SEGUIN, Texas — Alamo Group Inc. (ALG) (NYSE: ALG) today reported results for the third quarter ended Sep. 30, 2017.
Highlights for the Quarter
- Record net income for a third quarter of $16.6 million, up 25.4%
- Record net sales for a third quarter of $240.5 million, up 10.9%
- Industrial Division net sales of $132.4 million, up 9.2%
- Agricultural Division net sales of $64.9 million, up 15%
- European Division net sales of $43.1 million, up 10.3%
- Record net income for the first 9 months of $41.1 million, up 26.6%
- Record net sales for the first 9 months of $669.1 million, up 4.7%
Backlog at $181.0 million, up 31.7% compared to previous year's third quarter
Alamo Group's net sales for the third quarter of 2017 were $240.5 million compared to $216.8 million in the third quarter of 2016, an increase of 10.9%. Net income for the quarter was $16.6 million, or $1.42 per diluted share, compared to net income of $13.2 million, or $1.14 per diluted share in 2016. This is an increase of 25.4% in net income and 24.6% in earnings per share.
For the first 9 months of 2017 net sales were $669.1 million compared to $639.2 million in the previous year, an increase of 4.7%. Net income for the 9 month period was $41.1 million or $3.52 per diluted share, in 2017 versus $32.5 million, or $2.81 per diluted share, for the same period in 2016. This is an increase of 26.6% in net income and 25.3% in earnings per share.
Results for the quarter and the first 9 months included the effects of the acquisitions of Santa Izabel and Old Dominion Brush Co., which were both completed in June 2017 and R.P.M. Tech, which was completed in August 2017. Together these acquisitions contributed $10.9 million in net sales and $0.5 million in net income in the third quarter. For the first 9 months of 2017 the acquisitions contributed $11.6 million in net sales and $0.4 million in net income.
Net sales and net income for both the third quarter and the first 9 months of 2017 were at record levels for Alamo, even excluding the contributions from the company's recently completed acquisitions.
Sales by Division
Alamo Group's Industrial Division net sales in the third quarter of 2017 were $132.4 million compared to $121.2 million in the third quarter of 2016, an increase of 9.2%. For the first 9 months of 2017 net sales were $375.5 million versus $361.6 million in 2016, an increase of 3.8%. The Division's net sales included the effects of the acquisitions of Old Dominion Brush Co. and R.P.M. Tech, which together contributed $7.9 million in the third quarter of 2017 and $7.9 million for the first 9 months of the year.
The company's Agricultural Division recorded net sales of $64.9 million in the third quarter of 2017, an increase of 15.0% compared with net sales of $56.4 million for the same period in 2016. For the first 9 months of 2017 net sales in the Agricultural Division were $170.9 million compared to net sales of $157.0 million achieved in the prior year, an increase of 8.9%. The Division's net sales included the effects of the acquisition of Santa Izabel, which contributed $3.0 million in the third quarter of 2017 and $3.7 million for the first 9 months of the year.
Alamo Group's European Division net sales in the third quarter of 2017 were $43.1 million, an increase of 10.3% compared to net sales of $39.1 million in the third quarter of 2016. For the first 9 months of 2017 net sales in the Division were $122.7 million, an increase of 1.7% compared to net sales of $120.6 million in the prior year's comparable period.
Comments on Results
Ron Robinson, Alamo Group's president and chief executive officer, commented, "The third quarter of 2017 was certainly a very good quarter for Alamo Group. While sales growth for the last 2 years has been constrained due to a variety of headwinds, as we indicated last quarter, we started to see some growth in our markets and this was evident in our third quarter results. In addition, we started to realize benefits from recent acquisitions, although these are very preliminary since all three were completed fairly recently.
"Despite the limited top line growth in the recent past, we have been able to achieve margin improvement, which led to attractive growth in earnings in the first half of 2017. This trend, which continued in the third quarter, combined with our sales growth, resulted in record third quarter earnings for Alamo Group.
"Some of the headwinds with which we have contended recently include a weak global agricultural market, softness in our snow removal sector due to milder winter conditions for the past two years, declines in the non-governmental portion of our vacuum truck market and the negative effect of the stronger U.S. dollar on the translation of our non-U.S. denominated sales and earnings. By and large we have seen some improvement in all of these areas. While the agricultural market, particularly in products oriented towards row crop farming, remains weak, we are starting to see some improvement in other agricultural sectors, further aided by lower dealer inventories. We feel this will continue to strengthen as we move into 2018.
"Also, new orders for snow removal products have shown modest improvement in anticipation of more typical winter weather conditions. And, our vacuum truck sector has experienced some strengthening as inventory levels in the marketplace have been reduced and the business appears to be returning to more normal conditions.
"With regards to currency, while the U.S. dollar is still stronger than it was several years ago, it has dropped compared to where it was at this time last year against most of the international currencies in which Alamo conducts business, particularly the Canadian dollar, the British pound sterling and the Euro. As a result, for example, in the first half of 2017 our European sales and earnings were up in local currency, but were down when translated to U.S. dollars. In the third quarter they were up in both local currency and U.S. dollars. A summary of this effect can be seen in one of the attachments to this press release.
"A diminishing of the headwinds we have been facing helped to drive Alamo's growth in the third quarter and we believe will continue to benefit the cfor the remainder of 2017 and into 2018. Further evidence in support of this belief is the company's backlog, which increased in the quarter by 31.7% to $181 million. Even without the recent acquisitions, backlog was at $173.2 million, an increase of 26.1%. This is a healthy level for us and if it gets much higher could result in increased lead times for our products.
"Certainly, we remain concerned about the weakness in the agricultural market and the lingering effects of other headwinds with which we have contended. However, as a result of the stability in our core businesses, the signs of modest but improving growth, a more favorable currency environment, strong backlog and the incremental benefits from our recent acquisitions, we feel optimistic about the near term outlook for Alamo Group. We are pleased that each of our operating divisions seem to be benefiting from these improved conditions and, with our continued focus on cost control, feel this should lead to improved sales and earnings in the fourth quarter of 2017 compared to the fourth quarter of 2016 and into 2018 as well."