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Text: Dan Malone, our CFO, will begin our call with a review of our financial results for the first quarter of 2021, and I will then provide a few more comments on the results.
The key takeaways from our first quarter 2021 results are.
Record first quarter net income and earnings per share up over 12% from the prior first quarter on a GAAP basis and up nearly 3% on an adjusted basis.
First quarter sales down 1% from the prior year first quarter.
First quarter operating income essentially flat to the adjusted prior year result.
First quarter and trailing 12-month EBITDA also flat to the comparable adjusted prior period performance.
First quarter cash flows reflected working capital needs driven by high order backlog and a record order backlog of $453 million, up 95% over the prior year quarter and up nearly 28% since year-end 2020.
First quarter 2021 net sales of $311.2 million were 1% lower than the prior year first quarter.
While we continue to see a strong rise in order rates and backlog, the COVID-19 pandemic continued to negatively impact our manufacturing efficiencies and inbound supply chain during the quarter, delaying some shipments.
Industrial division first quarter 2021 net sales of $211.9 million represented a 7.9% decrease from the prior year first quarter due to pandemic-related impact on customer demand and disruptions to our supply chain and operations.
Agricultural division first quarter 2021 sales were $99.3 million up 17.5% from the prior year first quarter.
During the quarter, we continued to see strong organic sales growth across this division.
The immediate top line benefit of the surge in customer demand was somewhat constrained by the negative impact of the pandemic on inbound supply chain and manufacturing efficiencies, as previously mentioned.
Net income for the first quarter 2021 was $17.5 million or $1.47 per diluted share, up over 12% from the prior year first quarter.
Excluding the Morbark inventory step-up expense from the prior year result, first quarter net income was up 2.9% over the adjusted prior year result.
Lower interest expense, favorable income tax provision adjustments and lower operating expenses more than offset the nonrecurrence of prior year foreign currency and property disposition gains to produce this result.
Operating income for the first quarter 2021 was $25.4 million or 8.2% of net sales, which is up from $23.9 million or 7.6% of net sales in the prior year period but essentially flat to the adjusted prior year result that excludes the $2 million of Morbark inventory step-up expense.
Lower operating expenses were enough to offset an unfavorable gross margin comparison.
Gross margin for the first quarter of 2021 was $76.4 million or 24.6% of net sales compared to $78.9 million or 25.1% of net sales in the prior year first quarter.
Excluding the Morbark inventory step-up expenses, the prior year first quarter gross margin was $80.9 million or 25.7% of net sales.
In the first quarter of 2021, we saw a compression of gross margins due to rising material costs that were not fully offset by favorable product mix and pricing actions.
Also, an expected positive impact from higher customer demand on operating leverage has been somewhat limited by the uneven distribution and timing of new order growth across our business units as well as COVID-19 operational and supply chain disruptions, as previously discussed.
First quarter 2021 EBITDA was $36.7 million, down slightly from the prior year first quarter adjusted EBITDA.
Trailing 12-month EBITDA was $145 million was essentially flat to adjusted 2020 EBITDA.
First quarter 2021 EBITDA was 11.8% of net sales, which is also flat to the prior year first quarter adjusted results.
Favorable product mix, pricing actions and other cost containment measures offset material cost inflation and the negative pandemic impacts.
During the first quarter 2021, we saw an $8.6 million net use of cash for operating activities compared to a $5.6 million net provision of cash from operations in the prior year first quarter.
While a first quarter build in working capital is seasonal for many of our business units, high current year order backlogs will continue to drive higher working capital investment to support the top line growth.
We ended the first quarter with a record $453 million in order backlog, an increase of 95% since the prior year first quarter and nearly 28% higher than year-end 2020.
During the quarter, we saw an acceleration of customer demand across the entire range of our industrial and agricultural products.
We finished the first quarter of 2021 with order backlogs well above prior year quarter levels in both divisions and for all of our business units.
To recap our first quarter 2021 results, record first quarter net income and earnings per share, up over 12% from the prior first quarter on a GAAP basis and up nearly 3% on an adjusted basis.
First quarter sales down 1% from the prior year quarter.
First quarter operating income essentially flat to the adjusted prior year result.
First quarter and trailing 12-month EBITDA also flat to the comparable adjusted prior period performance.
First quarter cash flows reflected working capital needs driven by high order backlog.
And a record order backlog of $453 million, up 95% over the prior year first quarter and up nearly 28% since year-end 2020.
I appreciate the financial update.
There's an old Chinese curse that I think says "may you live in interesting times".
And so I mean, we are certainly living in interesting times.
But I'm glad that for Alamo Group, we actually are managing our way through this nicely and as our first quarter results showed, where we had strong sales and record earnings.
But there are certainly many challenges that are ongoing.
Many of these -- most of these are the repercussions from the ongoing COVID pandemic, which is still very much an unresolved issue that is affecting our company, our workforce and the world economy in general.
And the many other issues we are facing, including supply chain challenges, logistical disruptions and inflationary pressures, are basically almost extensions of the pandemic.
We are certainly not alone in this as nearly all industrial manufacturing companies that we know of are facing these same issues.
