The Gorman-Rupp Company (NYSE: GRC) reports financial results for the fourth quarter and year ended December 31, 2023.
Fourth Quarter 2023 Highlights
- Net sales of $160.6 million increased 10.0%, or $14.6 million, compared to the fourth quarter of 2022
- Fourth quarter net income was $9.0 million, or $0.34 per share, compared to net income of $2.4 million, or $0.09 per share, for the fourth quarter of 2022
- Adjusted earnings per share1 for the fourth quarter of 2023 and 2022 were $0.34 and $0.11, respectively
- Adjusted earnings per share1 included non-cash LIFO expenses of $0.01 per share and $0.25 per share in 2023 and 2022, respectively
- Adjusted EBITDA1 of $29.1 million for the fourth quarter of 2023 increased $0.6 million, or 2.1%, from $28.5 million for the same period in 2022
Net sales for the fourth quarter of 2023 were $160.6 million compared to net sales of $146.0 million for the fourth quarter of 2022, an increase of 10.0% or $14.6 million. The increase in sales was due to an increase in volume as well as the impact of pricing increases taken in the first quarter of 2023. Domestic sales increased 12.8% or $13.9 million and international sales increased 1.9% or $0.7 million compared to the same period in 2022.
Sales increased $4.9 million in the municipal market due to the timing of domestic flood control and wastewater projects, $4.7 million in the industrial market due to strengthening in the broader industrial economy, $2.3 million in the construction market due to overall strong conditions including infrastructure-related projects, $1.8 million in the petroleum market due to increased demand for larger petroleum transfer pumps, $1.4 million in the fire suppression market primarily from increased domestic commercial construction, $1.4 million in the repair market, and $0.5 million in the OEM market. Partially offsetting these increases was a sales decrease of $2.4 million in the agriculture market primarily driven by weather conditions that slowed demand.
Gross profit was $50.9 million for the fourth quarter of 2023, resulting in a gross margin of 31.7%, compared to a gross profit of $36.6 million and a gross margin of 25.1% for the same period in 2022. The 660 basis point increase in gross margin included a 620 basis point improvement in the cost of material, which consisted of a reduction in LIFO2 expense of 540 basis points, a favorable impact of 40 basis points related to the amortization of acquired Fill-Rite customer backlog which occurred in the fourth quarter of 2022 and did not reoccur in the fourth quarter of 2023, and a 40 basis point improvement from the realization of selling price increases. The increase in gross margin also included a 40 basis point increase in labor and overhead leverage due to increased sales volumes.
Selling, general and administrative (“SG&A”) expenses were $26.0 million and 16.2% of net sales for the fourth quarter of 2023 compared to $21.0 million and 14.4% of net sales for the same period in 2022. The increase in SG&A expenses was due to increased expenses to support sales growth and incentive compensation.
Amortization expense was $3.2 million for the fourth quarter of 2023 compared to $3.1 million for the same period in 2022.
Operating income was $21.8 million for the fourth quarter of 2023, resulting in an operating margin of 13.6%, compared to operating income of $12.5 million and an operating margin of 8.6% for the same period in 2022. Operating margin in the fourth quarter of 2023 increased 500 basis points compared to the same period in 2022 due to improved margin on material costs, improved leverage on amortization expenses due to increased sales volumes, and was partially offset by increased SG&A expenses.
Interest expense was $10.1 million for the fourth quarter of 2023 compared to $9.4 million for the same period in 2022 due to increased interest rates, partially offset by reduced debt levels.
Net income was $9.0 million, or $0.34 per share, for the fourth quarter of 2023 compared to net income of $2.4 million, or $0.09 per share, in the fourth quarter of 2022. Adjusted earnings per share1 for the fourth quarter of 2023 and 2022 were $0.34 and $0.11 per share, respectively. Adjusted earnings per share1 for the fourth quarter of 2023 included an unfavorable LIFO2 impact of $0.01 per share compared to an unfavorable LIFO2 impact of $0.25 per share in the fourth quarter of 2022.
Adjusted EBITDA1 was $29.1 million for the fourth quarter of 2023 compared to $28.5 million for the fourth quarter of 2022. Adjusted EBITDA1 increased primarily from sales growth and improved gross margin.
Full-Year 2023 Highlights
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 of $659.5 million increased 26.6%, or $138.5 million, compared to 2022, a 15.8% increase excluding Fill-Rite
- Net income was $35.0 million, or $1.34 per share, compared to net income of $11.2 million, or $0.43 per share, in 2022
- Adjusted earnings per share1 for 2023 and 2022 were $1.37 and $0.94, respectively
- Adjusted EBITDA1 of $121.7 million for 2023 increased $33.0 million, or 37.1%, from $88.7 million in 2022
- Total debt, net of cash, decreased $58.2 million during 2023
Net sales for 2023 of $659.5 million increased 26.6% or $138.5 million compared to net sales of $521.0 million in 2022. The increase in sales was due to the inclusion of a full year of Fill-Rite sales compared to seven months of sales included in the prior year, as well as an increase in volume and the impact of pricing increases taken in 2022 and an annual price increase in the first quarter of 2023. Domestic sales increased 30.4% or $116.1 million and international sales increased 16.0% or $22.4 million compared to 2022.
