THE GORMAN-RUPP COMPANY (Dollars in thousands, except for per share amounts)
The following discussion and analysis of the Company's financial condition and
Results of Operations should be read in conjunction with the Consolidated
Financial Statements, and notes thereto, and the other financial data included
elsewhere in this Quarterly Report on Form 10-Q. The following discussion should
also be read in conjunction with the Company's audited Consolidated Financial
Statements and accompanying notes, and Management's Discussion and Analysis of
Financial Condition and Results of Operations included in its Annual Report on
Form 10-K for the year ended
Executive Overview
The following discussion of Results of Operations includes certain non-GAAP
financial data and measures such as adjusted earnings before interest, taxes,
depreciation and amortization and adjusted earnings per share amounts which
exclude non-cash pension settlement charges in 2021 and 2020. Management
utilizes these adjusted financial data and measures to assess comparative
operations against those of prior periods without the distortion of
non-comparable factors.
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Adjusted earnings per share:
Reported earnings per share - GAAP basis
Adjusted earnings before interest, taxes, depreciation and amortization: Reported net income-GAAP basis$ 7,097 $ 5,634 $ 14,526 $ 11,120 Plus income taxes 1,812 1,433 3,701 2,837 Plus depreciation and amortization 2,969 3,143 5,951 6,325 Non-GAAP earnings before interest, taxes, depreciation and amortization 11,878 10,210 24,178 20,282 Plus pension settlement charge 1,728 1,904 1,728 3,382 Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization$ 13,606 $ 12,114 $ 25,906 $ 23,664
We regularly invest in training for our employees, in new product development and in modern manufacturing equipment, technology and facilities all designed to increase production efficiency and capacity and drive growth by delivering innovative solutions to our customers. We believe that the diversity of our markets is a major contributor to the generally stable financial growth we have produced for more than 85 years.
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The Company places a strong emphasis on cash flow generation and maintaining
excellent liquidity and financial flexibility. This focus has afforded us the
ability to reinvest our cash resources and preserve a strong balance sheet and
position us for future acquisition and product development opportunities. The
Company had no bank debt as of
Capital expenditures for the first six months of 2021 were
Net sales for the second quarter of 2021 were
Gross profit was
Selling, general and administrative ("SG&A") expenses were
Operating income was
Other income (expense), net was
Net income was
Net sales for the first six months of 2021 were
Gross profit was
SG&A expenses were
Operating income was
Other income (expense), net was
Net income was
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The Company's backlog of orders was
On
The Company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends. However, any future dividends will be reviewed individually and declared by our Board of Directors at its discretion, dependent on our assessment of the Company's financial condition and business outlook at the applicable time.
Outlook
Although the timing of the global economy fully recovering from the COVID-19 pandemic remains somewhat uncertain, our sales and incoming orders improved in the first half of this year. The increases in sales and incoming orders has been broad-based across almost all of our major markets and has resulted in a strong backlog position at the beginning of the third quarter of 2021. We continue to manage developments in our global supply chain related to availability, increased lead times, transportation challenges, and rising material costs. To the extent that these could impact our financial results, we are taking measures in an effort to mitigate risks and ensure that we are able to continue to meet our customers' needs. We remain well positioned to maximize the opportunity as the economy recovers while at the same time continuing to focus on our long-term strategic initiatives.
Three Months Ended
Net Sales Three Months Ended June 30, 2021 2020 $ Change % Change Net Sales$ 93,015 $ 85,814 $ 7,201 8.4%
Net sales for the second quarter of 2021 were
Sales in our water markets increased 4.5% or
Sales in our non-water markets increased 18.1% or
Cost of Products Sold and Gross Profit
Three Months Ended
June 30,
2021 2020 $ Change % Change
Cost of products sold $ 68,342 $ 63,965 $ 4,377 6.8%
% of Net sales 73.5 % 74.5 %
Gross Margin 26.5 % 25.5 %
Gross profit was
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Selling, General and Administrative (SG&A) Expenses
Three Months Ended
June 30,
2021 2020 $ Change % Change
Selling, general and administrative
expenses $ 14,059 $ 12,852 $ 1,207 9.4%
% of Net sales 15.1 % 15.0 %
Selling, general and administrative ("SG&A") expenses were
Operating Income
Three Months Ended
June 30,
2021 2020 $ Change % ChangeOperating income$ 10,614 $ 8,997 $ 1,617 18.0% % of Net sales 11.4 % 10.5 %
Operating income was
Net Income
Three Months Ended
June 30,
2021 2020 $ Change % Change
Income before income taxes $ 8,909 $ 7,067 $ 1,842 26.1%
% of Net sales 9.6 % 8.2 %
Income taxes $ 1,812 $ 1,433 $ 379 26.4%
Effective tax rate 20.3 % 20.3 %
Net income $ 7,097 $ 5,634 $ 1,463 26.0%
% of Net sales 7.6 % 6.6 %
Earnings per share $ 0.27 $ 0.22 $ 0.05 22.7%
The Company's effective tax rate was 20.3% for the second quarter of 2021 and 2020.
