Gorman-Rupp building

Gorman-Rupp is located at 600 South Airport Road, Mansfield, Ohio.

MANSFIELD -- The Gorman-Rupp Company (NYSE: GRC) reported its financial results Friday for the fourth quarter and year ended Dec. 31, 2019.

“Our modest sales decline in 2019 was primarily the result of uncertainty in international markets along with a slowdown in capital spending for the oil and gas marketplace," said Jeffrey S. Gorman, Chairman, President and CEO. "Although we had to absorb tariff surcharges on some of our purchased components, good controls around SG&A spending resulted in a solid year from an earnings standpoint.

"For 2020 we believe both domestic spending for industrial products and international markets will remain somewhat challenging."

On the brighter side, Gorman said the company anticipates pump sales for municipal and flood control applications should be more positive. Additional spending on domestic infrastructure could also be beneficial.

"As we enter a new decade, our outlook remains positive for the future," Gorman said. "Although the fluid handling market is mature in nature, exciting opportunities exist in the way pumps are engineered, packaged, and controlled for higher efficiency.

"We continue to look for acquisitions that will supplement our growth for new and existing products and markets. Our strong balance sheet and positive cash flow are advantages should the right acquisition opportunities arise.”

Fourth Quarter 2019 Highlights

Fourth quarter earnings per share were $0.32 compared to $0.36 per share for the fourth quarter of 2018.

Fourth quarter of 2019 included a favorable LIFO impact of $0.04 per share.

Fourth quarter of 2018 included a special cash bonus paid to all employees of $0.04 per share and an unfavorable LIFO impact of $0.03 per share.

Net sales decreased 9.0% or $9.3 million compared to the fourth quarter of 2018.

Fourth quarter incoming orders increased 2.7% compared to the fourth quarter of 2018 and increased 3.3% compared to the third quarter of 2019.

Net sales for the fourth quarter of 2019 were $93.7 million compared to net sales of $103.0 million for the fourth quarter of 2018, a decrease of 9.0% or $9.3 million. Domestic sales decreased 10.3% or $7.3 million and international sales decreased 6.3% or $2.0 million compared to the same period in 2018.

Sales in our water markets decreased 10.2% or $7.2 million in the fourth quarter of 2019 compared to the fourth quarter of 2018. Sales in the construction market decreased $3.8 million driven primarily by softness in oil and gas drilling activity, and sales in the municipal market decreased $2.8 million driven primarily by lower shipments of pumps for water supply. In addition, sales in the fire protection, agriculture and repair markets decreased a total of $0.6 million.

Sales in our non-water markets decreased 6.6% or $2.1 million in the fourth quarter of 2019 compared to the fourth quarter of 2018. Sales in the OEM market decreased $0.9 million due to lower product sales across several applications. In addition, sales in the industrial market decreased $0.6 million due primarily to a large order in 2018 for a mining project, and sales in the petroleum market decreased $0.6 million driven primarily by reduced demand from midstream oil and gas customers.

International sales were $30.4 million in the fourth quarter of 2019 compared to $32.4 million in the same period last year and represented 32% of total sales in both years. The decrease in international sales was across most of the markets the Company serves.

Gross profit was $25.4 million for the fourth quarter of 2019, resulting in gross margin of 27.1%, compared to gross profit of $26.5 million and gross margin of 25.7% for the same period in 2018. Gross margin improved 140 basis points due principally to a favorable LIFO impact of 240 basis points and lower material costs of 150 basis points. Partially offsetting these items was loss of leverage on fixed labor and overhead from lower sales volume compared to the fourth quarter of 2018. The LIFO impact on gross margin was positive in the fourth quarter of 2019 due to lower inventory levels as compared to amounts in inventory at December 31, 2018.

Selling, general and administrative (“SG&A”) expenses were $15.3 million and 16.4% of net sales for the fourth quarter of 2019 compared to $15.8 million and 15.4% of net sales for the same period in 2018. The fourth quarter of 2018 included a special cash bonus paid to all employees in connection with the U.S. Tax Cuts and Jobs Act (“Tax Act”) of $1.3 million or 130 basis points. Excluding this special cash bonus, SG&A expenses as a percentage of sales increased 230 basis points primarily as a result of loss of leverage from lower sales volume.

Operating income was $10.0 million for the fourth quarter of 2019, resulting in an operating margin of 10.7%, compared to operating income of $10.7 million and operating margin of 10.4% for the same period in 2018. The fourth quarter of 2018 included a special cash bonus paid to all employees in connection with the Tax Act of $1.3 million or 130 basis points. Excluding this special cash bonus, operating margin decreased 100 basis points primarily as a result of loss of leverage from lower sales volume and higher healthcare costs, partially offset by a favorable LIFO impact in 2019.

