Gorman-Rupp Reports Third Quarter Financial Results

Domestic sales increased 6.4 percent or $4.2 million while international sales decreased 20.7 percent or $7.8 million compared to the same period in 2018.

Sales in our water markets decreased 5.3 percent or $3.8 million in the third quarter of 2019 compared to the third quarter of 2018. Sales in the fire protection market decreased $4.1 million driven primarily by softness in international markets, and sales in the construction market decreased $3.0 million driven primarily by softness in the upstream oil and gas industry. These decreases were partially offset by increased sales in the municipal market of $2.8 million due primarily to large volume custom pumps for flood control and water supply. In addition, sales in the agriculture and repair markets increased a total of $0.5 million.

Sales in our non-water markets increased 0.7 percent or $0.2 million in the third quarter of 2019 compared to the third quarter of 2018. Sales in the petroleum market increased $1.4 million driven primarily by mid-stream oil and gas customers. This increase was partially offset by decreased sales in the industrial market of $0.7 million due primarily to softness in the upstream oil and gas industry, and decreased sales in the OEM market of $0.5 million.

International sales were $29.8 million in the third quarter of 2019 compared to $37.6 million in the same period last year and represented 30 percent and 37 percent of total sales for the Company, respectively. International sales decreased $5.8 million in the fire protection market driven primarily by softness in the upstream oil and gas industry and $1.4 million in the construction market due primarily to strong fleet orders last year that did not recur this year.

Gross profit was $25.8 million for the third quarter of 2019, resulting in gross margin of 26.0 percent, compared to gross profit of $27.3 million and gross margin of 26.6 percent for the same period in 2018. The 60 basis points decrease in gross margin was due principally to product mix and loss of leverage from lower sales volume compared to the third quarter of 2018, partially offset by a favorable LIFO impact of 120 basis points. The LIFO impact on gross margin was positive in the third quarter of 2019 due to declining inventory levels as compared to amounts in inventory at December 31, 2018.

Selling, general and administrative (“SG&A”) expenses were $14.2 million and 14.3 percent of net sales for the third quarter of 2019 compared to $14.2 million and 13.8 percent of net sales for the same period in 2018. SG&A expenses as a percentage of sales increased 50 basis points due principally to the loss of leverage from lower sales volume.

Operating income was $11.6 million, resulting in an operating margin of 11.7 percent, for the third quarter of 2019, compared to operating income of $13.1 million and operating margin of 12.8 percent for the same period in 2018. Operating margin decreased 110 basis points due principally to the loss of leverage from lower sales volume, partially offset by a favorable LIFO impact. The Company’s effective tax rate decreased to 17.9 percent for the third quarter of 2019 from 21.6 percent for the third quarter of 2018 due primarily to higher research and development tax credits, and a net tax benefit related to foreign derived intangible income (“FDII”) and global intangible low-tax income (“GILTI”).

Net income was $9.8 million for the third quarter of 2019 compared to $10.7 million in the third quarter of 2018, and earnings per share were $0.37 and $0.41 for the respective periods. Earnings per share for the third quarter of 2019 included a favorable LIFO impact of $0.04 per share. Earnings per share for the third quarter of 2018 included an unfavorable LIFO impact of $0.04 per share.

Net sales for the first nine months of 2019 were $304.5 million compared to $311.3 million for the first nine months of 2018, a decrease of 2.2 percent or $6.8 million. Domestic sales increased 5.3 percent or $10.7 million while international sales decreased 16.0 percent or $17.5 million compared to the same period in 2018.

Sales in our water markets decreased 2.1 percent or $4.5 million in the first nine months of 2019 compared to the first nine months of 2018. Sales in the municipal market increased $6.5 million due primarily to large volume custom pumps for flood control and water supply. This increase was offset by decreased sales in the fire protection market of $9.2 million driven primarily by softness in international markets and decreased sales in the agriculture market of $1.8 million due primarily to adverse weather conditions.

Sales in our non-water markets decreased 2.4 percent or $2.3 million in the first nine months of 2019 compared to the first nine months of 2018. Sales in the petroleum market increased $2.3 million driven primarily by mid-stream oil and gas customers. This increase was offset by decreased sales in the industrial market of $3.9 million due primarily to softness in the upstream oil and gas market and decreased sales in the OEM market of $0.7 million.

International sales were $92.5 million in the first nine months of 2019 compared to $110.1 million in the same period last year and represented 30 percent and 35 percent of total sales for the Company, respectively. International sales decreased most notably in the fire protection, construction and municipal markets.

Gross profit was $77.3 million for the first nine months of 2019, resulting in gross margin of 25.4 percent, compared to gross profit of $83.4 million and gross margin of 26.8 percent for the same period in 2018. Gross margin decreased 140 basis points largely as a result of material cost increases due to inflation, tariffs and higher freight costs, and loss of leverage from lower sales volume. Partially offsetting these items was a favorable LIFO impact of 90 basis points compared to the same period in 2018.

SG&A expenses were $43.5 million and 14.3 percent of net sales for the first nine months of 2019 compared to $43.4 million and 14.0 percent of net sales for the same period in 2018. SG&A expenses as a percentage of sales increased 30 basis points primarily as a result of loss of leverage from lower sales volume.

Operating income was $33.8 million, resulting in an operating margin of 11.1 percent for the first nine months of 2019, compared to operating income of $40.0 million and operating margin of 12.8 percent for the same period in 2018. Operating margin decreased 170 basis points due principally to material cost increases and loss of leverage from lower sales volume, which were partially offset by selling price increases and a favorable LIFO impact compared to the same period in 2018.

The Company’s effective tax rate decreased to 20.5 percent for the first nine months of 2019 from 21.6 percent for the same period last year due primarily to higher research and development tax credits, and a net tax benefit related to FDII and GILTI.

Net income was $27.5 million for the first nine months of 2019 compared to $30.5 million in the first nine months of 2018, and earnings per share were $1.05 and $1.17 for the respective periods. The first nine months of 2018 earnings included an unfavorable LIFO impact of $0.09 per share and were also reduced by non-cash pension settlement charges of $0.08 per share.

The Company’s backlog of orders was $101.4 million at September 30, 2019 compared to $122.4 million at September 30, 2018 and $113.7 million at December 31, 2018. The backlog at September 30, 2019 decreased 17.1 percent compared to September 30, 2018 driven by decreased incoming orders in most of the markets the Company serves, most notably in the construction and petroleum markets.

Capital expenditures for the first nine months of 2019 were $8.0 million and consisted primarily of machinery and equipment. Capital expenditures for the full-year 2019 are presently planned to be in the range of $15-$17 million.

Jeffrey S. Gorman, Chairman, President and CEO commented, “Although our top line has been slightly down for the year, our results continue to be solid with good control of margin and SG&A expenses. While domestic sales showed some increase during the quarter, global economic conditions continue to be a challenge for several of our international markets. Incoming orders compared to the last quarter seem to have stabilized, however we do not anticipate any major improvement for the balance of this year, especially in the international markets. With our strong balance sheet and cash flow, we continue to work forward on long-term organic growth while continually pursuing acquisition opportunities.”