Gorman-Rupp Reports Third Quarter 2021 Financial Results

05.11.2021
The Gorman-Rupp Company (NYSE: GRC) reports financial results for the third quarter and nine months ended September 30, 2021.
Gorman-Rupp Reports Third Quarter 2021 Financial Results

Image source: The Gorman-Rupp Company

Net sales for the third quarter of 2021 were $102.1 million compared to net sales of $89.0 million for the third quarter of 2020, an increase of 14.8 percent or $13.1 million. Domestic sales increased 8.6 percent or $5.4 million and international sales increased 30.0 percent or $7.7 million compared to the same period in 2020. As the global economy has started to recover from the COVID-19 pandemic, sales and incoming orders have increased across nearly all of our markets.

Sales in our water markets increased 14.6 percent or $9.3 million in the third quarter of 2021 compared to the third quarter of 2020. Sales increased $6.0 million in the fire protection market, $3.6 million in the construction market, $2.3 million in the repair market, and $0.8 million in the agriculture market. Partially offsetting these increases was a decrease of $3.4 million in the municipal market. The decrease in municipal market sales is primarily due to timing, as both incoming orders and backlog have increased compared to the prior year.

Sales in our non-water markets increased 15.2 percent or $3.8 million in the third quarter of 2021 compared to the third quarter of 2020. Sales increased $2.7 million in the OEM market, $0.7 million in the industrial market, and $0.4 million in the petroleum market.

Gross profit was $25.8 million for the third quarter of 2021, resulting in gross margin of 25.3 percent, compared to gross profit of $23.0 million and gross margin of 25.8 percent for the same period in 2020. The 50 basis point decrease in gross margin was driven by a 210 basis point increase in cost of material, which included an unfavorable LIFO impact of 250 basis points, partially offset by a 160 basis point improvement on labor and overhead resulting from increased sales volume.

Selling, general and administrative (“SG&A”) expenses were $14.3 million and 14.0 percent of net sales for the third quarter of 2021 compared to $13.2 million and 14.9 percent of net sales for the same period in 2020. SG&A expenses increased 8.0 percent or $1.1 million as a result of compensation, travel and other expense items returning closer to pre-pandemic levels as operational activities return to normal. SG&A expenses as a percentage of sales improved 90 basis points primarily as a result of leverage on fixed costs from increased sales volume.

Operating income was $11.5 million for the third quarter of 2021, resulting in an operating margin of 11.3 percent, compared to operating income of $9.7 million and operating margin of 10.9 percent for the same period in 2020. Operating margin improved 40 basis points as a result of improved leverage on fixed costs from increased sales volume partially offset by an unfavorable LIFO impact.

Other income (Expense), net was $0.5 million of expense for the third quarter of 2021 compared to expense of $0.7 million for the same period in 2020. The decrease to expense was due primarily to reduced non-cash pension settlement charges of $0.4 million in the third quarter of 2021 compared to $1.0 million in the third quarter of 2020.

Net income was $8.8 million for the third quarter of 2021 compared to $7.3 million in the third quarter of 2020, and earnings per share were $0.34 and $0.28 for the respective periods. Earnings per share for the third quarter of 2021 included an unfavorable LIFO impact of $0.08 per share. Earnings per share for the third quarter included a non-cash pension settlement charge of $0.01 per share in 2021 and $0.03 per share in 2020.

Year to date 2021 Highlights
Net sales for the first nine months of 2021 were $284.2 million compared to net sales of $266.5 million for the first nine months of 2020, an increase of 6.6 percent or $17.7 million. Domestic sales increased 4.0 percent or $7.5 million and international sales increased 13.0 percent or $10.2 million compared to the same period in 2020.

Sales in our water markets increased 6.7 percent or $12.7 million in the first nine months of 2021 compared to the first nine months of 2020. Sales increased $6.1 million in the repair market, $6.1 million in the fire market, $5.8 million in the construction market, and $1.5 million in the agriculture market. Partially offsetting these increases was a decrease of $6.8 million in the municipal market. The decrease in municipal market sales is primarily due to timing, as both incoming orders and backlog have increased compared to the prior year.

Sales in our non-water markets increased 6.5 percent or $5.0 million in the first nine months of 2021 compared to the first nine months of 2020. Sales in the OEM market increased $3.7 million and sales in the petroleum market increased $2.6 million. Partially offsetting these increases was a decrease of $1.3 million in the industrial market.

