Highlights for the Quarter
- Net sales of $368.8 million, up 9%
- Vegetation Management net sales of $228.5 million, up 8.9%
- Industrial Equipment net sales of $140.3 million, up 9.2%
- Income from operations of $35.8 million, up 19.3%
- Net income of $25.8 million, or $2.16 per diluted share, up 46.9%
- Trailing twelve-month EBITDA of $179.0 million, up 10.4% from full year 2021
- Backlog of $908.9 million, up 40.9% compared to prior year third quarter-end
Results for the Quarter
Third quarter 2022 net sales were $368.8 million compared to $338.3 million in the third quarter of 2021, an increase of 9%. Gross margin improved in the quarter vs. the third quarter of 2021 by $6.1 million or 7%. Third quarter net income improved 46.9% to $25.8 million, or $2.16 per diluted share, compared to net income of $17.5 million, or $1.47 per diluted share in the third quarter of 2021. The Company's backlog at the end of the third quarter was $908.9 million, an increase of $263.7 million, or 40.9%, from the backlog at the end of the third quarter of 2021, and up 13.5% from the end of calendar year 2021.
The positive results reported for the quarter were achieved through a combination of effective price management and disciplined control of operating expenses. These results were achieved despite persistent headwinds including material cost inflation, elevated transportation costs, and unfavorable manufacturing efficiencies directly related to supply chain disruptions and skilled labor shortages as well as the negative impact of currency exchange rates on our consolidated financial results.
Results by Division
The Vegetation Management Division's third quarter net sales were $228.5 million, up 8.9% compared to $209.8 million for the same period in 2021. For the first nine months of 2022, net sales in this Division were $704.5 million, compared to $608.3 million for the first nine months of 2021, up 15.8%. The increase in net sales was driven by strong retail demand for forestry, tree care, agricultural and governmental mowing products in both North America and Europe.
The Division's income from operations for the third quarter 2022 was $27.1 million, up 26.9% compared to $21.4 million for the third quarter of 2021. For the first nine months of 2022, income from operations was $78.3 million vs. $60.8 million for the first nine months of 2021, an increase of 28.7%. The Division also benefited from solid sales, improved pricing and effective control of costs and expenses despite ongoing supply chain issues, higher material and inbound freight costs and continued labor shortages. Outstanding performance in the Division's North American operations was complemented by strong results in the United Kingdom, France, Brazil and Australia during the quarter.
Comments on Results
Jeff Leonard, Alamo Group's president and chief executive officer, commented, "We were pleased that our third quarter and year-to-date sales and earnings again set Company records despite a stubbornly challenging operating environment.
"The Company's third quarter order bookings declined relative to the exceptionally strong third quarter of 2021 due to the timing of large snow equipment orders, the elimination of a preseason program in North American agricultural equipment (a result of historically high backlog levels), and unfavorable currency translations. Despite this, order backlog at the end of the quarter was $909 million, up 41% compared to one year ago and over 300% higher than third quarter of 2019 backlog, prior to the onset of the pandemic.
"Supply chain delays and shortages again constrained sales during the third quarter. Although the truck chassis situation stabilized somewhat, delivery reliability continued to be a problem, with some suppliers pushing planned 2022 deliveries into 2023. Allocated chassis volumes remained insufficient to support accelerated shipment of orders from backlog. Shortages of other industrial components continued to present challenges and delays as well. Supply chain re-shoring by larger equipment manufacturers continues to stress North American suppliers of specialty components. Labor remained very tight in most areas where we operate, and this also contributed to constrained top line growth. The combination of supply chain delays and labor shortages once again reduced operational efficiency and resulting gross margin during the third quarter. We had anticipated some improvement in supply chain performance in the third quarter, however the expected gains did not materialize.
"Looking ahead, we are expecting fourth quarter sales to show solid growth relative to the fourth quarter of 2021 and we anticipate that earnings will continue to improve on a year-over-year basis. However, exchange rates are likely to negatively impact sales when compared to the prior year. We continue to anticipate a gradual improvement in supply chain performance; however, the timing remains uncertain and problems associated with labor shortages are expected to persist. Certainly, these problems, although slowly improving, will continue to affect us in the fourth quarter and into early 2023.
"We were pleased that, in spite of ongoing supply side headwinds, our third quarter and year-to-date sales and earnings results were records for the Company. We continue to expect sales and earnings will expand nicely once the supply side issues resolve. The strength and health of our backlog continues to provide us with confidence about the performance of the Company for the remainder of this year and the near future."