The Gorman-Rupp Company — Q3 2021 Form 10-Q
Period and business: Unaudited results for the quarter and nine months ended September 30, 2021, compared with the same 2020 periods. Gorman-Rupp designs and manufactures pumps and pump systems for water, wastewater, construction, industrial, fire protection, and other markets. Financial amounts below are U.S. dollars; monetary figures are in millions unless noted.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $102.1 | $89.0 | $284.2 | $266.5 |
| Gross profit / margin | $25.8 / 25.3% | $23.0 / 25.8% | $73.5 / 25.9% | $68.3 / 25.6% |
| Operating income / margin | $11.5 / 11.3% | $9.7 / 10.9% | $31.1 / 11.0% | $27.3 / 10.3% |
| Net income | $8.8 | $7.3 | $23.3 | $18.4 |
| Diluted earnings per share | $0.34 | $0.28 | $0.89 | $0.70 |
- Sales rose 14.8% in Q3 and 6.6% for the nine months. International sales increased 30.0% and 13.0%, respectively; domestic sales increased 8.6% and 4.0%.
- Q3 gross margin declined 50 basis points year over year, reflecting higher material costs, including a 250-basis-point unfavorable LIFO impact, partly offset by improved labor and overhead absorption. Nine-month gross margin improved 30 basis points, despite a 90-basis-point unfavorable LIFO impact.
- Nine-month operating cash flow was $41.5, versus $31.4 in 2020. Cash at September 30 was $131.1, up $22.9 since year-end 2020. Capital expenditures were $5.6; cash dividends were $12.1. Company-defined adjusted EBITDA was $40.3 and free cash flow, after capital expenditures and dividends, was $22.5.
- No bank debt was outstanding. The company reported $24.0 of available bank lines after $7.0 of letters of credit. Total liabilities were $92.4; current assets were $278.5 and current liabilities were $54.8.
Changes, outlook, and risks
- Net income rose 20.9% in Q3 and 26.8% for the nine months. Nine-month earnings per share increased to $0.89 from $0.70. Lower pension settlement charges reduced other expense year over year, while increased sales supported operating leverage.
- Management reported stronger incoming orders: up 32.0% in Q3 and 24.8% for the first nine months. Backlog was $156.5 at September 30, versus $102.0 a year earlier and $113.1 at December 31, 2020; substantially all remaining performance obligations were expected to be recognized within one year.
- Management said sales and orders continued positive trends and the company entered Q4 with a “very strong backlog.” It cited ongoing COVID-19 and global supply-chain challenges and uncertainty around economic recovery. No formal revenue or earnings guidance was provided. Planned 2021 capital expenditures were approximately $10 million, expected to be funded internally.
- Risks include pandemic and supply-chain disruption, raw-material availability and cost, competitive markets, foreign-exchange movements, pension settlement expense, and other risks described in the filing. Management said facilities and supply chain had remained operational. The filing states the pandemic’s ultimate financial impact could not be reasonably estimated.
- Unusual items: Q3 EPS included an estimated $0.08 unfavorable LIFO impact and a $0.01 non-cash pension settlement charge; nine-month EPS included $0.12 and $0.06, respectively. The board authorized a $0.17 quarterly dividend after quarter-end and announced a share-repurchase program of up to $50 million; no shares had been repurchased under it as of the filing.
Important facts for investors to verify
- Whether higher material costs and LIFO effects persist, and how they affect gross margins.
- Whether backlog converts to sales on schedule, particularly given supply-chain constraints and municipal-market timing.
- Cash generation, planned capital spending, dividend commitments, and any actual use of the $50 million repurchase authorization.
- Effects of pension settlements, foreign-exchange movements, and ongoing COVID-19-related uncertainty on reported results.