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Text: Dan will begin our call with a review of our financial results for the third quarter of 2021.
I will then provide more comments on the results.
The key takeaways from our third quarter 2021 results are: total company net sales of $338 million were up 16%.
Industrial Division net sales of $219 million, were up 12%, Agricultural Division net sales of $119 million, were up 25%.
Operating income of $30 million was down 3%, net income of $17.5 million or $1.49 per diluted share was down 13%, adjusted net income of $18.9 million or $1.59 per diluted share was down 8%.
Adjusted EBITDA was flat to the prior year third quarter and remained up 7% from full year 2020.
Total debt outstanding was reduced by $20.7 million during the third quarter and was down 21% from the prior year third quarter.
Our -- and our backlog increased to $645 million, which is up 154% over the prior year third quarter.
Third quarter 2021 net sales of $338 million, was 16% higher than the prior year third quarter.
We continued to benefit from strong order rates and recent pricing actions, but supply chain constraints and labor capacity issues are still limiting our ability to ship finished product.
Industrial Division third quarter 2021 net sales of $219 million, represented 12% increase from the prior year third quarter.
Despite stronger customer demand, this division's top line result was particularly hit hard by truck chassis availability as well as other supply chain disruptions.
Agricultural Division third quarter 2021 sales were $119 million, up 25% from the prior year third quarter.
During the quarter, favorable agricultural market conditions, low dealer inventories and pricing actions continued to drive organic sales growth in this division which was also affected by port delays and other supply chain constraints.
Gross margin for the third quarter of 2021 was $86.3 million or 25.5% of net sales compared to $78.6 million or 27% of net sales in the prior year third quarter.
The favorable gross margin impact we would normally expect from higher volume and aggressive pricing actions was more than offset by continued material inflation, production inefficiencies resulting from supply chain and labor capacity constraints and a less favorable mix of service part sales.
Operating income for the third quarter of 2021 was $30 million or 8.9% of net sales, which was down 3% from the prior year quarter.
The gross margin effects already mentioned were offset by a more normal level of operating expenses compared to the reduced spending levels of the pandemic affected prior-year period.
As mentioned last quarter, while our recent pricing actions have been aggressive, the effective impact of these actions continued to lag rising cost.
On a positive note, September was the first month and over a year that we didn't see a rise in published mill pricing -- mill prices for hot-rolled steel.
Net income for the third quarter 2021 of $17.5 million or $1.40 per diluted share was down 13% from the prior year third quarter.
If we exclude from the current year quarter, $1.4 million of after-tax charges stemming from accelerated stock award vesting related to the retirement of our former CEO as well as Morbark inventory step-up expense from the prior year quarter, third quarter adjusted net income of $18.9 million, was down 8% from the prior year result, while income before taxes was up $0.3 million over the prior year third quarter, mainly due to lower interest expense.
Net income was lower due to an income tax provision for stock-based compensation in anticipation of a 28% full year effective income tax rate as well as the non-deductibility of compensation expenses related to the retirement of our former CEO.
Third quarter 2021 adjusted EBITDA was flat to the prior year third quarter adjusted result as trailing 12 month adjusted EBITDA of $155.3 million remained flat to the trailing 12-month results that we reported at the end of the second quarter 2021.
This remains 7% above the adjusted 2020 EBITDA.
During the third quarter of 2021, we continued to delever the balance sheet by further reducing debt $20.7 million on the flat adjusted EBITDA performance.
We ended the third quarter of 2021 with a record high order backlog of $645 million which was an increase of 154% over the prior year third quarter.
We continued to see strong customer order rates and no significant order cancellations, despite supply chain induced shipping delays.
To recap our third quarter 2021 results.
Total company net sales of $338 million were up 16%, Industrial Division net sales of $219 million were up 12%, Agricultural Division net sales of $119 million were up 25%, operating income of $30 million was down 3%, net income of $17.5 million or $1.49 per diluted share was down 13%, adjusted net income of $18.9 million or $1.59 per diluted share was down 8%, adjusted EBITDA was flat to the prior year third quarter, but remained up 7% from full year 2020, total outstanding debt was reduced by $20.7 million and was down 21% from the prior year third quarter and our backlog increased to $645 million, up 154% over the prior year third quarter.
Before discussing our results for the quarter, I'd like to offer a brief update regarding COVID-19.
I'm pleased to report that during the third quarter, we experienced very few cases of COVID-19 among our employee population.
While the direct impact of COVID was far or less this quarter than what we've experienced during the last several quarters, the lingering indirect effects of the pandemic significantly impacted our operations during the third quarter.
Our markets remained strong during the quarter duely across the board and our order bookings for the quarter increased sequentially again as they've done every quarter of this year.
In the agricultural market, prices for corn, soybeans and livestock while off from their previous peaks remained at historically attractive levels.
Tractor sales were also modestly higher than they were a year ago, although recent demand growth has been skewed to the larger tractors that are somewhat less meaningful to Alamo Group's sales of attachments.
Activity in our governmental markets also remains strong.
State, county and municipal governments continue to invest in equipment to update their right of way maintenance fleets.
In addition, demand for our industrial products from industries such as steel, cement and mining also continued to rebound.
Finally, demand for our forestry and tree care products has been very strong as we anticipated when we acquired the Morbark, Rayco and Denis Cimaf brands late in 2019.
The increased pace of order bookings brought our backlog to a new all-time record of $645 million by the end of the quarter.
