MANSFIELD -- The Gorman-Rupp Company (NYSE: GRC) reports financial results for the fourth quarter and year ended Dec. 31, 2022.
“2022 was an historic year for Gorman-Rupp as we celebrated our 50th consecutive year of increased dividends, completed the largest acquisition in Company history by acquiring Fill-Rite, and reached $500 million in annual sales for the first time," said Scott A. King, President and CEO of Gorman-Rupp.
"In addition to these historic achievements, we also delivered year-over-year double digit organic revenue growth in 2022. The integration of Fill-Rite has gone well and we are expanding their footprint to support further growth.
"As we begin our 90th year, our outlook remains positive. We enter 2023 with record backlog and believe the majority of our markets will continue to show growth, particularly those related to infrastructure.
"We expect our 2023 gross margin to benefit as the pricing actions we have taken throughout 2022 are fully realized and the impact of LIFO returns to more normal levels. In addition to pursuing earnings growth, we continue to focus on cash flow by improving on our working capital through inventory management without diminishing customer service.
“I am grateful for the Gorman-Rupp team as well as our customers, suppliers and shareholders for their on-going support as we managed through an eventful and successful year.”
Fourth Quarter 2022 Highlights
Net sales of $146.0 million increased 55.0% or $51.8 million compared to the fourth quarter of 2021, a 19.3% increase excluding sales from Fill-Rite which was acquired in May 2022
Fourth quarter net income was $2.4 million, or $0.09 per share, compared to net income of $6.5 million, or $0.25 per share, for the fourth quarter of 2021
Adjusted earnings per share1 for the fourth quarters of 2022 and 2021 were $0.11 and $0.26, respectively
Adjusted earnings per share1 include non-cash LIFO2 expense of $0.25 per share and $0.08 per share in 2022 and 2021, respectively
Adjusted EBITDA1 of $28.5 million for the fourth quarter of 2022 increased $14.5 million or 104% from $14.0 million for the same period in 2021, an increase of $6.8 million, or 49.0%, excluding Fill-Rite
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 fourth quarter ended December 31, 2022 were $146.0 million compared to net sales of $94.2 million for the fourth quarter of 2021, an increase of 55.0% or $51.8 million. Domestic sales increased 67.1% or $43.5 million and international sales increased 28.4% or $8.3 million compared to the same period in 2021. Fill-Rite sales, which are primarily domestic, were $33.7 million for the fourth quarter of 2022.
Excluding Fill-Rite, sales in our water markets increased 23.3% or $15.4 million in the fourth quarter of 2022 compared to the fourth quarter of 2021. Sales increased $7.5 million in the fire protection market, $5.5 million in the municipal market, $1.5 million in the repair market, $0.6 million in the construction market, and $0.3 million in the agriculture market.
Excluding Fill-Rite, sales in our non-water markets increased 9.8% or $2.7 million in the fourth quarter of 2022 compared to the fourth quarter of 2021. Sales increased $3.0 million in the industrial market and $0.1 million in the petroleum market. Partially offsetting this increase were sales decreases of $0.4 million in the OEM market.
Gross profit was $36.6 million for the fourth quarter of 2022, resulting in gross margin of 25.1%, compared to gross profit of $22.3 million and gross margin of 23.7% for the same period in 2021. The improvement in gross margin was due primarily to leverage from increased sales volume and sales mix which includes a full quarter of Fill-Rite results.
The 140 basis point increase in gross margin was driven by a 400 basis point improvement from labor and overhead leverage due to increased sales volume. The increase was partially offset by a 260 basis point increase in cost of material, which included an unfavorable LIFO2 impact of 260 basis points, and an unfavorable impact of 40 basis points related to the amortization of acquired Fill-Rite customer backlog.
The acquired Fill-Rite customer backlog will be fully amortized during the first half of 2023.
Selling, general and administrative (“SG&A”) expenses were $21.0 million and 14.4% of net sales for the fourth quarter of 2022 compared to $13.9 million and 14.8% of net sales for the same period in 2021. The increase in SG&A expenses is primarily due to a $6.0 million increase in SG&A expenses related to Fill-Rite.
