On Thursday, the Gorman-Rupp Company reported financial results for the first quarter ended March 31, 2017.
Net sales during the first quarter were $92.6 million compared to $100.3 million during the first quarter of 2016, a decrease of 7.6% or $7.7 million. Excluding sales from the New Orleans Permanent Canal Closures & Pumps (“PCCP”) project of $0.4 million in the first quarter of 2017 and $5.3 million for the same period in 2016, net sales during the quarter decreased 2.9% or $2.8 million. Domestic sales, excluding PCCP, decreased 5.8% or $3.6 million while international sales increased 2.6% or $0.8 million compared to the same period in 2016.
Sales in our larger water markets, excluding PCCP, decreased 4.0% or $2.6 million in the first quarter of 2017 compared to the first quarter of 2016. Sales in the construction market increased $1.1 million due primarily to sales for rental market customers and sales of repair parts increased $1.0 million. Sales in the municipal market, excluding PCCP, decreased $1.9 million driven by decreased shipments attributable to other flood control projects and sales in the fire protection market decreased $1.6 million principally due to lower domestic sales. Also, sales in the agriculture market decreased $1.3 million due to wet weather conditions in some key domestic locations and low farm income.
Sales decreased 0.6% or $0.2 million in non-water markets during the first quarter of 2017 compared to the first quarter of 2016. Sales in the industrial market increased $1.7 million driven by an increase in oil and gas drilling activity and sales in the OEM market increased $0.8 million driven by infrastructure spending relating to gas production. These increases were offset by decreased shipments of $2.6 million in the petroleum market driven by challenging market conditions.
Gross profit was $21.2 million for the first quarter of 2017, resulting in gross margin of 22.9%, compared to gross profit of $22.9 million and gross margin of 22.8% for the same period in 2016. Gross margin includes a non-cash pension settlement charge of $1.1 million or 110 basis points in the first quarter of 2017 which did not occur in the first quarter of 2016. Excluding the non-cash pension settlement charge, the 120 basis point increase in gross margin was due principally to favorable sales mix. Offsetting the sales mix benefit was a 60 basis point increase in healthcare expenses and an increase in overhead expenses as a percent of sales driven by lower leverage due to sales volume decreases.
Selling, general and administrative expense (“SG&A”) was $14.2 million for the first quarter of 2017 and 15.3% of net sales, compared to $13.7 million and 13.6% of net sales for the same period in 2016. SG&A includes a non-cash pension settlement charge of $0.6 million or 70 basis points in the first quarter of 2017 which did not occur in the first quarter of 2016. The increase in SG&A as percent of sales, excluding the non-cash pension settlement charge, was due principally to loss of leverage due to lower sales volume. Excluding the non-cash pension settlement charge, SG&A decreased slightly compared to the same period last year.
Operating income was $7.0 million, resulting in operating margin of 7.5% for the first quarter of 2017, compared to operating income of $9.2 million and operating margin of 9.2% for the same period in 2016. The decline in operating margin was largely driven by a non-cash pension settlement charge totaling $1.7 million or 180 basis points in the first quarter of 2017 which did not occur in the same period in 2016 and lower operating leverage due to sales volume decreases.
Net income was $5.1 million during the first quarter of 2017 compared to $6.3 million in the first quarter of 2016 and earnings per share were $0.19 and $0.24 for the respective periods. A non-cash pension settlement charge decreased the first quarter of 2017 earnings by $0.04 per share.
The Company’s backlog of orders was $96.9 million at March 31, 2017 compared to $111.0 million at March 31, 2016 and $98.8 million at December 31, 2016. Excluding the PCCP project in 2017 and 2016, the backlog at March 31, 2017 was down 8.6% as compared to March 31, 2016. In addition to the impact of PCCP, backlog has been impacted by lower orders in the petroleum and fire protection markets.
The Company generated $7.6 million of operating cash flow during the first quarter of 2017. Cash and cash equivalents totaled $60.5 million at March 31, 2017 and working capital increased $6.0 million from December 31, 2016 to $160.6 million at March 31, 2017. The Company had no bank debt as of March 31, 2017. Capital expenditures for the quarter ended March 31, 2017 of $2.0 million consisted primarily of machinery and equipment. Capital expenditures for the fullyear 2017 are presently planned to be in the range of $8 to $10 million and are expected to be financed through internally generated funds.
The Company is very proud to have been recognized for the sixth consecutive year as one of the 100 Most Trustworthy Companies in America by Forbes. To create this list, the year’s public filings of 2,500 publicly-traded nonfinancial American companies with market capitalizations of $250 million or more were reviewed and evaluated in depth to identify the 100 that most “consistently demonstrated transparent accounting practices and solid corporate governance.”
Among the 47 small cap honorees, Gorman-Rupp had the highest annual rating and the highest rating over the past four quarters.
Jeffrey S. Gorman, President and CEO commented, “We saw above expected sales growth in construction and industrial, hopefully signaling more opportunities in these markets. Headwinds still prevail however, especially for capital spending in the agriculture and some oil and gas related markets. We remain focused on long-term growth both domestically and internationally while preserving short-term profitability and shareholder value.”