Net income was
Six Months Ended
Net Sales Six Months Ended June 30, 2021 2020 $ Change % Change Net Sales$ 182,042 $ 177,485 $ 4,557 2.6%
Net sales for the first six months of 2021 were
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Sales in our water markets increased 2.7% or
Sales in our non-water markets increased 2.2% or
Cost of Products Sold and Gross Profit
Six Months Ended
June 30,
2021 2020 $ Change % Change
Cost of products sold $ 134,326 $ 132,188 $ 2,138 1.6%
% of Net sales 73.8 % 74.5 %
Gross Margin 26.2 % 25.5 %
Gross profit was
Selling, General and Administrative (SG&A) Expenses
Six Months Ended
June 30,
2021 2020 $ Change % Change
Selling, general and administrative
expenses $ 28,129 $ 27,723 $ 406 1.5%
% of Net sales 15.5 % 15.6 %
SG&A expenses were
Operating Income
Six Months Ended
June 30,
2021 2020 $ Change % Change
Operating income
Operating income was$19.6 million for the first six months of 2021, resulting in an operating margin of 10.8%, compared to operating income of$17.6 million and operating margin of 9.9% for the same period in 2020. Operating margin improved 90 basis points primarily as a result of improved leverage on fixed labor and overhead resulting from increased sales volume compared to the first six months of 2020. Net Income Six Months Ended June 30, 2021 2020 $ Change % Change Income before income taxes$ 18,227 $ 13,957 $ 4,270 30.6% % of Net sales 10.0 % 7.9 % Income taxes$ 3,701 $ 2,837 $ 864 30.4% Effective tax rate 20.3 % 20.3 % Net income$ 14,526 $ 11,120 $ 3,406 30.6% % of Net sales 8.0 % 6.3 % Earnings per share$ 0.56 $ 0.43 $ 0.13 30.2% 15
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The Company's effective tax rate was 20.3% for the first half of 2021 and 2020.
Net income was
Liquidity and Capital Resources
Cash and cash equivalents totaled
Free cash flow, a non-GAAP measure for reporting cash flow, is defined by the Company as adjusted earnings before interest, income taxes and depreciation and amortization, less capital expenditures and dividends. The Company believes free cash flow provides investors with an important perspective on cash available for investments, acquisitions and working capital requirements.
The following table reconciles adjusted earnings before interest, income taxes and depreciation and amortization as reconciled above to free cash flow:
Six Months Ended
June 30,
2021 2020
Non-GAAP adjusted earnings before interest, taxes,
depreciation and amortization $ 25,906 $ 23,664
Less capital expenditures (3,548 ) (3,655 )
Less cash dividends (8,095 ) (7,562 )
Non-GAAP free cash flow $ 14,263 $ 12,447
Financial Cash Flow
Six Months Ended
June 30,
2021 2020
Beginning of period cash and cash equivalents
(2,971 ) (3,457 )
Net cash used for financing activities (8,984 ) (8,208 )
Effect of exchange rate changes on cash (65 ) (179 )
Net increase in cash and cash equivalents 16,901 5,230
End of period cash and cash equivalents
The increase in cash provided by operating activities in the first six months of 2021 compared to the same period last year was primarily due to the global economic recovery from the COVID-19 pandemic as net income increased, deferred revenue increased, accounts payable increased, and inventory stabilized compared to an increase in the prior period, partially offset by increased accounts receivable. Pension plan contributions were also reduced when compared to the prior period.
During the first six months of 2021 and 2020, investing activities consisted of
capital expenditures primarily for machinery and equipment of
Net cash used for financing activities for the first six months of 2021 and 2020
primarily consisted of dividend payments of
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The Company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends. However, any future dividends will be reviewed individually and declared by our Board of Directors at its discretion, dependent on our assessment of the Company's financial condition and business outlook at the applicable time.
Critical Accounting Policies
Our critical accounting policies are described in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, and in
the notes to our Consolidated Financial Statements for the year ended
Cautionary Note Regarding Forward-Looking Statements
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995,
Such factors include, but are not limited to: company specific risk factors
including (1) loss of key personnel; (2) intellectual property security;
(3) acquisition performance and integration; (4) impairment in the value of
intangible assets, including goodwill; (5) defined benefit pension plan
settlement expense; and (6) family ownership of common equity; and general risk
factors including (7) continuation of the current and projected future business
environment, including the duration and scope of the COVID-19 pandemic, the
impact of the pandemic and actions taken in response to the pandemic? (8) highly
competitive markets; (9) availability and costs of raw materials; (10) cyber
security threats; (11) compliance with, and costs related to, a variety of
import and export laws and regulations; (12) environmental compliance costs and
liabilities; (13) exposure to fluctuations in foreign currency exchange rates;
(14) conditions in foreign countries in which
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