The Board of Directors of The Gorman-Rupp Company (NYSE: GRC) has declared a quarterly cash dividend of $0.115 per share on the common stock of the Company, payable September 8, to shareholders of record as of August 15. This marks the 270th consecutive quarterly dividend paid by The Gorman-Rupp Company.
The company also reported fnancial results for the second quarter and six months ended June 30, 2017.
Second quarter earnings per share were $0.30, up 20% or $0.05 per share, even with a non-cash pension settlement charge of $0.05 per share in the current quarter.
Net sales increased 1.7% or $1.6 million. Excluding the PCCP project, net sales increased 4.4% or $4.1 million.
Incoming orders were up 12% compared to the second quarter of 2016 and up 15% compared to the first quarter of 2017.
Net sales during the second quarter were $97.9 million compared to $96.3 million during the second quarter of 2016, an increase of 1.7% or $1.6 million. Excluding sales from the New Orleans Permanent Canal Closures & Pumps (“PCCP”) project of $2.5 million in the second quarter of 2016, net sales increased 4.4% or $4.1 million. Domestic sales, excluding PCCP, increased 3.0% or $1.9 million while international sales increased 7.1% or $2.2 million compared to the same period in 2016.
Sales in larger water markets, excluding PCCP, increased 5.1% or $3.2 million in the second quarter of 2017 compared to the second quarter of 2016. Sales in the construction market increased $3.5 million due primarily to sales to rental market customers related to the oil and gas industry. Sales in the municipal market, excluding PCCP, increased a total of $1.1 million primarily driven by increased shipments of large volume wastewater pumps partially offset by lower shipments attributable to other flood control projects. Sales of repair parts increased $0.3 million. These increases were partially offset by decreased sales of $1.7 million in the fire protection market principally due to market softness in the Middle East.
Sales increased 3.0% or $0.9 million in non-water markets during the second quarter of 2017 compared to the second quarter of 2016. Sales in the industrial and petroleum markets increased a combined $1.3 million principally attributable to an increase in oil and gas drilling activity. These increases were partially offset by decreased sales of $0.4 million in the OEM market related to power generation equipment and services.
Gross profit was $26.1 million for the second quarter of 2017, resulting in gross margin of 26.7%, compared to gross profit of $23.2 million and gross margin of 24.1% for the same period in 2016. Gross margin included a non-cash pension settlement charge of $1.1 million or 120 basis points in the second quarter of 2017 which did not occur in the second quarter of 2016. Excluding the non-cash pension settlement charge, gross margin increased by 380 basis points due principally to favorable sales mix, labor efficiency, and lower warranty expense.
Selling, general and administrative expense (“SG&A”) was $14.7 million for the second quarter of 2017 and 15.0% of net sales, compared to $13.7 million and 14.2% of net sales for the same period in 2016. SG&A included a non-cash pension settlement charge of $0.6 million or 60 basis points in the second quarter of 2017 which did not occur in the second quarter of 2016.
Operating income was $11.5 million, resulting in operating margin of 11.7% for the second quarter of 2017, compared to operating income of $9.5 million and operating margin of 9.9% for the same period in 2016. Operating margin included a non-cash pension settlement charge of $1.7 million or 180 basis points in the second quarter of 2017 which did not occur in the second quarter of 2016. Excluding the non-cash pension settlement charge, operating margin increased by 360 basis points due principally to favorable sales mix, and lower labor and overhead costs.
Net income was $7.8 million during the second quarter of 2017 compared to $6.6 million in the second quarter of 2016, and earnings per share were $0.30 and $0.25 for the respective periods. Earnings for the second quarter of 2017 included a non-cash pension settlement charge of $0.05 per share.
Net sales for the six months ended June 30, 2017 were $190.5 million comparellion during the same period in 2016, a decrease of 3.1% or $6.0 million. Excluding sales from the PCCP project of $0.5 million in the first half of 2017 and $7.9 million for the same period in 2016, net sales for the first half of 2017 increased 0.7% or $1.4 million. Domestic sales, excluding PCCP, decreased 1.4% or $1.7 million while international sales increased 4.8% or $3.1 million compared to the same period in 2016.
