The Gorman-Rupp Company (NYSE: GRC) reports financial results
for the fourth quarter and year ended December 31, 2022.
Fourth Quarter 2022 Highlights
- Net sales of $146.0 million increased 55.0% or $51.8 million
compared to the fourth quarter of 2021, a 19.3% increase excluding
sales from Fill-Rite which was acquired in May 2022
- Fourth quarter net income was $2.4 million, or $0.09 per share,
compared to net income of $6.5 million, or $0.25 per share, for the
fourth quarter of 2021
- Adjusted earnings per share1 for the fourth quarters of 2022
and 2021 were $0.11 and $0.26, respectively
- Adjusted earnings per share1 include non-cash LIFO2 expense of
$0.25 per share and $0.08 per share in 2022 and 2021,
respectively
- Adjusted EBITDA1 of $28.5 million for the fourth quarter of
2022 increased $14.5 million or 104% from $14.0 million for the
same period in 2021, an increase of $6.8 million, or 49.0%,
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 fourth quarter ended December 31, 2022 were
$146.0 million compared to net sales of $94.2 million for the
fourth quarter of 2021, an increase of 55.0% or $51.8 million.
Domestic sales increased 67.1% or $43.5 million and international
sales increased 28.4% or $8.3 million compared to the same period
in 2021. Fill-Rite sales, which are primarily domestic, were $33.7
million for the fourth quarter of 2022.
Excluding Fill-Rite, sales in our water markets increased 23.3%
or $15.4 million in the fourth quarter of 2022 compared to the
fourth quarter of 2021. Sales increased $7.5 million in the fire
protection market, $5.5 million in the municipal market, $1.5
million in the repair market, $0.6 million in the construction
market, and $0.3 million in the agriculture market.
Excluding Fill-Rite, sales in our non-water markets increased
9.8% or $2.7 million in the fourth quarter of 2022 compared to the
fourth quarter of 2021. Sales increased $3.0 million in the
industrial market and $0.1 million in the petroleum market.
Partially offsetting this increase were sales decreases of $0.4
million in the OEM market.
Gross profit was $36.6 million for the fourth quarter of 2022,
resulting in gross margin of 25.1%, compared to gross profit of
$22.3 million and gross margin of 23.7% for the same period in
2021. The improvement in gross margin was due primarily to leverage
from increased sales volume and sales mix which includes a full
quarter of Fill-Rite results. The 140 basis point increase in gross
margin was driven by a 400 basis point improvement from labor and
overhead leverage due to increased sales volume. The increase was
partially offset by a 260 basis point increase in cost of material,
which included an unfavorable LIFO2 impact of 260 basis points, and
an unfavorable impact of 40 basis points related to the
amortization of acquired Fill-Rite customer backlog. The acquired
Fill-Rite customer backlog will be fully amortized during the first
half of 2023.
Selling, general and administrative (“SG&A”) expenses were
$21.0 million and 14.4% of net sales for the fourth quarter of 2022
compared to $13.9 million and 14.8% of net sales for the same
period in 2021. The increase in SG&A expenses is primarily due
to a $6.0 million increase in SG&A expenses related to
Fill-Rite. Excluding Fill-Rite, SG&A expenses were 13.3% of net
sales, a decrease of 150 basis points from the prior year driven
primarily by leverage from increased sales volume.
Amortization expense was $3.1 million for the fourth quarter of
2022 compared to $0.2 million for the same period in 2021. The
increase in amortization expense was due to $3.0 million in
amortization attributable to the Fill-Rite acquisition.
Operating income was $12.5 million for the fourth quarter of
2022, resulting in an operating margin of 8.6%, compared to
operating income of $8.2 million and operating margin of 8.7% for
the same period in 2021. Operating margin decreased 10 basis points
compared to the same period in 2021 due to an unfavorable LIFO2
impact and increased amortization expense partially offset by
improved leverage on labor, overhead, and SG&A expenses due to
increased sales volumes.
Interest expense was $9.4 million for the fourth quarter of
2022. No interest expense was recorded in the fourth quarter of
2021. The interest expense was due to debt financing attributable
to the Fill-Rite acquisition.
Net income was $2.4 million, or $0.09 per share, for the fourth
quarter of 2022 compared to net income of $6.5 million, or $0.25
per share, in the fourth quarter of 2021. Adjusted earnings per
share1 for the fourth quarter of 2022 were $0.11 per share compared
to $0.26 per share for the fourth quarter of 2021. Adjusted
earnings per share1 for the fourth quarter of 2022 included an
unfavorable LIFO2 impact of $0.25 per share compared to an
unfavorable LIFO2 impact of $0.08 per share in the fourth quarter
of 2021.