But despite these issues and distractions, we're very pleased with the way our company has performed in this environment, and we remain diligent in managing these issues to deliver ongoing solid results.
We're glad to see that the markets for our products are holding up well and have mostly returned to pre-pandemic levels and in some cases, even better.
This is most evident in our bookings and backlog, which are at record levels.
And even though if not for these challenges, we could have shipped more in the first quarter, but we would have still finished the quarter with record backlog.
Like I said, I think if we didn't have quite as many supply chain issues, our sales would have been a record for the first quarter instead of being down 1%.
But even with that, we would have still finished with record backlogs.
Certainly, our agricultural division showed the strongest results in the first quarter 2021 as this market not only remains steady, that market has actually remained steady throughout most of this COVID situation and has further benefited from some pent-up demand in the farming sector as a result of several years of weak market conditions and low farm incomes.
And this current market strength has also been aided for us by sort of lower levels of dealer inventories going into this time and above-average farm subsidies in the U.S. And even with -- even if subsidies aren't quite as strong this year as they were last year, we think higher agricultural commodity prices and strong demand for equipment will continue to be good.
The fundamentals of the market are good for not only the rest of 2021, but the next several years as well look very promising.
And even though supply chain issues, logistical problems and inflationary pressure, all limited our results in the first quarter in our ag sector and continue to impact us today, these should impact us a little less than the second half of the year based on our pricing and the input we're getting from our suppliers.
So we're pleased that the outlook is improving.
We are also pleased that while our North American ag units are certainly performing the strongest, it is very reassuring to note that our European units are all showing improvement as well as are our Brazilian and Australian operations.
So with a good market, record backlogs, the outlook for Alamo's agricultural division is very positive.
The same can actually be said for Alamo's industrial division.
While our results were not quite as good in the first quarter of 2021 as our ag division on a relative basis, it was still a solid quarter.
It started off weak in January as budget issues continued to constrain governmental entities, which is our single biggest market for this division's infrastructure maintenance equipment.
But momentum built during the quarter, and we ended with very strong results in March that are continuing on into the second quarter of 2021 as well.
We are continuing to benefit by improved governmental budgets as revenues at city, county and state levels, all of which seem to be showing better-than-anticipated results.
And our bookings and backlog in this sector reflect these improved fundamentals with governmental budgets and with basically the financial health of our customers.
As with our agricultural division, our industrial results were constrained by COVID-related operational challenges internally and with the supply chain and logistical issues, preventing ourselves from reaching the record levels, which they could have been without this.
However, we believe these issues will be less evident again in the second half of 2021 and feel optimistic that the full year results for the -- for our industrial division should be at record levels for Alamo Group.
Certainly, getting operations back to pre-pandemic levels is key to this outlook.
But getting -- but we're also really -- a big contributor is getting the full benefit of the high level of acquisitions we completed in 2019.
This is what really should drive the record results that we anticipate.
These acquisitions of Morbark, Dutch Power and Dixie Chopper have all performed well, but we have really -- due to the pandemic of 2020, we have really not achieved their full potential.
And with that, I mean, we feel very -- on a combined basis, very optimistic about Alamo Group.
And it's good to see that in general, business is returning to more normal levels of activity, among other things, including things such as our acquisition activities, which were definitely curtailed for most of the last 12 months.
I mean we're actually starting to see opportunities and look at opportunities.
So which -- since acquisitions are definitely key part of our ongoing strategy, I think it's -- we're glad to see that.
We also -- I mean, during the last year, we really constrained our capital spending as we focused on cost control and paying down debt, which we're very pleased both were very successful initiatives.
But with the strong bookings and record backlog, we need to improve our operational capabilities.
And we are starting to invest more in better manufacturing technologies that will allow us to be more efficient and grow our margins and meet this increased demand as evidenced by our bookings and backlogs.
So while we are optimistic about the outlook for Alamo Group, we are also very cognizant that the COVID pandemic is still not fully resolved.
It is certainly good to see the growing availability of vaccines, but unfortunately, the number of new cases is still a concern.
And while we are pleased our markets are showing steady improvement, the supply chain and logistical challenges are ample evidence that COVID is still affecting us all.
We hope this situation and feel it will continue to show steady improvement, but we will continue to monitor our operations and monitor our markets and remain ready to respond to changes, good or bad, that could affect our company.
And actually, we believe this responsiveness has helped us navigate through this and other periods of economic upheaval and are committed to reacting quickly as conditions warrant.
And really, that is why we feel optimistic about the outlook for Alamo Group.
There are always challenges, and we certainly are living in interesting times.
But by staying focused on our strategy, we feel we can prosper even in challenging times and continue to grow at above-market rates over the long term.
And lastly, while, as most of you know, I will soon be retiring as CEO of Alamo Group, I remain very optimistic about the outlook for the company.
My replacement, Jeff Leonard, and the whole Alamo team are more than capable to continue along the path of success we have followed.
And I look forward to following their continued progress and staying active as a member of the Board of Directors.
It's certainly been a great trip.

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q1 sales fell 1 percent to $311.2 million.
q1 earnings per share $1.47.

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