Alamo Group Inc. — Q1 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2022, compared with the same period in 2021. Alamo manufactures equipment through its Vegetation Management and Industrial Equipment divisions. Management says first-quarter results are not necessarily indicative of full-year results.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 or prior balance-sheet date |
|---|---|---|
| Net sales | $362.0 million | $311.2 million; up 16% |
| Gross profit / margin | $86.6 million / 23.9% | $76.4 million / 24.6% |
| Operating income / margin | $29.1 million / 8.0% | $25.4 million / 8.2% |
| Net income / diluted EPS | $18.5 million / $1.55 | $17.5 million / $1.47 |
| Cash from operating activities | $(55.0) million | $(8.6) million |
| Cash and cash equivalents | $84.3 million | $42.1 million at Dec. 31, 2021 |
| Total debt | $372.9 million | $269.6 million at Dec. 31, 2021 |
| Working capital | $550.7 million | $419.6 million at Dec. 31, 2021 |
Revenue rose in both divisions: Vegetation Management sales were $221.0 million, up 20%; Industrial Equipment sales were $141.0 million, up 11%. Segment operating income increased 9% and 24%, respectively. The company declared dividends of $0.18 per share, versus $0.14 a year earlier.
Operating cash outflow reflected increases in accounts receivable and inventory, partly associated with higher sales, inflation and backlog. Investing cash outflow was $4.3 million, including $4.4 million in capital expenditures. Financing activities provided $101.2 million, mainly reflecting revolving-credit borrowings. At quarter-end, $111.0 million was outstanding on the revolver, with $160.9 million of available borrowing capacity after letters of credit. The company reported compliance with its credit covenants. Cash held by foreign subsidiaries was $80.6 million.
Changes versus the prior period
- Sales increased 16% and net income increased 6%, supported by strong demand and pricing actions.
- Margins declined: gross margin fell 0.7 percentage points, operating margin 0.2 points and net margin 0.5 points. Higher material and freight costs, component shortages and resulting manufacturing inefficiencies weighed on profitability.
- Backlog more than doubled to $917.8 million from $452.5 million a year earlier.
- Debt increased $103.3 million from year-end 2021, primarily as revolver borrowings rose to fund working-capital needs.
- Other expense, net increased to $1.8 million from $0.6 million. The filing does not provide a clear explanation of the increase.
Outlook, risks and notable items
Management reports continued strong demand and says new orders and backlog improved across Vegetation Management product lines. It expects supply-chain challenges, input-cost inflation and logistics disruptions to continue for the remainder of 2022. No quantified revenue, earnings or margin guidance is provided. Management expects to approve a normalized level of capital expenditures for 2022 and believes cash generation and the credit agreement should meet foreseeable cash requirements.
Key risks cited include COVID-19-related disruptions, supply constraints and labor shortages, inflation, geopolitical events including the war in Ukraine, tariffs and trade disputes, foreign exchange and interest-rate movements, agricultural-sector weakness, government customer budget constraints, and acquisition integration. A 10% currency movement in the modeled scenario would change quarterly gross profit by approximately $2.6 million; a two-percentage-point change in variable borrowing rates would change quarterly interest expense by approximately $1.9 million. Of $373.5 million outstanding under the credit agreement, $200.0 million was covered by an interest-rate swap. The filing reports no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements, and no change in internal control over financial reporting. Timberwolf, acquired in October 2021 for approximately $25.0 million, contributed results deemed immaterial. Goodwill decreased by $3.7 million from an adjustment; the filing does not explain the adjustment further in the excerpt.
Important facts for investors to verify
- Whether the exceptionally high backlog converts to delivered sales, and the extent of any cancellations or delivery delays.
- Whether pricing and operational improvements can offset continuing material, freight, labor and supply-chain pressures and restore margins.
- Working-capital trends, cash conversion and the need for further revolver borrowings as receivables and inventory build.
- Debt levels, covenant headroom, variable-rate exposure and the company’s plans for foreign-held cash.
- The nature of the $3.7 million goodwill adjustment and the increase in other expense, net.