Adjusted EBITDA1 was $28.5 million for the fourth quarter of
2022 compared to $14.0 million for the fourth quarter of 2021 with
the Fill-Rite acquisition contributing $7.7 million in 2022.
Excluding Fill-Rite, adjusted EBITDA1 for the fourth quarter of
2022 compared to 2021 increased $6.8 million, or 49.0%, due
primarily to increased sales volume.
Full-Year 2022 Highlights
- Net sales of $521.0 million increased 37.7% or $142.7 million
compared to 2021, a 14.6% increase excluding sales from Fill-Rite
which was acquired in May 2022
- Net income was $11.2 million, or $0.43 per share, compared to
net income of $29.9 million, or $1.14 per share, for 2021
- Adjusted earnings per share1 for 2022 and 2021 were $0.94 and
$1.21, respectively
- Adjusted earnings per share1 include non-cash LIFO2 expense of
$0.56 per share and $0.20 per share in 2022 and 2021,
respectively
- Adjusted EBITDA1 of $88.7 million increased $30.6 million or
52.7% from $58.1 million for 2021, an increase of $11.4 million, or
19.6% excluding Fill-Rite
Net sales for the year ended December 31, 2022 were $521.0
million compared to net sales of $378.3 million for the year ended
December 31, 2021, an increase of 37.7% or $142.7 million. Domestic
sales increased 46.3% or $120.6 million and international sales
increased 18.8% or $22.1 million compared to 2021. Fill-Rite sales,
which are primarily domestic, were $87.4 million from the
acquisition date of May 31, 2022 to December 31, 2022.
Excluding Fill-Rite, sales in our water markets increased 15.9%
or $42.5 million in 2022 compared to 2021. Sales increased $17.3
million in the fire market, $14.8 million in the municipal market,
$6.4 million in the repair market, and $5.1 million in the
construction market. Partially offsetting these increases was a
decrease of $1.1 million in the agriculture market.
Excluding Fill-Rite, sales in our non-water markets increased
11.7% or $12.8 million in 2022 compared to 2021. Sales increased
$13.5 million in the industrial market and $1.9 million in the OEM
market. Partially offsetting these increases was a decrease of $2.6
million in the petroleum market.
Gross profit was $130.9 million in 2022, resulting in gross
margin of 25.1%, compared to gross profit of $95.9 million and
gross margin of 25.3% in 2021. The 20 basis point decrease in gross
margin was driven by a 280 basis point increase in cost of
material, which included an unfavorable LIFO2 impact of 170 basis
points, an unfavorable impact of 30 basis points related to
Fill-Rite inventory recorded at fair value and recognized during
the second quarter of 2022, and an unfavorable impact of 30 basis
points related to the amortization of acquired Fill-Rite customer
backlog. The full amount of the step-up to record Fill-Rite
inventory at fair value was recognized during the second quarter of
2022 and will not recur, while the acquired Fill-Rite customer
backlog will be fully amortized during the first half of 2023. The
decrease in gross margin was partially offset by a 260 basis point
improvement from labor and overhead leverage due to increased sales
volume.
SG&A expenses were $83.1 million in 2022, which included
$7.1 million of one-time acquisition costs. Excluding acquisition
costs, SG&A expenses were $76.0 million and 14.6% of net sales
in 2022 compared to $56.0 million and 14.8% of net sales in 2021.
The decrease in SG&A expenses as a percentage of sales,
excluding acquisition costs, was primarily due to leverage from
increased sales volume.
Amortization expense was $7.6 million in 2022 compared to $0.5
million in 2021. The increase in amortization expense was due to
$7.0 million in amortization attributable to the Fill-Rite
acquisition.
Operating income was $40.2 million in 2022, which included $7.1
million in one-time acquisition costs, $1.4 million of inventory
step up amortization, and $1.5 million of acquired customer backlog
amortization. Excluding acquisition costs, inventory step-up and
backlog amortization, operating income was $50.2 million in 2022,
resulting in an operating margin of 9.6%, compared to operating
income of $39.4 million and operating margin of 10.4% in 2021. The
decrease of 80 basis points in operating margin was primarily the
result of an unfavorable LIFO2 impact.
Interest expense was $19.2 million in 2022. No interest expense
was recorded in 2021. The interest expense was due to debt
financing attributable to the Fill-Rite acquisition.
