Special to 1812Blockhouse
The Gorman-Rupp Company has reported financial results for the second quarter ended June 30, 2023.
Second Quarter 2023 Highlights
- Net sales of $171.0 million increased 43.6%, or $52.0 million, compared to the second quarter of 2022, a 21.4% increase excluding sales from Fill-Rite which was acquired in May 2022
- Second quarter net income was $10.5 million, or $0.40 per share, compared to a net loss of ($1.0) million, or ($0.04) per share, for the second quarter of 2022
- Adjusted earnings per share1 for the second quarters of 2023 and 2022 were $0.41 and $0.27, respectively
- Adjusted EBITDA1 of $33.7 million for the second quarter of 2023 increased $14.1 million, or 71.6%, from $19.6 million for the same period in 2022
As previously announced, on May 31, 2022 the Company completed its acquisition of Fill-Rite and Sotera (“Fill-Rite”), a division of Tuthill Corporation.
Net sales for the second quarter of 2023 were $171.0 million compared to net sales of $119.1 million for the second quarter of 2022, an increase of 43.6% or $52.0 million. Domestic sales increased 50.8% or $43.2 million and international sales increased 25.7% or $8.7 million compared to the same period in 2022.
Fill-Rite sales were $42.9 million for the second quarter of 2023 compared to $13.5 million for the second quarter of 2022. In addition to the increase from Fill-Rite, sales increased $22.6 million, or 21.4% due to an increase in volume as well as the impact of pricing increases taken in 2022 and an annual price increase in January 2023. Sales increased $9.0 million in the fire suppression market primarily from increased domestic commercial construction, $4.1 million in the industrial market and $3.9 million in the repair market due to strengthening in the broader industrial economy, $2.6 million in the municipal market due to domestic flood control and wastewater projects related to increased infrastructure investment, $1.9 million in the construction market due to strong overall conditions including infrastructure related projects, $1.1 million in the petroleum market due to increased demand for larger petroleum transfer pumps, and $0.2 million in the OEM market. Partially offsetting these increases was a sales decrease of $0.2 million in the agriculture market primarily driven by weather conditions, where increased snowfall runoff and rain have slowed demand.
Gross profit was $51.7 million for the second quarter of 2023, resulting in gross margin of 30.2%, compared to gross profit of $28.2 million and gross margin of 23.7% for the same period in 2022. The 650 basis point increase in gross margin included a 200 basis point improvement on labor and overhead leverage due to increased sales volume and sales mix which includes a full quarter of Fill-Rite. The increase in gross margin also included a 450 basis point improvement in cost of material, which consisted of a reduction in LIFO2 expense of 210 basis points, a 120 basis point improvement from the realization of selling price increases, and a favorable impact of 120 basis points related to the Fill-Rite inventory step-up that was recorded during the second quarter of 2022 that did not recur in 2023.
Selling, general and administrative (“SG&A”) expenses were $24.2 million and 14.1% of net sales for the second quarter of 2023 compared to $24.1 million and 20.3% of net sales for the same period in 2022. SG&A expenses for the second quarter of 2022 included $6.9 million of one-time acquisition costs. Excluding acquisition costs, SG&A expenses were $17.2 million and 14.5 % of net sales for the second quarter of 2022. The increase in SG&A expenses, excluding acquisition costs, was due to the inclusion of a full quarter of Fill-Rite as compared to one month in the same period in 2022, as well as increased expenses to support sales growth. The improvement in SG&A as a percent of sales was primarily due to favorable leverage from increased sales.
Amortization expense was $3.2 million for the second quarter of 2023 compared to $1.2 million for the same period in 2022. The increase in amortization expense was due to a full quarter of amortization attributable to the Fill-Rite acquisition compared to one month for the same period in 2022.
Operating income was $24.3 million for the second quarter of 2023, resulting in an operating margin of 14.2%, compared to operating income of $2.9 million and operating margin of 2.4% for the same period in 2022. Operating income for the second quarter of 2022 included $6.9 million of one-time acquisition costs and $1.4 million of inventory step-up amortization. Excluding acquisition costs and inventory step-up together totaling $8.3 million, operating income was $11.2 million for the second quarter 2022 resulting in an operating margin of 9.4% of net sales. Excluding acquisition costs and inventory step-up in the second quarter of 2022 totaling $8.3 million, operating margin in the second quarter of 2023 increased 480 basis points compared to the same period in 2022 due to improved leverage on labor, overhead, and SG&A expenses due to increased sales volumes and improved cost of material partially offset by increased amortization expense.