Excluding Fill-Rite, SG&A expenses were 13.3% of net sales, a decrease of 150 basis points from the prior year driven primarily by leverage from increased sales volume.
Amortization expense was $3.1 million for the fourth quarter of 2022 compared to $0.2 million for the same period in 2021. The increase in amortization expense was due to $3.0 million in amortization attributable to the Fill-Rite acquisition.
Operating income was $12.5 million for the fourth quarter of 2022, resulting in an operating margin of 8.6%, compared to operating income of $8.2 million and operating margin of 8.7% for the same period in 2021.
Operating margin decreased 10 basis points compared to the same period in 2021 due to an unfavorable LIFO2 impact and increased amortization expense partially offset by improved leverage on labor, overhead, and SG&A expenses due to increased sales volumes.
Interest expense was $9.4 million for the fourth quarter of 2022. No interest expense was recorded in the fourth quarter of 2021. The interest expense was due to debt financing attributable to the Fill-Rite acquisition.
Net income was $2.4 million, or $0.09 per share, for the fourth quarter of 2022 compared to net income of $6.5 million, or $0.25 per share, in the fourth quarter of 2021.
Adjusted earnings per share1 for the fourth quarter of 2022 were $0.11 per share compared to $0.26 per share for the fourth quarter of 2021. Adjusted earnings per share1 for the fourth quarter of 2022 included an unfavorable LIFO2 impact of $0.25 per share compared to an unfavorable LIFO2 impact of $0.08 per share in the fourth quarter of 2021.
Adjusted EBITDA1 was $28.5 million for the fourth quarter of 2022 compared to $14.0 million for the fourth quarter of 2021 with the Fill-Rite acquisition contributing $7.7 million in 2022. Excluding Fill-Rite, adjusted EBITDA1 for the fourth quarter of 2022 compared to 2021 increased $6.8 million, or 49.0%, due primarily to increased sales volume.
Full-Year 2022 Highlights
Net sales of $521.0 million increased 37.7% or $142.7 million compared to 2021, a 14.6% increase excluding sales from Fill-Rite which was acquired in May 2022
Net income was $11.2 million, or $0.43 per share, compared to net income of $29.9 million, or $1.14 per share, for 2021
Adjusted earnings per share1 for 2022 and 2021 were $0.94 and $1.21, respectively
Adjusted earnings per share1 include non-cash LIFO2 expense of $0.56 per share and $0.20 per share in 2022 and 2021, respectively
Adjusted EBITDA1 of $88.7 million increased $30.6 million or 52.7% from $58.1 million for 2021, an increase of $11.4 million, or 19.6% excluding Fill-Rite
Net sales for the year ended Dec. 31, 2022 were $521.0 million compared to net sales of $378.3 million for the year ended December 31, 2021, an increase of 37.7% or $142.7 million. Domestic sales increased 46.3% or $120.6 million and international sales increased 18.8% or $22.1 million compared to 2021. Fill-Rite sales, which are primarily domestic, were $87.4 million from the acquisition date of May 31, 2022 to December 31, 2022.
Excluding Fill-Rite, sales in our water markets increased 15.9% or $42.5 million in 2022 compared to 2021. Sales increased $17.3 million in the fire market, $14.8 million in the municipal market, $6.4 million in the repair market, and $5.1 million in the construction market. Partially offsetting these increases was a decrease of $1.1 million in the agriculture market.
Excluding Fill-Rite, sales in our non-water markets increased 11.7% or $12.8 million in 2022 compared to 2021. Sales increased $13.5 million in the industrial market and $1.9 million in the OEM market. Partially offsetting these increases was a decrease of $2.6 million in the petroleum market.
Gross profit was $130.9 million in 2022, resulting in gross margin of 25.1%, compared to gross profit of $95.9 million and gross margin of 25.3% in 2021. The 20 basis point decrease in gross margin was driven by a 280 basis point increase in cost of material, which included an unfavorable LIFO2 impact of 170 basis points, an unfavorable impact of 30 basis points related to Fill-Rite inventory recorded at fair value and recognized during the second quarter of 2022, and an unfavorable impact of 30 basis points related to the amortization of acquired Fill-Rite customer backlog.
