SEGUIN, Texas — Alamo Group (NYSE: ALG) has reported results for the fourth quarter and year ended Dec. 31, 2018.
- Record net sales for full year of $1.0 billion, up 10.6%
- Record net income for full year of $73.5 million, up 65.8%
- Margin improvement helped drive income from operations to the 10% level
- Record net sales for the fourth quarter of $256.0 million, up 5.3%
- Industrial Division net sales of $160.0 million, up 8.7%
- Agricultural Division net sales of $55.9 million, down 1.0%
- European Division net sales of $40.1 million, up 1.3%
- Record net income for the fourth quarter of $16.6 million, up 412.0%
- Backlog remains strong at $240 million, up 10.1% versus prior year end
Results for the Quarter
Net sales for the fourth quarter of 2018 were $256.0 million compared to net sales of $243.3 million in the fourth quarter of 2017, an increase of 5.3%. Net income for the fourth quarter was $16.6 million, or $1.41 per diluted share, compared to $3.2 million, or $0.27 per diluted share in the prior year. Fourth quarter 2017 net income included a one-time charge of $10.2 million related to the U.S. tax reform bill which was enacted in December 2017. Excluding this charge, adjusted net income in the fourth quarter of 2017 was $13.5 million, or $1.15 per diluted share.
Results for the Full Year
Net sales for the full year of 2018 were $1,008.8 million, up 10.6% compared to net sales of $912.4 million in the prior year. Net income for the full year was $73.5 million, or $6.25 per diluted share, versus $44.3 million, or $3.79 per diluted share in 2018. The results for 2018 include a net $3.3 million favorable adjustment to the provisional tax reform expense recorded in 2017; the results for 2017 included the one-time net charge of $10.2 million referenced above. Excluding these two adjustments, net income for the full year of 2018 was $70.2 million compared to net income of $54.6 millionfor the prior year period, an increase of 28.6%.
The results for 2018 also included the effects of the acquisitions of Santa Izabel and Old Dominion Brush Company, which were both completed in June 2017, and R.P.M. Tech which was completed in August 2017. Together these three acquisitions added $64.9 million in net sales and $5.0 million in net income in 2018 compared to $25.5 million in net sales and $1.0 million in net income during the partial year they were with Alamo in 2017.
Net sales and net income for both the fourth quarter and full year 2018 were at record levels for Alamo Group, marking the first time the Company achieved revenue exceeding $1.0 billion.
Results by Division
Alamo Group's Industrial Division net sales in the fourth quarter of 2018 were $160.0 million compared to $147.2 millionin the fourth quarter of 2017, an increase of 8.7%. For the full year net sales in 2018 were $598.9 million compared to $522.7 million in 2017, an increase of 14.6%. The Division's income from operations for the full year was $64.2 million in 2018 compared to $51.9 million in 2017. The Industrial Division's results included the effects of the acquisitions of Old Dominion Brush Company and R.P.M. Tech, which combined contributed $48.9 million in net sales and $5.4 million in income from operations in 2018 compared to $19.8 million in net sales and $2.0 million in income from operations during the partial year they were with Alamo in 2017.
The Company's Agricultural Division recorded net sales of $55.9 million in the fourth quarter of 2018 compared to $56.5 million in the same period of 2017, a decrease of 1.0%. For full year 2018 net sales were $235.1 million versus $227.4 million in 2017, an increase of 3.4%. Full year income from operations was $22.6 million for the Division in 2018 compared to $24.1 million in the prior year. The Agricultural Division results include the effects of Santa Izabel, which contributed $16.0 million in net sales and $1.2 million in income from operations in 2018 compared to $5.7 million in net sales and a $0.3 million loss from operations during the partial year it was with Alamo in 2017.
Alamo's European Division net sales in the fourth quarter of 2018 were $40.1 million, an increase of 1.3% compared to net sales of $39.6 million in the fourth quarter of 2017. For the full year the Division's net sales were $174.8 millioncompared to $162.3 million in 2017, an increase of 7.7%. Income from operations for the full year was $14.2 million in 2018 compared to $12.8 million achieved in 2017.
Comments on Results
Ron Robinson, Alamo Group's President and CEO commented, “Alamo delivered a robust finish to 2018 which propelled the full year results to record levels and marked the first time net sales for the Company surpassed the one billion dollarmark. We believe this is a significant achievement and a testament to the strength of the Company's total organization which has delivered record results for eight out of the last nine years. Our results reflect both the benefit we received from the U.S. corporate tax reform measures that took effect in 2018 and the full year contribution from acquisitions completed in 2017. The Company's accomplishments for the year were realized against a backdrop of significant challenges including above average increases in many input costs such as energy, freight, steel and other components as well as higher tariffs that contributed to cost inflation. In addition, long lead times for many purchased commodities led to production challenges and higher inventory levels. However, despite these issues, our income from operations surpassed the 10% mark which has been one of our operational targets.
“Alamo's Industrial Division was the biggest contributor to the Company's record results with the highest growth in sales and income from operations. Once again, the Division benefited from broad strength across our product range which was helped by steady and improving market demand that seems to be continuing as we move into 2019. And, our backlog, which has remained favorable throughout the year has allowed us to be more efficient in our production planning. Products such as our Gradall excavators, Vacall and Super Products vacuum trucks, Schwarze and NiteHawk street sweepers as well as Alamo and Tiger mowing equipment all showed solid improvement which led to the results achieved.
“Our Agricultural Division, which was affected by all the challenges referenced previously, also had to contend with weaker market conditions as a result of declining farm incomes. Yet, sales for the year were up modestly and margins held steady despite the market challenges. Our Bush Hog, Rhino and Schulte operations all produced solid results for the year though we are concerned the market conditions are likely to continue to constrain results as we move into 2019.
“The Company's European operations had a record year with our McConnel operation in the U.K. leading the way. This was particularly gratifying given they not only faced some of the cost challenges we referenced, but also continue to be affected by the uncertainly surrounding the pending Brexit situation which is causing some uncertainty in the markets. We hope this issue gets resolved in a reasonable manner in 2019, though we feel we can continue to do well under most of the likely scenarios for completing this separation. We also believe some of our internal issues which constrained results in our French operations in 2018 should show improvement as we move into 2019. However, we are concerned about overall economic conditions in Europe which seem to be softening, though our backlog remains at a healthy level.
“All in all, while we certainly think there are some ongoing challenges with which we will need to contend in 2019, we believe the outlook for Alamo Group remains favorable. And, we are taking even more proactive initiatives to drive improvements in sales and operating efficiencies. This will result in increased product development spending and capital investments. Ongoing product development initiatives have helped drive our organic growth and we are excited about some of the new products which we will be introducing to our markets in 2019. Our increased capital investments, led by the recently announced new facility we are building for our Super Products vacuum truck operations, are aimed at consolidating our manufacturing footprint and further updating the technical capabilities of our overall operations. We believe both of these initiatives should lead to ongoing improved results for Alamo.
“While we did not complete any acquisitions in 2018, this remains a core part of our strategy moving ahead. In the past year, high valuations constrained our M&A activity though we remain very active in pursuing opportunities as evidenced by the recently announced pending acquisition of Dutch Power in the Netherlands.
“As we enter our 50th year, we continue to feel Alamo Group will benefit from our broad product portfolio and the diversity of the markets we serve. We also believe by making further investments in product development and our manufacturing operations we can continue to drive both top line growth and margin improvement which will help our Company in 2019 and beyond. We are proud of the results we achieved in 2018, but are already focused on the future. I want to thank everyone at Alamo Group whose dedication and commitment have made us the company we are today.”