Other income (expense), net was $7.1 million of expense in 2022
compared to expense of $2.1 million in 2021. The increase in
expense was due primarily to increased non-cash pension settlement
charges of $6.4 million in 2022 compared to $2.3 million in
2021.
Net income was $11.2 million, or $0.43 per share, in 2022
compared to $29.9 million, or $1.14 per share, in 2021. Adjusted
earnings per share1 in 2022 were $0.94 per share compared to $1.21
per share in 2021. Adjusted earnings per share1 in 2022 included an
unfavorable LIFO2 impact of $0.56 per share compared to an
unfavorable LIFO2 impact of $0.20 per share in 2021.
The Company’s effective tax rate was 19.3% in 2022 compared to
19.9% in 2021. The effective tax rate for 2022 was impacted by
similar benefits from credits and permanent items as the prior year
on lower pretax income. We expect our effective tax rate for 2023
to be between 20.0% and 22.0%
Adjusted EBITDA1 was $88.7 million in 2022 compared to $58.1
million in 2021 with the Fill-Rite acquisition contributing $19.2
million. Excluding Fill-Rite, adjusted EBITDA1 in 2022 increased
$11.4 million, or 19.6%, compared to 2021, due primarily to
increased sales volume.
The Company’s backlog of orders was $267.4 million at December
31, 2022 compared to $186.0 million at December 31, 2021, an
increase of 43.8%. Fill-Rite added $13.0 million to the backlog at
December 31, 2022. Incoming orders during the fourth quarter of
2022 increased 17.6% when compared to the same period in 2021, and
decreased 8.6% excluding Fill-Rite. Incoming orders increased 30.6%
in 2022 compared to 2021, and 11.2% excluding Fill-Rite. The
increase in backlog at December 31, 2022 was primarily driven by
strong incoming orders during the year, large municipal orders
which are longer term in nature, and the acquisition of Fill-Rite.
The backlog aging was consistent with historical levels.
Capital expenditures in 2022 were $18.0 million and consisted
primarily of machinery and equipment and building improvements.
Capital expenditures for the full-year 2023 are presently planned
to be in the range of $18-$20 million.
Scott A. King, President and CEO commented, “2022 was an
historic year for Gorman-Rupp as we celebrated our 50th consecutive
year of increased dividends, completed the largest acquisition in
Company history by acquiring Fill-Rite, and reached $500 million in
annual sales for the first time. In addition to these historic
achievements, we also delivered year-over-year double digit organic
revenue growth in 2022. The integration of Fill-Rite has gone well
and we are expanding their footprint to support further growth. As
we begin our 90th year, our outlook remains positive. We enter 2023
with record backlog and believe the majority of our markets will
continue to show growth, particularly those related to
infrastructure. We expect our 2023 gross margin to benefit as the
pricing actions we have taken throughout 2022 are fully realized
and the impact of LIFO returns to more normal levels. In addition
to pursuing earnings growth, we continue to focus on cash flow by
improving on our working capital through inventory management
without diminishing customer service.
“I am grateful for the Gorman-Rupp team as well as our
customers, suppliers and shareholders for their on-going support as
we managed through an eventful and successful year.”
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 non-cash pension settlement charges per share,
one-time acquisition costs per share, amortization of step up in
value of acquired inventories per share, and amortization of
customer backlog per share and (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 non-cash
pension settlement charges, one-time acquisition costs,
amortization of step up in value of acquired inventories,
amortization of customer backlog, and non-cash LIFO2 expense.
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 and adjusted EBITDA, 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 including the
fourth quarter when the inflation index for the year is finalized.
When inflation increases, the LIFO reserve and non-cash expense
increase. The atypically high inflation index during 2022, which
was higher than the rate of the Company’s actual cost increases,
required adjustments to the Company’s LIFO reserve that resulted in
significantly higher non-cash LIFO expense than what the Company
has historically recognized. Pre-tax LIFO expense was $8.3 million
for the fourth quarter of 2022 and $2.8 million for the fourth
quarter of 2021. Pre-tax LIFO expense was $18.0 million for the
year ended December 31, 2022 and $6.7 million for the year ended
December 31, 2021.