Interest expense was $10.5 million for the second quarter of 2023 compared to $2.3 million for the same period in 2022. The increase in interest expense was due to the inclusion of a full quarter of interest expense and increased interest rates on the debt financing attributable to the Fill-Rite acquisition.
Net income was $10.5 million, or $0.40 per share, for the second quarter of 2023 compared to net loss of ($1.0) million, or ($0.04) per share, in the second quarter of 2022. Adjusted earnings per share1 for the second quarter of 2023 were $0.41 per share compared to $0.27 per share for the second quarter of 2022. Adjusted earnings per share1 for the second quarter of 2023 included an unfavorable LIFO2 impact of $0.07 per share compared to an unfavorable LIFO2 impact of $0.13 per share in the second quarter of 2022.
Adjusted EBITDA1 was $33.7 million for the second quarter of 2023 compared to $19.6 million for the second quarter of 2022. Adjusted EBITDA1 increased from organic sales growth and improved gross margin as well as the inclusion of Fill-Rite results for the full quarter in 2023 compared to one month in 2022.
Year to date 2023 Highlights
- Net sales of $331.5 million increased 49.8%, or $110.3 million, compared to 2022, a 19.7% increase excluding sales from Fill-Rite which was acquired in May 2022
- Net income was $17.0 million, or $0.65 per share, compared to net income of $6.5 million, or $0.25 per share, in 2022
- Adjusted earnings per share1 for 2023 and 2022 were $0.68 and $0.56, respectively
- Adjusted EBITDA1 of $62.1 million for 2023 increased $28.2 million, or 83.0%, from $33.9 million in 2022
Net sales for the first six months of 2023 were $331.5 million compared to net sales of $221.2 million for the first six months of 2022, an increase of 49.8% or $110.3 million. Domestic sales increased 57.2% or $90.3 million and international sales increased 31.5% or $20.0 million compared to the same period in 2022.
Fill-Rite sales were $82.8 million for the first six months of 2023 compared to $13.5 million from the acquisition date of May 31, 2022 to June 30, 2022. In addition to the increase from Fill-Rite, sales increased $41.0 million, or 19.7% due to an increase in volume as well as the impact of pricing increases taken in 2022 and an annual price increase in January 2023. Sales increased $16.7 million in the fire market primarily from increased domestic commercial construction, $7.2 million in the industrial market and $6.0 million in the repair market due to strengthening in the broader industrial economy, $5.7 million in the municipal market due to domestic flood control and wastewater projects related to increased infrastructure investment, $3.7 million in the construction market due to strong overall conditions including infrastructure related projects, $1.6 million in the petroleum market due to increased demand for larger petroleum transfer pumps, and $0.5 million in the OEM market. Partially offsetting these increases was a decrease of $0.4 million in the agriculture market primarily driven by weather conditions, where increased snowfall runoff and rain have slowed demand.
Gross profit was $97.2 million for the first six months of 2023, resulting in gross margin of 29.3%, compared to gross profit of $53.7 million and gross margin of 24.3% for the same period in 2022. The 500 basis point increase in gross margin included a 225 basis point improvement on labor and overhead leverage due to increased sales volume and sales mix which includes six months of Fill-Rite for 2023 compared to one month for the same period in 2022. The increase in gross margin also included a 275 basis point improvement in cost of material, which consisted of a favorable LIFO2 impact of 140 basis points, a favorable impact of 60 basis points related to the Fill-Rite inventory step-up that was recorded in 2022 that did not recur in 2023 and a 75 basis point improvement from the realization of selling price increases.
