Gorman-Rupp Company — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Gorman-Rupp designs, manufactures and sells pumps and pump systems globally through one operating segment. Financial amounts below are in U.S. dollars; millions are used unless otherwise noted.
Financial performance and position
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $378.3 million | $349.0 million | +8.4% |
| Gross profit / margin | $95.9 million / 25.3% | $89.6 million / 25.7% | Margin down 0.4 percentage point |
| Operating income / margin | $39.4 million / 10.4% | $35.8 million / 10.2% | Income +10.1% |
| Net income | $29.9 million | $25.2 million | +18.5% |
| Diluted earnings per share | $1.14 | $0.97 | +17.5% |
| Cash from operating activities | $45.4 million | $51.2 million | Down $5.7 million |
| Capital expenditures | $9.8 million | $8.0 million | |
| Cash and cash equivalents at year-end | $125.2 million | $108.2 million |
At year-end the Company had no bank debt, $23.2 million of borrowing capacity after outstanding letters of credit, and total current assets of $277.2 million versus current liabilities of $52.4 million. Total assets were $420.8 million and total liabilities were $90.8 million. Management reported $25.1 million of non-GAAP free cash flow, defined as adjusted EBITDA less capital expenditures and dividends.
Changes versus comparable periods
- Sales rebounded from 2020, when revenue declined 12.4% from 2019 amid pandemic-related weakness and reduced oil-and-gas demand. 2021 domestic sales rose 5.6%; international sales rose 15.3% and represented 31% of revenue.
- Sales increased across water and non-water markets overall. Fire, construction, repair, agriculture, OEM, petroleum and industrial sales improved; municipal sales fell $10.0 million, which management attributed primarily to timing.
- Gross margin contracted as material costs rose, including an unfavorable LIFO impact of 180 basis points. Higher sales volume improved labor and overhead absorption and helped lift operating margin.
- Net income and EPS improved year over year, partly reflecting a smaller non-cash pension settlement charge: $2.3 million in 2021 versus $4.6 million in 2020. EPS also included an unfavorable LIFO impact of $0.20 in 2021 versus $0.03 in 2020.
Outlook, risks and unusual items
- Backlog was $186.0 million at year-end, up 64.4% from $113.1 million a year earlier. Incoming orders increased 26.9% for the year and 33.0% in the fourth quarter. Approximately 92% of backlog was scheduled for shipment in 2022.
- Management said order trends remained strong, but fourth-quarter sales were somewhat affected by customer-initiated shipment delays. It cited global supply-chain challenges, inflation in materials and wages, and price increases intended to offset cost pressures. Management expressed optimism about 2022 growth; the filing does not provide a specific revenue or earnings forecast.
- Planned 2022 capital expenditures are $15–$20 million, expected to be funded internally. The Company expects to contribute up to $2.0 million to its defined benefit pension plan and estimated a 2022 effective tax rate of 20%–22%.
- Risks highlighted include COVID-19 and supply-chain disruption, material and labor availability and cost, competition and pricing, international and foreign-exchange exposure, cybersecurity, environmental and trade-law compliance, acquisition execution, pension settlement charges, and potential goodwill impairment. National Pump goodwill was $13.6 million; its estimated fair value exceeded carrying value by approximately 45%, but management noted weaker growth or lower projections could lead to future impairment.
- Asbestos-related lawsuits have generally been dismissed or covered by insurance, subject to deductibles and limits; management said these and other ordinary-course proceedings were not expected to have a material financial impact. The Company recorded no goodwill impairment in 2021.
- The Company announced a $50.0 million share-repurchase authorization in October 2021; approximately $1.0 million had been used under the program by year-end, leaving $49.0 million. The Board authorized a $0.17 quarterly dividend in January 2022, subject to future Board decisions.
- Scott A. King became CEO on January 1, 2022, succeeding Jeffrey S. Gorman, who remained Executive Chairman. The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether the elevated backlog converts to shipments and revenue on schedule, given customer shipment delays and continuing supply-chain constraints.
- Whether price increases and volume leverage can offset ongoing material, labor and LIFO cost pressures without further margin erosion.
- Cash conversion and working-capital needs: operating cash flow declined despite higher earnings, primarily amid increased receivables.
- The assumptions and headroom underlying the National Pump goodwill valuation, and the effect of future operating results on impairment risk.
- The pension plan’s funding, lump-sum distributions and possible settlement charges, as well as the sustainability of dividends and planned repurchases.