Gross profit was $73.5 million for the first nine months of 2021, resulting in gross margin of 25.9 percent, compared to gross profit of $68.3 million and gross margin of 25.6 percent for the same period in 2020. The 30 basis points increase in gross margin compared to the first nine months of 2020 was driven by a 130 basis point improvement on labor and overhead resulting from increased sales volume partially offset by a 100 basis point increase in cost of material, which included an unfavorable LIFO impact of 90 basis points.

SG&A expenses were $42.4 million and 14.9 percent of net sales for the first nine months of 2021 compared to $41.0 million and 15.4 percent of net sales for the same period in 2020. SG&A expenses increased 3.6 percent or $1.4 million but improved 50 basis points as a percentage of sales primarily as a result of leverage on fixed costs from increased sales volume.

Operating income was $31.1 million for the first nine months of 2021, resulting in an operating margin of 11.0 percent, compared to operating income of $27.3 million and operating margin of 10.3 percent for the same period in 2020. Operating margin improved 70 basis points primarily as a result of improved leverage on fixed costs from increased sales volume partially offset by an unfavorable LIFO impact.

Other income (expense), net was $1.8 million of expense for the first nine months of 2021 compared to expense of $4.4 million for the same period in 2020. The decrease to expense was due primarily to reduced non-cash pension settlement charges of $2.1 million in 2021 compared to $4.4 million in 2020.

Net income was $23.3 million for the first nine months of 2021 compared to $18.4 million in the first nine months of 2020, and earnings per share were $0.89 and $0.70 for the respective periods. Earnings per share included an unfavorable LIFO impact of $0.12 per share in 2021 compared to $0.04 per share in 2020. Earnings per share included a non-cash pension settlement charge of $0.06 per share in 2021 and $0.13 per share in 2020.

The Company’s backlog of orders was $156.5 million at September 30, 2021 compared to $102.0 million at September 30, 2020 and $113.1 million at December 31, 2020. Incoming orders increased 24.8 percent for the first nine months of 2021 compared to the same period in 2020. Incoming orders during the third quarter of 2021 increased 32.0 percent when compared to the same period last year.

Capital expenditures for the first nine months of 2021 were $5.6 million and consisted primarily of machinery and equipment and building improvements. Capital expenditures for the full-year 2021 are presently planned to be approximately $10 million.

Jeffrey S. Gorman, Chairman and Chief Executive Officer commented, “Our sales and incoming orders have continued the positive trends we began to see earlier in the year, and we enter the fourth quarter with a very strong backlog. Our team has continued to do a good job managing the ongoing challenges of the COVID-19 pandemic, including those related to our global supply chain. As sales volumes have returned to more normal levels, we have managed our gross margin and have leveraged our SG&A expenses, resulting in improved earnings. While we continue to manage the uncertainties related to the global economic recovery, our management team also remains focused on long-term growth opportunities and strategic initiatives that will enable us to continue to deliver shareholder value.”

CEO Transition
Effective January 1, 2022, the role of Chief Executive Officer will transition from Jeffrey S. Gorman to Scott A. King, who is currently the Company’s President and Chief Operating Officer. Mr. Gorman, age 69, has served as CEO since 1998 and, following the CEO transition, will continue to serve as the Company’s Executive Chairman of the Board to assist with the Company’s overall strategy and acquisition efforts. Mr. King, age 47, has been with the Company since 2004 and has held various operational leadership roles of increasing responsibility during this time.

Jeffrey S. Gorman, Chairman and Chief Executive Officer commented, “I am very pleased that the Board of Directors has approved the transition of my role as Chief Executive Officer to Scott King. In his current roles as President and Chief Operating Officer, Scott has shown strong leadership and management skills, as well as a dedication to taking care of our customers. These leadership skills, combined with Scott’s in-depth knowledge of the pump industry, will enable him to be a strong and effective CEO.”

Scott A. King stated, “I am honored and humbled to serve as the next CEO of The Gorman-Rupp Company. I appreciate the support from Jeff and our Board of Directors and look forward to working with them and our entire team as we continue to build on the strong foundation and culture that has been developed over our nearly 90-year history.”

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