To-date we have not observed any signs that the momentum of our markets will change in the near term nor have we experienced any meaningful order cancellations due to the extended lead times we are currently experiencing.
So long as dealer inventories remain at the current low levels, we expect demand for our Agricultural Division's products will remain strong with minimal risk that orders will be canceled or postponed.
Governmental agencies by their nature don't purchase equipment on speculation or warrant [Phonetic] advance of known fleet renewal requirements, so we don't foresee significant risk of order cancellations from these customers.
Non-governmental buyers of our industrial products including operators of our forestry and tree care equipment, place orders to meet expanding demand for their own products and also in anticipation of their current equipment reaching the end of their expected lifecycle.
While there is some risk that these customers could cancel orders in the event of a recession, we do not anticipate this recurring in the near term -- this occurring in the near term.
Turning now to Alamo Group's operations in the third quarter.
We experienced significant disruption in our normal manufacturing process flows during the third quarter as a result of instability in the supply chain.
We experienced extended delivery times for a wide variety of components we required to manufacture our products, including shortages and delivery delays of truck chassis, industrial engines, gearboxes, cutting blades, hydraulic components and even such relatively mundane items as wiring harnesses and specialty assembly hardware.
Our operations depend on reliable and timely supplies of these kinds of components to operate efficiently.
When the supply chain is significantly disrupted as we experienced broadly in the third quarter, our workforce is less productive as they have to shift production priorities frequently based on what products can be completed with the materials on hand.
When a component needed to assemble -- needed for the assembly of our products is delayed, our work in process inventory also increases beyond what is normally expected as orders increase.
Input cost inflation was also a significant issue during the third quarter.
While our teams have been closely monitoring supplier cost changes and adjusting our prices regularly, there is a lag effect until these pricing actions materialize in our margins.
Our Agricultural Division has had success renegotiating pricing for orders and backlog.
However, it's not really possible for our Industrial Division to renegotiate prices for orders and backlog from governmental customers.
Shortages of skilled labor were also more impactful during the third quarter than we had experienced earlier in the year.
While we've been able to partly address the shortage of welders by increasing the pace of our deployment of robots, skilled assembly technicians with experience in electronics, hydraulics and pneumatics remain difficult to recruit, although this was certainly less impactful to our results in supply chain bottlenecks, it also has contributed to restraining sales growth in some of our operations.
Transportation costs were another headwind we encountered during the third quarter, particularly costs associated with inbound shipments.
While transportation costs were higher across the board, we also incurred additional costs to expedite inbound shipments of components to complete production in order to achieve the earliest possible deliver dates to our customers.
As a result of the cost pressures I've described, our margins in the third quarter were lower than they were in the third quarter of 2020.
However, our margins were actually slightly higher in the third quarter than they were in the second quarter of this year and I think this indicates that better pricing in the backlog is beginning to flow through.
Finally, sales, general and administrative costs were higher in the third quarter.
As expected, selling costs increased as COVID related travel restrictions eased and our sales teams were able to travel more regularly to serve our customers in-person and to attend trade shows, many of which were suspended last year.
With our higher sales in the quarter, commission expenses also increased.
The increase in administrative expense, primarily involved non-recurring costs related to the retirement of our previous CEO.
Our effective tax rate in the third quarter was 37% compared to 27% in the third quarter of 2020.
The higher tax rate was primarily the result of a provision for stock-based compensation and an anticipation of a full year 2021 tax rate of 28%.
So as you can see, there was a lot going on during the third quarter, and this is reflected in our results.
At the moment there is no clear evidence that the external business climate will be meaningfully different or better during the fourth quarter.
One positive note is that we've recently seen steel prices begin to stabilize, albeit at higher levels than we would like.
Otherwise inflation generally seems to be gradually gaining momentum at least in the United States.
In spite of this, I remain optimistic about the future prospects for our company.
Our strong record high backlog gives us confidence and good visibility to allow us to make appropriate investment plans concerning the development of our people, our products and our facilities.
I was also very pleased to announce the acquisition of Timberwolf Limited last week.
Although this is a small company, they are a UK market leader with a very nice range of brush and limb chippers.
They have a comprehensive dealer network spanning the UK, Europe and other areas that will provide important access points into these markets for our full range of forestry, tree care and recycling products.
At the same time, Timberwolf Chipper products fill an important product offering gap in Morbark's range that will complete and strengthen our tree care offering in North America.
Finally, I want to take this opportunity to remind the investor community that commencing in the fourth quarter, we will report our business through two new segments, namely Vegetation Management and Industrial Equipment.
All of Alamo's products that cut or process organic material will be organized under Vegetation Management.
This division combines all of the brands of our former Agricultural Division with the governmental mowing, forestry and tree care operations that had previously been part of our former Industrial Division.
More specifically, this means that our Alamo Industrial Tiger Mowers, Morbark, Rayco and Denis Cimaf brands will be reported as part of Vegetation Management going forward.
Our Industrial Equipment division includes our excavator, vacuum trucks, street sweeper, leaf removal and snow removal brands.
I believe this structure brings improved strategic clarity and more closely balances the size and scope of our two operating divisions.

user
q3 adjusted earnings per share $1.59.
q3 sales rose 16 percent to $338.3 million.
qtrly backlog of $645.1 million, up 154% compared to prior year q3.
alamo group - expect to continue to experience headwinds associated with cost inflation, supply chain disruptions and skilled labor shortages in q4.

assistant