Net income was $8.3 million for the fourth quarter of 2019 compared to $9.5 million in the fourth quarter of 2018, and earnings per share were $0.32 and $0.36 for the respective periods. Earnings per share for the fourth quarter of 2019 included a favorable LIFO impact of $0.04 per share. Earnings per share for the fourth quarter of 2018 included a special cash bonus paid to all employees of $0.04 per share and an unfavorable LIFO impact of $0.03 per share.

Net sales for 2019 were $398.2 million compared to $414.3 million for 2018, a decrease of 3.9% or $16.1 million. Domestic sales increased 1.3% or $3.5 million while international sales decreased 13.8% or $19.6 million compared to 2018. Of the total decrease in net sales during 2019, $2.9 million was due to unfavorable currency translation.

Sales in our water markets decreased 4.1% or $11.7 million in 2019 compared to 2018. Sales in the municipal market increased $3.7 million due primarily to large volume custom pumps for flood control, and sales in the repair market increased $0.4 million. This increase was offset by decreased sales in the fire protection market of $9.6 million driven primarily by softness in international markets and decreased sales in the construction market of $4.2 million driven primarily by softness in the upstream oil and gas activity. In addition, sales in the agriculture market decreased $2.0 million.

Sales in our non-water markets decreased 3.5% or $4.4 million in 2019 compared to 2018. Sales in the petroleum market increased $1.7 million driven primarily by midstream and downstream oil and gas customers. This increase was offset by decreased sales in the industrial market and OEM market of $4.4 million and $1.7 million, respectively, due primarily to reduced capital spending related to oil and gas.

International sales were $122.9 million in 2019 compared to $142.5 million in 2018 and represented 31% and 34% of total sales for the Company, respectively. International sales decreased most notably in the fire protection, construction and municipal markets.

Gross profit was $102.7 million for 2019, resulting in gross margin of 25.8%, compared to gross profit of $109.9 million and gross margin of 26.5% for 2018. Gross margin decreased 70 basis points largely as a result of loss of leverage on fixed labor and overhead from lower sales volume, and higher healthcare costs of 50 basis points. Partially offsetting these items was a favorable LIFO impact of 130 basis points compared to 2018.

SG&A expenses were $58.8 million and 14.8% of net sales for 2019 compared to $59.3 million and 14.3% of net sales for 2018. In 2018, a special cash bonus paid to all employees impacted SG&A expenses by $1.3 million or 30 basis points. Excluding this special cash bonus, SG&A expenses increased slightly by 1.4% or $0.8 million and increased 80 basis points as a percentage of sales primarily as a result of loss of leverage from lower sales volume.

Operating income was $43.8 million for 2019, resulting in an operating margin of 11.0%, compared to operating income of $50.6 million and operating margin of 12.2% for 2018. In 2018, a special cash bonus paid to all employees reduced operating income by $1.3 million and operating margin by 30 basis points. Excluding this special cash bonus, operating margin decreased 150 basis points primarily as a result of loss of leverage from lower sales volume and higher healthcare costs, partially offset by a favorable LIFO impact.

Net income was $35.8 million for 2019 compared to a record $40.0 million in 2018, and earnings per share were $1.37 for 2019 and $1.53 for 2018. In 2019, earnings benefited from a favorable LIFO impact of $0.04 per share. In 2018, earnings were reduced by an unfavorable LIFO impact of $0.12 per share, noncash pension settlement charges of $0.08 per share and a special cash bonus paid to all employees of $0.04 per share.

The Company’s effective tax rate increased to 21.2% for the fourth quarter of 2019 from 16.9% for the fourth quarter of 2018. The effective tax rate for the fourth quarter of 2018 benefited from the timing related to certain items associated with the enactment of the Tax Act. The Company’s effective tax rate was 20.7% for 2019 compared to 20.5% for 2018.

The Company’s backlog of orders was $105.0 million at December 31, 2019 compared to $113.7 million at December 31, 2018, a decrease of 7.7%. Incoming orders declined 6.2% for the full year. However, incoming orders for the fourth quarter of 2019 increased 2.7% compared to the fourth quarter of 2018.

Capital expenditures for 2019 were $10.9 million and consisted primarily of machinery and equipment. Capital expenditures for 2020 are planned to be in the range of $15-$18 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 protection, heating, ventilating and air conditioning (HVAC), military and other liquid-handling applications.

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