At the beginning of the fourth quarter of 2021, the Alamo Group began reporting operating results on the basis of two new segments, namely, the Vegetation Management Division and the Industrial Equipment Division. The financial information and period to period comparisons the company has presented in this release for 2021 and 2020 are based on the two new segments. Prior to the fourth quarter of 2021, the Company had been reporting its operating results on the basis of two segments which were the Industrial Division and Agricultural Division.
Fourth quarter 2021 net sales were $337.2 million compared to $288.6 million in the fourth quarter of 2020, an increase of 16.8%. Gross margin improved in the quarter compared to the fourth quarter of 2020 as pricing actions taken by the Company during 2021 began to offset the cost increases incurred in late 2020 and all of 2021. Fourth quarter net income improved 107.8% to $19.2 million, or $1.62 per diluted share, compared to net income of $9.3 million, or $0.78 per diluted share in the fourth quarter of 2020. The Company’s backlog at the end of the quarter was $800.8 million, an increase of $155.7 million, or 24.1%, from the backlog at the end of the third quarter, and up 126.2% from the prior year end.
The Company’s results for the fourth quarter continued to be materially impacted by persistent pandemic-related headwinds including supply chain disruptions, cost inflation, and skilled labor shortages.
Results for the Full Year
For the full year 2021, net sales rose to $1.3 billion, up 14.7% compared to $1.2 billion for the full year 2020. Net income for the year was $80.2 million, or $6.75 per diluted share, compared to net income of $57.8 million, or $4.88 per diluted share in 2020, a year-over-year improvement of 38.8%.
Net income for the full year 2021 included a $0.8 million charge for the acceleration of stock grants for our previous CEO who retired in the third quarter of 2021, while comparable results for full year 2020 included an inventory step-up charge of $3.5 million related to the Morbark acquisition. Adjusted net income for the full year of 2021 and 2020, excluding the above mentioned charges, was $81.1 million for 2021 versus $61.3 million for 2020, an increase of 32.2%.
Throughout 2021, the Company broadly experienced strong demand for its products and net sales set new Company records in each quarter of the year. The Company's record net sales growth was achieved despite the significant supply chain disruptions and skilled labor shortages that the Company experienced during the year.
Results by Division
The Vegetation Management Division had an excellent fourth quarter to cap off a strong performance in 2021. The Division’s fourth quarter net sales were $204.3 million, up 27.4% compared to $160.4 million for the same period in 2020. The increase in sales was driven by strong retail demand for forestry, tree care, and mowing products and lower dealer inventory levels.
Full year 2021 net sales in this Division were $812.7 million compared to $654.6 million for the full year of 2020, up 24.1%. The full-year increase in sales was primarily attributable to improved sales in the forestry, tree care, land clearing and agricultural mowing segments.
The Division's income from operations for the fourth quarter 2021 was $18.1 million, up 211.9% compared to $5.8 million for the fourth quarter of 2020. Full year 2021 income from operations was $78.9 million versus $46.7 million for the full year 2020, an increase of 69.2%.
Complementing a very strong performance from its North American operations, this Division’s units in the United Kingdom, France, Brazil and Australia all contributed to the very positive results.
The Industrial Equipment Division’s fourth quarter 2021 net sales were $132.8 million, up 3.6% compared to the same period in 2020. The increase was primarily attributable to higher sales of its excavators and vacuum trucks along with modest improvements in other product lines. Delays in planned truck chassis deliveries and chassis supply allocations due to ongoing computer logic chip shortages significantly impacted all of the Division’s vocational truck businesses.
Full year 2021 net sales were $521.5 million compared to $508.8 million for the full year 2020. The increase in full-year sales was led by excavators, vacuum trucks, street sweepers, and debris collectors, partially offset by lower shipments for the Division’s snow removal products, where shortages of industrial diesel engines, again related to the shortage of computer chips, impacted snow blower shipments.
The Division’s income from operations for the fourth quarter of 2021 was $9.7 million, down 15.6%, compared to $11.5 million, for the fourth quarter of 2020. Full year 2021 income from operations was $38.0 million versus $48.1 million for the full year 2020, a decrease of 21.0%. The Division’s profitability was significantly impacted by supply chain problems, higher material and freight costs as well as labor shortages. Lower sales and higher warranty costs in the snow removal business also adversely impacted income from operations in 2021.
Comments on Results
Jeff Leonard, Alamo Group’s President and Chief Executive Officer, commented, “In the fourth quarter, the Company continued to encounter many of the same opportunities, and challenges, we have faced throughout the year. Our markets remained strong, and we continued to experience robust demand for our products in both of our operating divisions, and in every geographic region where we operate. Fourth quarter order bookings set a Company record, and were nearly on par with the historically stronger third quarter. Full year 2021 order bookings improved by 43% compared to 2020. As a result, we ended 2021 with a record high order backlog, in excess of $800 million. The strong finish to the year gives us good visibility and momentum going into 2022.
