Alamo Group Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Alamo manufactures equipment serving industrial and agricultural markets; results are reported across Industrial and Agricultural segments. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $347.6 million | $268.6 million | $658.7 million | $583.1 million |
| Gross profit / margin | $88.1 million / 25.4% | $67.8 million / 25.2% | $164.6 million / 25.0% | $146.8 million / 25.2% |
| Operating income / margin | $33.6 million / 9.7% | $22.7 million / 8.4% | $59.0 million / 9.0% | $46.5 million / 8.0% |
| Net income | $26.0 million | $13.0 million | $43.5 million | $28.5 million |
| Diluted EPS | $2.19 | $1.10 | $3.66 | $2.41 |
- Q2 sales rose 29%; first-half sales rose 13%. Q2 Industrial sales increased 27% and Agricultural sales 35%; for the first half, the respective increases were 7% and 26%.
- First-half operating income improved 27%, while net income increased 53%. First-half diluted EPS increased from $2.41 to $3.66.
- First-half operating cash flow was $9.4 million, down from $58.7 million a year earlier. Receivables and inventory absorbed cash as activity and working-capital needs increased.
- Cash and cash equivalents were $85.6 million at June 30, 2021, versus $50.2 million at year-end 2020. Working capital was $437.9 million, up $92.2 million from year-end.
- Total debt and finance lease obligations were $315.0 million, compared with $285.4 million at year-end. Revolver borrowings were $42.0 million, with $174.2 million of available borrowings after letters of credit. The company reported compliance with its credit covenants.
- Six-month capital expenditures were $9.4 million, versus $12.5 million in 2020. Dividends declared were $0.14 per share in Q2 and $0.28 per share for the first half.
Material changes and unusual items
- Improved customer demand drove higher sales in both segments; management also cited pricing actions. Agricultural demand benefited from improved commodity prices, government subsidies, and lower dealer inventories.
- Gross margin was broadly stable, but management said steel and component-cost inflation, supply constraints, and logistics costs offset volume benefits. SG&A rose in dollars as expenses returned toward pre-pandemic levels.
- First-half interest expense fell to $5.5 million from $9.5 million, which management attributed to debt reduction. However, total reported debt was higher than at year-end, reflecting increased revolving-credit borrowings for working capital.
- Other income included a $3.4 million gain on the sale of a Netherlands facility. Lower effective tax rates benefited from discrete tax items. The 2020 comparison included $2.7 million of Morbark-related inventory step-up charges for the first half.
- Backlog reached $503.6 million at quarter-end, up 132% from $216.6 million a year earlier.
Outlook, risks and contingencies
- Management reported improving markets, stronger orders and backlog, and operations at full or nearly full capacity at most facilities. It did not provide quantified revenue or earnings guidance; it expected 2021 capital spending to return to a more normalized level.
- Management cautioned that COVID-19 and variant cases could affect demand and operations. Ongoing supply-chain and shipping bottlenecks, component shortages, input-cost inflation, and a difficult labor market could delay shipments and pressure costs and margins.
- Other cited risks include agricultural commodity prices and customer conditions, government customer budgets, tariffs and trade policy, foreign-exchange movements, interest rates, acquisition integration, and broader economic or geopolitical disruptions.
- The company held $79.4 million of cash at foreign subsidiaries. Its debt is variable-rate; $200 million of the $315.8 million outstanding under the Credit Agreement was covered by an interest-rate swap. Management stated that available credit and internally generated funds should meet foreseeable cash requirements.
Investor verification points
- Whether the large backlog converts to timely shipments and sales, given component, labor, and logistics constraints.
- Whether margins hold as steel, parts, freight, and other input costs change, and how much pricing offsets inflation.
- Whether working-capital investment reverses and operating cash flow recovers from the first-half level.
- How revolving borrowings, foreign cash repatriation, and debt repayments affect liquidity and total debt.
- The durability of reported earnings after the facility-sale gain and discrete tax benefits, and the sensitivity to variable interest rates and foreign exchange.