Gorman-Rupp Company — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Gorman-Rupp designs, manufactures and sells pumps and pump systems across industrial, fire, agriculture, construction, municipal and other markets. It reports one business segment. The 2022 comparison includes Fill-Rite from its May 31, 2022 acquisition date; 2023 includes a full year.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $659.5 million | $521.0 million |
| Gross profit / gross margin | $196.3 million / 29.8% | $130.9 million / 25.1% |
| Operating income / operating margin | $87.0 million / 13.2% | $40.2 million / 7.7% |
| Income before taxes | $44.0 million | $13.9 million |
| Net income / diluted earnings per share | $35.0 million / $1.34 | $11.2 million / $0.43 |
| Operating cash flow | $98.2 million | $13.7 million |
| Capital expenditures | $20.8 million | $18.0 million |
| Cash and cash equivalents at year-end | $30.5 million | $6.8 million |
| Total debt at year-end | $413.8 million | $448.3 million |
Sales rose 26.6%, reflecting the full-year inclusion of Fill-Rite, higher volume and price increases. Domestic sales increased 30.4%; international sales increased 16.0%. International sales were 25% of revenue. Every reported end market grew, with particularly strong percentage increases in agriculture, construction and petroleum.
Gross margin improved 470 basis points. Management attributed the improvement to lower material costs, including a more favorable LIFO impact, price realization and better labor and overhead leverage. LIFO expense was $6.9 million versus $18.0 million in 2022. Interest expense more than doubled to $41.3 million, reflecting a full year of acquisition-related borrowing costs and higher interest rates.
Adjusted EPS, a non-GAAP measure, was $1.37 versus $0.94. Adjusted EBITDA was $121.7 million versus $88.7 million. These measures exclude specified items and are not substitutes for GAAP results.
Liquidity, debt and capital allocation
Cash from operations increased substantially, which the company attributed to higher earnings before depreciation, amortization and LIFO expense and improved working-capital management. Cash used in financing was $54.5 million, primarily from net debt repayments of $34.5 million and dividends of $18.4 million. The company had $98.0 million available under its $100 million revolving facility after letters of credit.
Total debt was $413.8 million, comprising $323.8 million under the senior term loan and $90.0 million of subordinated debt. Scheduled debt maturities include $21.9 million in 2024, $30.6 million in 2025, $35.0 million in 2026 and $326.3 million in 2027. The company reported covenant compliance and said it expects adequate liquidity for at least the next 12 months. A 100-basis-point rise in interest rates is estimated to increase annual interest expense by approximately $2.5 million.
2024 capital expenditures are estimated at $18–$20 million, expected to be funded from internally generated cash. The company paid $0.71 per share in dividends during 2023 and reported a 51-year record of annual dividend increases; a $0.18 quarterly dividend was authorized in January 2024. Approximately $48.1 million remained available under the share repurchase authorization.
Outlook, risks and unusual items
- Backlog was $218.1 million at year-end, down 18.4% from $267.4 million a year earlier. About 90% was scheduled for shipment during 2024. Management expects backlog to return to more normal levels during 2024, while remaining elevated entering the year.
- Incoming orders increased 4.4% to $617.6 million. Management cited infrastructure spending, flood control and storm-water management as opportunities. The filing does not provide full-year revenue or earnings guidance; it expects a 2024 effective tax rate of 20%–22%.
- The 2022 acquisition of Fill-Rite cost $528.0 million and was financed with cash and new debt. Realization of expected acquisition benefits, integration, debt service and goodwill impairment remain risks. Fill-Rite-related goodwill was $230.7 million; the 2023 impairment test found no impairment, but the auditor identified this valuation as a critical audit matter.
- Other material risks include cyclical demand and capital spending, competition, materials and labor costs, supply availability, variable interest rates, foreign exchange, cybersecurity, environmental and trade-law compliance, and potential pension expense. The company recorded no goodwill impairment in 2023 and reported no material cybersecurity incidents or material legal-proceeding exposure.
- The company reported a $95.1 million LIFO reserve and said repeal of LIFO could require repayment of approximately $20.0 million in deferred taxes. It also reported that no pension settlement charge was recorded in 2023; the filing elsewhere contains a conflicting statement that settlement losses occurred in 2023 and 2022.
Key facts for investors to verify
- How much of sales and margin growth reflects underlying volume and pricing versus the full-year inclusion of Fill-Rite.
- Debt repayment progress, interest expense, covenant headroom and the ability to refinance the large 2027 maturity.
- Whether backlog normalization and order trends support management’s 2024 outlook.
- Fill-Rite performance and the sensitivity of its goodwill valuation to forecast growth, profitability and discount-rate assumptions.
- The conflicting pension-settlement disclosures and the potential cash and earnings effects of LIFO changes or repeal.