Sales in the first half of 2017 in larger water markets, excluding PCCP, increased 0.5% or $0.7 million compared to the first half of 2016. Sales in the construction market increased $4.6 million due primarily to sales to rental market customers, and sales of repair parts increased $1.4 million. Sales in the fire protection market decreased $3.3 million principally due to market softness domestically and in the Middle East, and sales in the agriculture market decreased $1.3 million principally due to low farm income and competitive pricing pressure. Sales in the municipal market, excluding PCCP, decreased $0.7 million principally driven by decreased shipments attributable to other flood control projects.
Sales in the first half of 2017 in non-water markets increased 1.1% or $0.7 million compared to the first half of 2016. Sales increased $2.3 million in the industrial market driven by an increase in oil and gas drilling activity, and sales in the OEM market increased $0.4 million driven by infrastructure spending relating to gas production. These increases were partially offset by decreased shipments of $2.0 million in the petroleum market driven by challenging market conditions.
Gross profit was $47.3 million for the first six months of 2017, resulting in a gross margin of 24.9%, compared to gross profit of $46.1 million and gross margin of 23.5% for the same period in 2016. Gross margin included a non-cash pension settlement charge of $2.2 million or 120 basis points in the first half of 2017 which did not occur in the first half of 2016. Excluding the non-cash pension settlement charge, gross margin increased by 260 basis points due principally to favorable sales mix and labor efficiency. Offsetting the sales mix benefit was a 30 basis point increase in healthcare expenses.
Selling, general and administrative expense (“SG&A”) was $28.9 million for the first six months of 2017 and 15.2% of net sales, compared to $27.4 million and 13.9% of net sales for the same period in 2016. SG&A included a non-cash pension settlement charge of $1.2 million or 60 basis points in the first half of 2017 which did not occur in the first half of 2016. The remaining increase in SG&A as a percentage of sales was due principally to loss of leverage due to lower sales volume.
Operating income was $18.5 million, resulting in operating margin of 9.7% for the first six months of 2017, compared to operating income of $18.8 million and operating margin of 9.5% for the same period in 2016. Operating margin included a non-cash pension settlement charge of $3.4 million or 180 basis points in the first half of 2017 which did not occur in the same period in 2016. Excluding the non-cash pension settlement charge, operating margin increased by 200 basis points due principally to favorable sales mix and lower labor costs.
Net income was $12.9 million during both the first six months of 2017 and the first six months of 2016, and earnings per share were $0.49 for both respective periods. Earnings for the first half of 2017 included a non-cash pension settlement charge of $0.09 per share.
The Company’s backlog of orders was $103.6 million at June 30, 2017 compared to $107.7 million at June 30, 2016 and $98.8 million at December 31, 2016. Excluding the PCCP project in 2017 and 2016, the backlog at June 30, 2017 was down 1.6% as compared to June 30, 2016.
The Company generated $24.0 million of operating cash flow during the first six months of 2017. Cash and cash equivalents totaled $67.0 million at June 30, 2017 and working capital increased $13.0 million from December 31, 2016 to $167.5 million at June 30, 2017. The Company had no bank debt as of June 30, 2017. Capital expenditures for the first six months of 2017 of $3.3 million consisted primarily of machinery and equipment. Capital expenditures for the full-year 2017 are presently planned to be in the range of $8 to $10 million and are expected to be financed through internally-generated funds.
Jeffrey S. Gorman, President and CEO commented, “We are pleased with our second quarter performance, including continued sales growth in the construction and industrial markets and higher gross and operating margins. Our incoming orders also increased 15% over the first quarter, most notably in the municipal and fire protection markets. Although some soft spots remain, it is encouraging to see increases in capital spending within the oil & gas markets as well as what we believe is the bottoming of the agricultural market. We remain committed to long-term growth both domestically and internationally along with an equitable return for our shareholders.”
