The Gorman-Rupp Company — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited consolidated results. Gorman-Rupp designs, manufactures and markets pumps and pump systems. Comparisons are with the corresponding 2020 periods.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $93.0m | $85.8m | $182.0m | $177.5m |
| Gross profit / margin | $24.7m / 26.5% | $21.8m / 25.5% | $47.7m / 26.2% | $45.3m / 25.5% |
| Operating income / margin | $10.6m / 11.4% | $9.0m / 10.5% | $19.6m / 10.8% | $17.6m / 9.9% |
| Net income | $7.1m | $5.6m | $14.5m | $11.1m |
| Earnings per share | $0.27 | $0.22 | $0.56 | $0.43 |
- First-half operating cash flow was $28.1m, compared with $17.1m in 2020. Capital expenditures were $3.5m; cash dividends were $8.1m.
- Cash and equivalents were $124.3m at June 30, 2021, up from $108.2m at year-end 2020. The company reported no bank debt, with $23.6m available on credit lines after $7.4m of letters of credit. It reported compliance with debt covenants.
- Company-defined non-GAAP free cash flow was $14.3m for the first half, versus $12.4m. This measure is adjusted EBITDA less capital expenditures and dividends.
- Backlog was $153.0m at June 30, versus $110.3m a year earlier and $113.1m at December 31, 2020. Substantially all remaining performance obligations were expected to be recognized as revenue within one year.
Changes and notable items
- Q2 sales increased 8.4%; first-half sales increased 2.6%. Q2 domestic sales rose 8.1% and international sales 9.1%; international sales were approximately 31% of quarterly sales.
- Management attributed improved gross and operating margins primarily to better fixed labor and overhead absorption on higher volume. Q2 SG&A rose 9.4%, partly as compensation, travel and other costs returned closer to pre-pandemic levels.
- First-half net income rose 30.6%. Lower non-cash pension settlement charges contributed to the improvement: $1.7m in first-half 2021 versus $3.4m in 2020. Reported first-half EPS included settlement charges of $0.05 and $0.10 per share, respectively; adjusted EPS was $0.61 and $0.53.
- Q2 water-market sales increased 4.5%, while non-water sales increased 18.1%. Municipal sales declined, primarily due to shipment timing. For the first half, municipal and industrial sales also decreased.
Outlook, risks and other disclosures
- Management said sales and incoming orders improved broadly as the global economy recovered, with first-half orders up 21.6% and Q2 orders up 46.6% year over year. It described the start-of-Q3 backlog as strong but gave no quantified sales or earnings guidance.
- Planned 2021 capital expenditures were $12m–$15m, primarily for building improvements and machinery and equipment, expected to be funded internally. The board authorized a $0.155-per-share quarterly dividend payable September 10, 2021; future dividends remain subject to board discretion.
- Management cited uncertainty from COVID-19 and ongoing supply-chain constraints, including availability, longer lead times, transportation challenges and rising material costs. Other disclosed risks include competition, raw-material costs, foreign exchange, pension settlements, cyber threats, environmental and regulatory costs, and acquisition integration.
- The filing reports a $1.7m Q2 pension settlement loss. It states there were no material changes to previously reported legal proceedings; disclosure controls were effective at June 30, 2021.
Important facts for investors to verify
- Cash-flow discrepancy: The cash-flow statement reports a first-half net increase in cash of $16.091m, while the MD&A cash-flow table says $16.901m. The balance-sheet change from $108.203m to $124.294m is $16.091m; verify the MD&A figure.
- Track whether the $153.0m backlog converts to revenue as expected and whether supply-chain and material-cost pressures affect margins.
- Assess the recurring operating trend separately from non-cash pension settlement charges and review the company’s definitions and reconciliations of non-GAAP measures.
- Consider that management cautions first-half results are not necessarily indicative of full-year performance; COVID-19’s ultimate financial effect could not be reasonably estimated.