diluted share
- Excluding non-cash charge relating to pension plan termination, adjusted net income for the full year was $41.9 million, or $3.62 per diluted share
- Gross margins as a percent of sales up 1.6% for the quarter and 1.3% for the full year
- Backlog at $147 million, up vs. previous quarter, down vs. last year
- Total debt, net of cash, down $63.9 million for the year
Results for the Quarter
Net sales for the fourth quarter of 2016 were $205.5 million compared to net sales of $224.4 million in 2015, a decrease of 8.4%. The decrease in sales was a result of the ongoing headwinds the Company has experienced including softness in sales of Industrial Division products to non-governmental entities, weak European market conditions, changes in exchange rates which have lowered the value of non U.S. denominated sales and earnings and the continued weakness in the global agricultural market. Net income for the fourth quarter of 2016 was $7.6 million, or $0.65 per diluted share, vs. net income of $11.4 million, or $0.99 per diluted share in the previous year. The results for the quarter include a $1.9 million after tax non-cash charge in connection with the termination of a pension plan, which essentially reclassified cumulative actuarial losses previously recorded in other comprehensive income. Excluding this charge, the adjusted net income for the fourth quarter was $9.4 million or $0.81 per diluted share. The results for the fourth quarter of 2015 included two events relating to a gain on the sale of a portion of excess land in the U.K. and a plant consolidation and restructuring charge in France. Excluding these two events, net income in the fourth quarter of 2015 was $10.8 million, or $0.95 per diluted share.
Full Year Results
For full year 2016, net sales were $844.7 million vs. $879.6 million in 2015, a decrease of 4.0%. Net income for the year was $40.0 million, or $3.46 per diluted share, compared to $43.2 million, or $3.76 per diluted share, in 2015. Excluding the items referenced above in the fourth quarter of 2016 and 2015, adjusted net income for 2016 was $41.9 million, or $3.62 per diluted share versus $45.1 million, or $3.93 per diluted share in 2015. A summary of the adjustments is included in the attachments.
Sales by Division
Alamo Group's Industrial Division net sales in the fourth quarter of 2016 were $122.5 million compared to $135.9 million in the fourth quarter of 2015, a decrease of 9.9%. For the full year the Division's net sales were $484.1 million compared to $498.8 million in 2015, a decrease of 2.9%. The decrease was due to weaker sales to non-governmental end users, particularly vacuum trucks and weak fourth quarter shipments of snow removal products.
Alamo's Agricultural Division recorded net sales of $48.9 million in the fourth quarter of 2016 compared to $47.9 million in the prior year, an increase of 2.1%. This was achieved despite ongoing weakness in the overall agricultural market. For full year 2016, the Division’s net sales were $205.8 million vs. $208.3 million in 2015, a decrease of 1.2%.
Alamo Group’s European Division net sales in the fourth quarter of 2016 were $34.2 million compared to $40.6 million in the prior year. For the full year, net sales in the Division were $154.8 million, 10.3% below the $172.6 million achieved in 2015. Just over half of the decrease in both the fourth quarter and full year related to changes in exchange rates as indicated in the attached schedule. There was also continued weakness in the Company’s U.K. markets primarily as a result of the uncertainty which has persisted since the mid-year Brexit vote.
Comments on Results
Ron Robinson, Alamo Group’s president and CEO commented, “Our fourth quarter was somewhat weaker than our expectations as we continue to be impacted by persistent headwinds that have been constraining our sales throughout the year. However, there were many positive developments during 2016. Despite lower sales, we were able to grow gross margins as a result of our ongoing cost control initiatives and manufacturing efficiencies. And, cashflow for both the quarter and full year remained at a strong level allowing us to reduce total debt during the year by $74 million and by over $120 million in the last 2 years. This was achieved through both strong earnings from operations as well as better asset management as we reduced inventory and increased inventory turns.
“We were also pleased with the improved sales in our Agricultural Division as they continue to outperform the overall weakness in this sector. This Division was also a major contributor to Alamo's improved gross margins. And, we feel they are well positioned to continue this trend as we move into 2017.
“Our European Division also had some bright spots as our French operations showed reasonable growth in local currency, although they were down when translated to U.S. dollars. We believe they are poised to show further growth in 2017.
“Our biggest concern was the weakness in our Industrial Division results. The majority of the sales in this Division are to governmental end users and related contractors for infrastructure maintenance and these sales have continued at a very stable level with the exception of snow removal products in the fourth quarter. However, non-governmental sales, particularly of vacuum trucks, which had exhibited strong growth for several years, were negatively impacted by weakness in oil field, mining and construction markets, which had an adverse effect on our results throughout the year. And, as previously indicated our snow products were also weak in the fourth quarter, as much due to shipment delays as to softness in the market. While we are disappointed with the impact these developments had on our results in 2016, we feel more optimistic about the outlook for 2017. Our core sales to the infrastructure maintenance markets should continue to be steady and we are already seeing some momentum in the non-governmental sectors, which should produce better results in 2017 compared to 2016.
“In addition, we feel Alamo operating improvements aimed at further expansion of our margins and continued focus on our asset management will continue to drive our performance. We are also excited about new product introductions that should further add to our 2017 results.
"Lastly, we are looking forward to the closing of the Old Dominion Brush Co. acquisition that we recently announced. This will be a good synergistic addition to our Company which, while small, will positively impact our results in 2017. And, we are pleased that acquisition activity in general is showing improvement. Strategic acquisitions are part of our business strategy and we believe they will continue to provide an avenue of growth for Alamo.
“So, while we are concerned about the challenges we face in our markets that resulted in the declines we experienced, particularly in the second half of 2016, we feel good about the many positive achievements we were able to make during this time. We believe these will allow us to get back on a growth track in 2017."