SEGUIN, Texas — Alamo Group Inc. (NYSE: ALG) reported results for the third quarter ended September 30, 2018.

Highlights for the Quarter

• Record net income for a third quarter of $23.5 million, up 41.9%
• Record net sales for a third quarter of $257.6 million, up 7.1%
• Industrial Division net sales of $156.7 million, up 18.4%
• Agricultural Division net sales of $61.5 million, down 5.3%
• European Division net sales of $39.4 million, down 8.7%
• Record net income for the first 9 months of $56.9 million, up 38.5%
• Record net sales for the first 9 months of $752.8 million, up 12.5%
• Backlog at $251.2 million, up 38.8% compared to the previous year's third quarter
• 2018 third quarter and 9 months results include a $3.0 million net tax benefit reflecting an adjustment to the charge taken in the fourth quarter of 2017 concerning U.S. tax reform

Summary of Results

Alamo Group’s net sales for the third quarter of 2018 were $257.6 million compared to $240.5 million, in the third quarter of 2017, an increase of 7.1%. Net income for the quarter was $23.5 million compared to net income of $16.6 million. This is an increase of 41.9% in net income and 40.8% in earnings per diluted share.

For the first 9 months of 2018 net sales were $752.8 million compared to $669.1 million in the previous year, an increase of 12.5%. Net income for the first 9 months of 2018 was $56.9 million, or $4.84 per diluted share, versus $41.1 million, or $3.52 per diluted share, for the same period in 2017. This is an increase of 38.5% in net income and 37.5% in earnings per diluted share.

million in net income to Alamo's 2018 third quarter results and together all three acquisitions added $38.6 million in net sales and $3.2 million in net income for the first 9 months of 2018.

Net sales and net income for both the third quarter and first 9 months of 2018 were at record levels for Alamo Group both with and without the $3.0 million net tax benefit.

Results by Division

Alamo Group's Industrial Division net sales in the third quarter of 2018 were $156.7 million compared to $132.4 million in the prior year, an increase of 18.4%. The Division's income from operations for the quarter was $18.4 million compared to $14.9 million in the previous year, an increase of 22.8%. For the first 9 months of 2018 the Industrial Division's net sales were $438.9 million versus $375.5 million in 2017, an increase of 16.9%. Income from operations in the Division was $46.3 million for the first 9 months of 2018 versus $38.6 million in the same period of the prior year, an increase of 20.1%. The Industrial Division's results include the effects of the acquisitions of R.P.M. Tech in the third quarter and both Old Dominion Brush Co. and R.P.M. Tech for the 9 month period.

R.P.M contributed $9.1 million in net sales and $2.3 million in income from operations in the third quarter of 2018 and both acquisitions added $29 million in net sales and $3.2 million in income from operations in the first 9 months of the year.

The company's Agricultural Division net sales in the third quarter of 2018 were $61.5 million, compared to $64.9 million in the prior year, a decrease of 5.3%. The Division's income from operations for the quarter was $6.6 million compared to $8.6 million in 2017, a decrease of 23.1%. For the first 9 months of 2018, the Agricultural Division's net sales were $179.2 million versus $170.9 million in the prior year, an increase of 4.8%. Income from operations was $18.0 million in the first 9 months of 2018 compared to $19.3 million in 2017, a decrease of 6.6%. The Division's results for the first 9 months include the effects of the acquisition of Santa Izabel which contributed $9.7 million in net sales and $0.8 million in income from operations. 

Alamo's European Division net sales were $39.4 million in the third quarter of 2018, versus $43.1 million for the same period in 2017, a decrease of 8.7%. Income from operations for the quarter was $3.3 million compared to $4.2 million in the third quarter of the prior year, a decrease of 22.1%. For the first 9 months of 2018 net sales in the Division were $134.7 million compared to $122.7 million in 2017, an increase of 9.8%. Income from operations for the first 9 months of 2018 was $12.0 million versus $10.4 million in 2017, an increase of 15.2%.

Comments on Results

Ron Robinson, Alamo Group’s president and chief executive officer, commented, "We are pleased with our record third quarter results that were achieved despite a number of challenges. The strong performance by our Industrial Division led the way in overcoming the variety of issues we faced including unfavorable price variances from input costs, which were further impacted by recently enacted tariffs, softer market conditions in the agricultural sector, and lower than expected shipments in our European Division.