Sales increased $36.2 million in the industrial market primarily due to the inclusion of a full year of Fill-Rite sales in 2023 compared to seven months of sales included in the prior year. In addition to the increase from Fill-Rite, industrial sales increased $14.2 million due to the strengthening of the broader industrial economy. Sales increased $25.4 million in the agriculture market due entirely to the inclusion of a full year of Fill-Rite sales compared to seven months of sales in the prior year. Sales increased $26.4 million in the construction market primarily due to the inclusion of a full year of Fill-Rite sales compared to seven months of sales included in the prior year. In addition to the increase from Fill-Rite, construction sales increased $8.9 million due to overall strong conditions including infrastructure-related projects. Sales increased $22.6 million in the fire market primarily from increased domestic commercial construction, $9.6 million in the repair market due to strengthening in the broader industrial economy, $8.8 million in the municipal market due to domestic flood control and wastewater projects related to increased infrastructure investment, and $2.8 million in the OEM market. Sales in the petroleum market increased $6.7 million primarily due to the inclusion of a full year of Fill-Rite sales compared to seven months of sales included in the prior year as well as increased demand for larger petroleum transfer pumps.
Gross profit was $196.3 million for 2023, resulting in a gross margin of 29.8%, compared to a gross profit of $130.9 million and a gross margin of 25.1% in 2022. The 470 basis point increase in gross margin included a 380 basis point improvement in the cost of material, which consisted of a favorable LIFO2 impact of 240 basis points, a favorable impact of 30 basis points related to the Fill-Rite inventory step-up that was recognized in 2022 that did not recur in 2023 and a 110 basis point improvement from the realization of selling price increases. The increase in gross margin also included a 90 basis point improvement on labor and overhead leverage due to increased sales volume and sales mix which includes a full year of Fill-Rite sales in 2023 compared to seven months in 2022.
Selling, general, and administrative (“SG&A”) expenses were $96.7 million and 14.7% of net sales in 2023 compared to $83.1 million and 16.0% of net sales in 2022. SG&A expenses in 2022 included $7.1 million of one-time acquisition costs. Excluding acquisition costs of $7.1 million, SG&A expenses were $76.0 million and 14.6% of net sales in 2022. The increase in SG&A expenses, excluding acquisition costs, was due to the inclusion of Fill-Rite expenses for the full year in 2023 as compared to seven months in 2022, as well as increased expenses to support sales growth.
Amortization expense was $12.6 million in 2023 compared to $7.6 million in 2022. The increase in amortization expense was due to the inclusion of a full year of amortization attributable to the Fill-Rite acquisition in 2023 compared to seven months in 2022.
Operating income was $87.0 million in 2023, resulting in an operating margin of 13.2%, compared to operating income of $40.2 million and an operating margin of 7.7% in 2022. Operating income in 2022 included $7.1 million of one-time acquisition costs and $1.4 million of inventory step-up amortization. Excluding acquisition costs and inventory step-up totaling $8.5 million, operating income was $48.7 million in 2022 resulting in an operating margin of 9.3% of net sales. Operating margin in 2023 increased 390 basis points compared to 2022, excluding acquisition costs and inventory step-up in 2022, due to improved margin on material costs and improved leverage on SG&A expense due to increased sales volumes partially offset by increased amortization expense.
Interest expense was $41.3 million in 2023 compared to $19.2 million in 2022. The increase in interest expense was primarily due to the inclusion of a full year of interest expense in 2023 compared to seven months in 2022 on the debt financing attributable to the Fill-Rite acquisition, as well as increased interest rates in 2023 as compared to 2022.
Other income (expense), net was $1.8 million of expense in 2023 compared to $7.1 million of expense in 2022. The $7.1 million of expense in 2022 included non-cash pension settlement charges of $6.4 million.
Net income was $35.0 million, or $1.34 per share, in 2023 compared to net income of $11.2 million, or $0.43 per share, in 2022. Adjusted earnings per share1 in 2023 were $1.37 per share compared to $0.94 per share in 2022. Adjusted earnings per share1 in 2023 included an unfavorable LIFO2 impact of $0.21 per share compared to an unfavorable LIFO2 impact of $0.56 per share in 2022.
Adjusted EBITDA1 was $121.7 million in 2023 compared to $88.7 million in 2022. Adjusted EBITDA1 increased from organic sales growth and improved gross margin as well as the inclusion of Fill-Rite results for the full year of 2023 compared to seven months in 2022.
The Company’s backlog of orders was $218.1 million at December 31, 2023, compared to $267.4 million at December 31, 2022. Incoming orders for fiscal year 2023 were $617.6 million, or an increase of 4.4% compared to 2022.
Net cash provided by operating activities in 2023 was $98.2 million compared to $13.7 million in 2022 driven by increased earnings before depreciation, amortization, and LIFO2 expense, and improved cash flow from working capital management. Capital expenditures in 2023 were $20.8 million and consisted primarily of machinery and equipment. Capital expenditures for the full year 2024 are presently planned to be in the range of $18-$20 million. During 2023, total debt was reduced by $34.5 million and cash increased $23.7 million.
Scott A. King, President and CEO commented, “2023 marked another significant milestone as we celebrated our 90th anniversary. We are proud that over that history we have stayed true to our values, including delivering quality products and taking care of our customers. In addition, we achieved our second consecutive year of double-digit organic sales growth and saw a significant improvement in Adjusted EBTIDA1 to a record $121.7 million. Our strong results allowed us to improve the debt net of cash by $58 million during the year and to improve our leverage significantly from mid-2022 when we acquired Fill-Rite. In addition to improving our leverage, we continued to invest for growth, including the relocation and expansion of Fill-Rite’s manufacturing facility in Lenexa, Kansas. We also increased our dividends paid to shareholders for the 51st consecutive year. As expected, our backlog has come down from the record levels that we saw in early 2023 but remains elevated as we enter 2024. We expect the backlog to return to more normal levels during 2024. Our diverse markets continue to be a strength and we remain well-positioned to benefit from infrastructure spending and the increased demand for flood control and stormwater management.