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, and
uncertainties related to our acquisition of the assets of
Fill-Rite, including but not limited to integration of the acquired
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)
impairment in the value of intangible assets, including goodwill;
(5) defined benefit pension plan settlement expense and LIFO
expense; and (6) family ownership of common equity; and general
risk factors including (7) continuation of the current and
projected future business environment, including the impact of
inflation and other cost pressures, the duration and scope of the
COVID-19 pandemic, the impact of the pandemic and actions taken in
response to the pandemic; (8) highly competitive markets; (9)
availability and costs of raw materials and labor; (10) cyber
security threats; (11) compliance with, and costs related to, a
variety of import and export laws and regulations; (12)
environmental compliance costs and liabilities; (13) exposure to
fluctuations in foreign currency exchange rates; (14) conditions in
foreign countries in which The Gorman-Rupp Company conducts
business; (15) changes in our tax rates and exposure to additional
income tax liabilities; and (16) 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 December
31,
Year Ended December 31,
2022
2021
2022
2021
Net sales
$146,001
$94,164
$521,027
$378,316
Cost of products sold
109,363
71,815
390,090
282,419
Gross profit
36,638
22,349
130,937
95,897
Selling, general and administrative expenses
20,992
13,940
83,117
56,004
Amortization expense
3,139
181
7,637
537
Operating income
12,507
8,228
40,183
39,356
Interest expense
(9,361
)
-
(19,240
)
-
Other income (expense), net
7
(262
)
(7,071
)
(2,108
)
Income before income taxes
3,153
7,966
13,872
37,248
Provision for income taxes
726
1,423
2,677
7,397
Net income
$2,427
$6,543
$11,195
$29,851
Earnings per share
$0.09
$0.25
$0.43
$1.14
The Gorman-Rupp Company Condensed Consolidated
Balance Sheets (Unaudited) (thousands of dollars, except share
data)
December 31,
Assets
2022
2021
Cash and cash equivalents
$6,783
$125,194
Accounts receivable, net
93,059
58,545
Inventories, net
111,133
85,648
Prepaid and other
14,551
7,795
Total current assets
225,526
277,182
Property, plant and equipment, net
128,640
104,293
Other assets
11,579
6,193
Goodwill and other intangible assets, net
507,085
33,086
Total assets
$872,830
$420,754
Liabilities and shareholders'
equity Accounts payable
$24,697
$17,633
Current portion of long-term debt
17,500
-
Accrued liabilities and expenses
43,016
34,807
Total current liabilities
85,213
52,440
Pension benefits
9,352
9,342
Postretirement benefits
22,413
27,359
Long-term debt, net of current portion
419,327
-
Other long-term liabilities
5,331
1,637
Total liabilities
541,636
90,778
Shareholders' equity
331,194
329,976
Total liabilities and shareholders' equity
$872,830
$420,754
Shares outstanding
26,094,865
26,103,661
The Gorman-Rupp Company Non-GAAP Financial Information
(thousands of dollars, except per share data)
Three Months Ended December
31,
Year Ended December 31,
2022
2021
2022
2021
Adjusted earnings per share: Reported earnings per share –
GAAP basis
$0.09
$0.25
$0.43
$1.14
Plus pension settlement charge
-
0.01
0.20
0.07
Plus one-time acquisition costs
-
-
0.22
-
Plus amortization of step up in value of acquired inventories
-
-
0.04
-
Plus amortization of acquired customer backlog
0.02
-
0.05
-
Non-GAAP adjusted earnings per share
$0.11
$0.26
$0.94
$1.21
Three Months Ended December
31,
Year Ended December 31,
2022
2021
2022
2021
Adjusted earnings before interest, taxes, depreciation and
amortization: Reported net income – GAAP basis
$2,427
$6,543
$11,195
$29,851
Plus interest expense
9,361
-
19,240
1
Plus provision for income taxes
726
1,423
2,677
7,397
Plus depreciation and amortization expense
6,997
3,006
21,158
11,914
Non-GAAP earnings before interest, taxes, depreciation and
amortization
19,511
10,972
54,270
49,163
Plus pension settlement charge
72
188
6,427
2,304
Plus one-time acquisition costs
40
-
7,088
-
Plus amortization of step up in value of acquired inventories
-
-
1,406
-
Plus amortization of acquired customer backlog
650
-
1,517
-
Plus non-cash LIFO expense
8,274
2,809
18,041
6,669
Non-GAAP adjusted earnings before interest, taxes, depreciation and
amortization
$28,547
$13,969
$88,749
$58,136
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230203005058/en/
Brigette A. Burnell Corporate Secretary The Gorman-Rupp Company
Telephone (419) 755-1246 NYSE: GRC
For additional information, contact James C. Kerr, Chief
Financial Officer, Telephone (419) 755-1548.
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