“Alamo's Industrial Division benefited from good performance across the entire range of our product offering and was particularly helped by strong results from our excavator, vacuum trucks, mower and street sweeper products. The Division was aided by the favorable backlog which provided a strong base for the quarter's results, as it has throughout 2018. And, the backlog increased even further during the quarter which should benefit our results for the remainder of the year as well. The higher sales contributed to better operational efficiencies which helped offset increased material costs, primarily steel, that affected all of our divisions, though only our U.S. operations felt the impact of the tariffs, mainly on input components sourced from China. Tariffs will continue to affect our results until this trade situation is resolved as we have few alternatives in the short term for these components.

"We are concerned about the agricultural outlook which had been showing signs of strengthening, but now is faced with a backdrop of declining farm incomes and the impact that new tariffs are having on demand for certain agricultural commodities. Our Agricultural Division results, while off, are still good, primarily due to improvements in our operational efficiencies which helped mitigate the impact of higher input costs and lower sales.

"In our European Division, it was a very mixed bag as our U.K. operations produced strong results, again aided by their solid backlog. However, our French operations struggled with missed shipments at our Rivard facility due to timing of some customer order deliveries and delays of critical inventory components from certain suppliers. We were also affected by some staffing vacancies in our French operations. This is a situation that, to some degree, is affecting many of our operations, as finding skilled workers is a challenge in most of the markets in which we operate.

"All in all, despite the various challenges, Alamo had a very good third quarter and 2018 is developing at a record pace. We believe some of the issues we are facing are unlikely to be resolved in the short term, such as the weakening agricultural market, but feel we are benefiting from an overall economy that is reasonably solid, as evidenced by the performance in our Industrial sector. And while tariffs and other cost increases have affected our results, in general, we feel we have been able to pass along some of these increases and should be able to maintain our margins through aggressive cost control measures. We also believe we are getting better control of the issues that impacted our results in Europe, though there is still some uncertainty in the markets there and the lack of progress on the Brexit issue is an ongoing concern. However, our strong backlog, which grew further in the third quarter, provides some comfort in the face of these challenges and should help us in the fourth quarter of this year and as we move into 2019.

"We continue to feel good about our Company and its prospects. While we do not know how some of these challenges will develop, we feel confident that by reacting quickly to changing conditions, as we have demonstrated in the past, we can deal with these issues and continue to move Alamo forward. It is during challenging times that the benefits we derive from our broad product portfolio and diversity of the markets we serve is most evident and that is certainly true today. We thank you for your support in this journey."

concerned about the agricultural outlook which had been showing signs of strengthening, but now is faced with a backdrop of declining farm incomes and the impact that new tariffs are having on demand for certain agricultural commodities. Our Agricultural Division results, while off, are still good, primarily due to improvements in our operational efficiencies which helped mitigate the impact of higher input costs and lower sales.

"In our European Division, it was a very mixed bag as our U.K. operations produced strong results, again aided by their solid backlog. However, our French operations struggled with missed shipments at our Rivard facility due to timing of some customer order deliveries and delays of critical inventory components from certain suppliers. We were also affected by some staffing vacancies in our French operations. This is a situation that, to some degree, is affecting many of our operations, as finding skilled workers is a challenge in most of the markets in which we operate.

"All in all, despite the various challenges, Alamo had a very good third quarter and 2018 is developing at a record pace. We believe some of the issues we are facing are unlikely to be resolved in the short term, such as the weakening agricultural market, but feel we are benefiting from an overall economy that is reasonably solid, as evidenced by the performance in our Industrial sector. And while tariffs and other cost increases have affected our results, in general, we feel we have been able to pass along some of these increases and should be able to maintain our margins through aggressive cost control measures. We also believe we are getting better control of the issues that impacted our results in Europe, though there is still some uncertainty in the markets there and the lack of progress on the Brexit issue is an ongoing concern. However, our strong backlog, which grew further in the third quarter, provides some comfort in the face of these challenges and should help us in the fourth quarter of this year and as we move into 2019. ALAMO

"We continue to feel good about our Company and its prospects. While we do not know how some of these challenges will develop, we feel confident that by reacting quickly to changing conditions, as we have demonstrated in the past, we can deal with these issues and continue to move Alamo forward. It is during challenging times that the benefits we derive from our broad product portfolio and diversity of the markets we serve is most evident and that is certainly true today. We thank you for your support in this journey."