“Fourth quarter net sales also improved significantly compared to the same period of 2020, setting another record for the Company, and were very close to the level we achieved in the historically stronger third quarter. The Vegetation Management Division’s net sales improved nicely compared to the same period of 2020, driven by stronger demand for its rotary mowers in North America and by deliveries of specialized sugar cane harvesting equipment in South America. Net sales of mowers to governmental agencies improved in North America, but improved more significantly in Europe. The Industrial Equipment Division’s fourth quarter net sales improved modestly compared to the fourth quarter of 2020. Sales of this Division’s excavators and vacuum trucks improved nicely, while street sweeper sales were somewhat more flat and snow removal equipment sales declined. This Division’s sales of vocational trucks continued to be significantly impacted by shortages of truck chassis resulting from the ongoing shortage of computer logic chips. Truck chassis and industrial engine shortages impacted 2021 net sales in this Division to a much greater extent than had been the case in 2020.
“Looking at challenges on the supply side, our fourth quarter results were again constrained by shortages and delays in delivery of many different types of components we require to manufacture our products. The ongoing coronavirus pandemic continued to disrupt our supply chain, and regrettably, also impacted the health of our own workforce. Labor shortages became somewhat more critical this quarter as the Omicron variant of coronavirus impacted our production teams, and those of our key suppliers as well. Shortages of hydraulic components became more acute and widespread this quarter and impacted nearly all of our production operations, across both divisions, to some extent. In our Industrial Equipment Division, delayed deliveries of industrial engines significantly impacted our snow removal operations as we were not able to produce snow blowers in sufficient quantities to meet seasonal demand. Lastly, limited truck chassis supply allotments and delivery delays impacted sales in our Industrial Equipment Division across all of its segments. While the situation stabilized somewhat, and delivery reliability improved slightly compared to the third quarter, the Division’s vocational truck shipments remained significantly constrained in the final quarter of 2021.
“Input costs related to purchased materials, logistics and labor continued to rise in the quarter, although some relief came in the form of modest declines in steel prices. Our operational efficiencies were also impacted by the combined effects of purchased component delays and workforce disruption associated with the Omicron wave of coronavirus, both of which interrupted our normal production cadence. Fourth quarter selling costs were also higher than the corresponding quarter of 2020, returning to more traditional levels as our sales teams returned to a normal pace of customer visits, and commission costs increased commensurate with higher sales. I'm pleased that the pricing actions we took earlier in the year helped to significantly offset the resulting margin impact. As we expected, gross margin improved in the fourth quarter as better pricing flowed through, and that helped to bring the margin for the full year very close to the level achieved in 2020.
“Alamo Group’s Vegetation Management Division had an excellent fourth quarter to cap off a very strong performance for the year. This Division continued to enjoy good market conditions and was somewhat less impacted by supply chain disruptions than our Industrial Equipment Division. After softening in the third quarter, cattle prices moved sharply higher in the fourth quarter. Corn, soybean and cotton prices also remained at good levels during the quarter. U.S. tractor shipments declined seasonally in the quarter but were up over 10% for the full year. Shipments of tractors in the important 40 to 100 horsepower category were also up over 10% for the year. After falling in the third quarter, lumber prices recovered sharply in the fourth quarter and recorded a nice gain for the year. With these positive market developments, this Division’s sales improved 27% compared to the prior year fourth quarter. For the full year, Vegetation Management Division sales improved 24% versus 2020. With this substantial top line growth, the Division achieved excellent results for the year.
“The Industrial Equipment Division also enjoyed favorable market conditions in the fourth quarter but was, unfortunately, more heavily impacted by supply chain disruptions and component shortages. Although order bookings were up sharply compared to the fourth quarter of 2020, more serious supply chain shortages in this Division resulted in sales that increased by a modest 4%. Truck chassis shortages, supplier capacity allocations, and delivery delays constrained sales of the Division’s vacuum trucks, street sweepers, and debris collectors during the quarter. The ongoing truck chassis shortage also motivated more of the Division’s vacuum truck rental customers to purchase trucks from the rental fleet, which reduced rental-derived income while increasing used truck sales. As mentioned above, sales of the Division’s snow removal products were impacted by shortages of both truck chassis for plows and industrial engines for snow blowers. Snow removal equipment sales typically decline after a mild winter, and 2021 was no exception. In spite of these significant headwinds, the Division produced positive results for the quarter and the full year, and is positioned to produce excellent results once the truck chassis supply situation begins to improve.
“It was very gratifying that despite the combined impact of the disruptive forces that were at work during the quarter, Alamo Group achieved results that set Company records in several respects. Net sales in the fourth quarter and for the full year both set new Company records. The Company’s fourth quarter and full-year diluted earnings per share of $1.62 and $6.75 respectively, also set new records for Alamo Group. Year-end backlog of $800.8 million was also a record. I want to take this opportunity to thank our employees around the world and acknowledge their dedication, hard work, and ingenuity that enabled these results to be achieved in the midst of the ongoing coronavirus pandemic.
“Our outlook for the first quarter of 2022 remains somewhat cautious because of the impact the Omicron wave of coronavirus has had on the health of our workforce in the initial weeks of the year. We are not expecting a significant near-term improvement in the supply chain and inflation headwinds that we have encountered during the last few quarters. One bright spot may be the anticipated further moderation of steel prices that began in the fourth quarter of 2021. The critical computer chip shortage has not yet shown meaningful improvement, and even optimistic industry forecasts are not predicting an increase in chip supplies until the second half of 2022. Yet in spite of our expectation that the supply chain and inflation headwinds are going to stay with us for a while, I remain confident in the ability of our employee teams to continue to work through and around them. I therefore expect the Company will be able maintain good momentum across our operations, although certainly not with the level of operational efficiency we would normally expect.”
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