Selling, general and administrative (“SG&A”) expenses were $47.4 million and 14.3% of net sales for the first six months of 2023 compared to $39.9 million and 18.1% of net sales for the same period in 2022. SG&A expenses for the first six months of 2022 included $6.9 million of one-time acquisition costs. Excluding acquisition costs of $6.9 million, SG&A expenses were $33.0 million and 14.9% of net sales for the first six months of 2022. The increase in SG&A expenses, excluding acquisition costs, was due to the inclusion of Fill-Rite for the full six month period in 2023 as compared to one month in the same period in 2022, as well as increased expenses to support sales growth. The improvement in SG&A as a percent of sales was primarily due to favorable leverage from increased sales.
Amortization expense was $6.4 million for the first six months of 2023 compared to $1.4 million for the same period in 2022. The increase in amortization expense was due to the inclusion of six months of amortization attributable to the Fill-Rite acquisition compared to one month for the same period in 2022.
Operating income was $43.4 million for the first six months of 2023, resulting in an operating margin of 13.1%, compared to operating income of $12.4 million and operating margin of 5.6% for the same period in 2022. Operating income for the first six months of 2022 included $6.9 million of one-time acquisition costs and $1.4 million of inventory step-up amortization. Excluding acquisition costs and inventory step-up together totaling $8.3 million, operating income was $20.7 million for the first six months of 2022 resulting in an operating margin of 9.4% of net sales. Excluding acquisition costs and inventory step-up in 2022 totaling $8.3 million, operating margin in the first six months of 2023 increased 370 basis points compared to the same period in 2022 due to improved leverage on labor, overhead, and SG&A expenses due to increased sales volumes and improved cost of material partially offset by increased amortization expense.
Interest expense was $20.7 million for the first six months of 2023 compared to $2.3 million for the same period in 2022. The increase in interest expense was primarily due to the inclusion of six months of interest expense in 2023 compared to one month for the first six months of 2022 on the debt financing attributable to the Fill-Rite acquisition, as well as increased interest rates in 2023 as compared to 2022.
Net income was $17.0 million, or $0.65 per share, for the first six months of 2023 compared to net income of $6.5 million, or $0.25 per share for the first six months of 2022. Adjusted earnings per share1 for the first six months of 2023 were $0.68 per share compared to $0.56 per share for the first six months of 2022. Adjusted earnings per share1 for the first six months of 2023 included an unfavorable LIFO2 impact of $0.13 per share compared to an unfavorable LIFO2 impact of $0.18 per share in the first six months of 2022.
Adjusted EBITDA1 was $62.1 million for the first six months of 2023 compared to $33.9 million for the first six months of 2022. Adjusted EBITDA1 increased from organic sales growth and improved gross margin as well as the inclusion of Fill-Rite results for the full six months of 2023 compared to one month in 2022.
The Company’s backlog of orders was $249.8 million at June 30, 2023 compared to $264.7 million at June 30, 2022 and $267.4 million at December 31, 2022. Incoming orders for the first six months of 2023 were $321.0 million, or an increase of 12.0% compared to the same period in 2022, and a decrease of 13.8% excluding Fill-Rite.
Net cash provided by operating activities for the first six months of 2023 was $37.9 million compared to $6.7 million for the same period in 2022 driven by increased earnings before depreciation, amortization, and LIFO2 expense, and improved cash flow from better working capital management. Capital expenditures for the first six months of 2023 were $13.3 million and consisted primarily of machinery and equipment. Capital expenditures for the full-year 2023 are presently planned to be in the range of $18 – $20 million. Total debt, net of cash, decreased $14.1 million during the second quarter of 2023.
Scott A. King, President and CEO commented, “Our strong organic sales growth of over 21% marked our eighth consecutive quarter of year-over-year double-digit increases, as we continued to see strength across the majority of our markets. Along with sales, Adjusted EBIDTA continues to improve increasing 320 bps as a percentage of sales compared to the second quarter of last year as we have benefited from pricing actions taken throughout 2022 and have leveraged our labor and overhead costs with the increase in sales. Our backlog is down from the record level we saw at the end of the first quarter but remains elevated, which positions us well for the remainder of the year. We believe that our inventory levels have peaked and that we will see a reduction in the second-half, which will further contribute to our improvements in cash flow. We remain focused on delivering long term sustained growth and improving our debt leverage.”