The full amount of the step-up to record Fill-Rite inventory at fair value was recognized during the second quarter of 2022 and will not recur, while the acquired Fill-Rite customer backlog will be fully amortized during the first half of 2023. The decrease in gross margin was partially offset by a 260 basis point improvement from labor and overhead leverage due to increased sales volume.
SG&A expenses were $83.1 million in 2022, which included $7.1 million of one-time acquisition costs. Excluding acquisition costs, SG&A expenses were $76.0 million and 14.6% of net sales in 2022 compared to $56.0 million and 14.8% of net sales in 2021. The decrease in SG&A expenses as a percentage of sales, excluding acquisition costs, was primarily due to leverage from increased sales volume.
Amortization expense was $7.6 million in 2022 compared to $0.5 million in 2021. The increase in amortization expense was due to $7.0 million in amortization attributable to the Fill-Rite acquisition.
Operating income was $40.2 million in 2022, which included $7.1 million in one-time acquisition costs, $1.4 million of inventory step up amortization, and $1.5 million of acquired customer backlog amortization.
Excluding acquisition costs, inventory step-up and backlog amortization, operating income was $50.2 million in 2022, resulting in an operating margin of 9.6%, compared to operating income of $39.4 million and operating margin of 10.4% in 2021.
The decrease of 80 basis points in operating margin was primarily the result of an unfavorable LIFO2 impact.
Interest expense was $19.2 million in 2022. No interest expense was recorded in 2021. The interest expense was due to debt financing attributable to the Fill-Rite acquisition.
Other income (expense), net was $7.1 million of expense in 2022 compared to expense of $2.1 million in 2021. The increase in expense was due primarily to increased non-cash pension settlement charges of $6.4 million in 2022 compared to $2.3 million in 2021.
Net income was $11.2 million, or $0.43 per share, in 2022 compared to $29.9 million, or $1.14 per share, in 2021. Adjusted earnings per share1 in 2022 were $0.94 per share compared to $1.21 per share in 2021. Adjusted earnings per share1 in 2022 included an unfavorable LIFO2 impact of $0.56 per share compared to an unfavorable LIFO2 impact of $0.20 per share in 2021.
The Company’s effective tax rate was 19.3% in 2022 compared to 19.9% in 2021. The effective tax rate for 2022 was impacted by similar benefits from credits and permanent items as the prior year on lower pretax income. We expect our effective tax rate for 2023 to be between 20.0% and 22.0%
Adjusted EBITDA1 was $88.7 million in 2022 compared to $58.1 million in 2021 with the Fill-Rite acquisition contributing $19.2 million. Excluding Fill-Rite, adjusted EBITDA1 in 2022 increased $11.4 million, or 19.6%, compared to 2021, due primarily to increased sales volume.
The Company’s backlog of orders was $267.4 million at December 31, 2022 compared to $186.0 million at December 31, 2021, an increase of 43.8%. Fill-Rite added $13.0 million to the backlog at December 31, 2022. Incoming orders during the fourth quarter of 2022 increased 17.6% when compared to the same period in 2021, and decreased 8.6% excluding Fill-Rite.
Incoming orders increased 30.6% in 2022 compared to 2021, and 11.2% excluding Fill-Rite. The increase in backlog at December 31, 2022 was primarily driven by strong incoming orders during the year, large municipal orders which are longer term in nature, and the acquisition of Fill-Rite. The backlog aging was consistent with historical levels.
Capital expenditures in 2022 were $18.0 million and consisted primarily of machinery and equipment and building improvements. Capital expenditures for the full-year 2023 are presently planned to be in the range of $18-$20 million.
About The Gorman-Rupp Company
Founded in 1933, The Gorman-Rupp Company is a leading designer, manufacturer and international marketer of pumps and pump systems for use in diverse water, wastewater, construction, dewatering, industrial, petroleum, original equipment, agriculture, fire suppression, heating, ventilating and air conditioning (HVAC), military and other liquid-handling applications.