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GR

GORMAN RUPP CO (GRC)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 delivered mixed results: revenue slipped 0.9% to $169.5M, but gross margin expanded 170 bps to 31.9% and operating margin rose 120 bps to 15.4%, reflecting pricing actions and lower LIFO expense; GAAP EPS was $0.32, while adjusted EPS was $0.54 due to refinancing-related charges .
  • Orders remained healthy with incoming orders of $162.5M (+5.5% YoY); backlog increased vs year-end to $224.4M, despite normalization in fire suppression, positioning H2 for top-line growth through backlog reduction per management .
  • Debt refinancing in June is expected to reduce annual interest expense by approximately $7.0M; Q2 interest expense fell to $9.0M from $10.5M YoY, though one-time fees and write-offs drove $6.3M of “other expense” in the quarter .
  • Dividend continuity: the board declared a $0.18 per share quarterly cash dividend payable September 10, 2024 (298th consecutive quarterly dividend), supporting capital return while executing margin and deleveraging priorities .
  • Consensus from S&P Global was unavailable at time of query; third-party sources indicate an adjusted EPS beat and a modest revenue miss versus their consensuses, implying near-term stock reaction drivers centered on margins/interest savings and municipal strength .

What Went Well and What Went Wrong

What Went Well

  • Gross margin expanded to 31.9% (+170 bps YoY) driven by a 280 bps improvement in cost of material, including reduced LIFO expense and realization of selling price increases; operating margin rose to 15.4% (+120 bps YoY) .
  • Record adjusted EBITDA of $35.4M (+4.9% YoY), and adjusted EPS up to $0.54 from $0.41 YoY, demonstrating underlying earnings power despite one-time refinancing costs .
  • “Incoming orders have continued at a solid pace...pricing strategies contributed to improved gross margin and increased adjusted earnings...focused on top line growth through backlog reduction in the second half” — CEO Scott A. King .

What Went Wrong

  • Net sales were $169.5M (-0.9% YoY) with declines in fire suppression (-$8.0M YoY, due to backlog normalization) and agriculture (-$1.6M, driven by significant declines in farm income) offsetting municipal/OEM gains .
  • GAAP net income fell to $8.3M ($0.32/share) from $10.5M ($0.40/share) due to $6.3M of other expense (write-off of deferred financing fees and prepayment fees tied to the refinancing) .
  • SG&A rose to $24.9M (14.7% of sales) vs $24.2M (14.1%) YoY, including $1.3M of refinancing transaction costs; labor/overhead as a percent of sales also increased 110 bps, partially offsetting material cost improvements .

Financial Results

Consolidated P&L and Margins (chronological: Q4 2023 → Q1 2024 → Q2 2024)

MetricQ4 2023Q1 2024Q2 2024
Revenue ($USD Millions)$160.565 $159.268 $169.513
GAAP EPS ($USD)$0.34 $0.30 $0.32
Adjusted EPS ($USD)$0.34 $0.30 $0.54
Gross Margin (%)31.7% 30.4% 31.9%
Operating Margin (%)13.6% 12.8% 15.4%
Adjusted EBITDA ($USD Millions)$29.143 $28.215 $35.369

Interest and Cash Flow Trends

MetricQ4 2023Q1 2024Q2 2024
Interest Expense ($USD Millions)$10.126 $10.073 $9.048
Operating Cash Flow ($USD Millions, YTD)$98.225 (FY23) $10.742 (Q1) $33.397 (H1)
Capital Expenditure ($USD Millions, YTD)$20.835 (FY23) $3.906 (Q1) $7.131 (H1)

KPIs and Orders/Backlog

KPIQ4 2023Q1 2024Q2 2024
Backlog ($USD Millions)$218.1 $234.2 $224.4
Incoming Orders ($USD Millions)N/A$178.9 $162.5

Market Mix Movements (YoY change, Q2 2024 vs Q2 2023)

MarketYoY Change ($USD Millions)
Municipal+$6.7
OEM+$2.2
Repair+$0.6
Petroleum+$0.3
Fire Suppression-$8.0
Agriculture-$1.6
Industrial-$1.2
Construction-$0.5

Actual vs Consensus

  • S&P Global consensus data was unavailable at time of query due to rate limits; quantitative comparisons vs SPGI are not provided.
  • Third-party context (non-SPGI):
    • EPS surprise: +22.73%; Revenue surprise: -2.82% .
Metric (Q2 2024)ActualThird-Party ConsensusBeat/Miss
Adjusted EPS ($)$0.54 Surprise +22.73% Beat
Revenue ($M)$169.5 Surprise -2.82% Miss

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Capital ExpenditureFY 2024$18–$20M (range) ~$20.0M (planned) Maintained/tightened to high end
Interest ExpenseOngoingN/A~$7.0M annual reduction from refinancing Raised (savings)
Backlog OutlookFY 2024Expect return to more normal levels by year-end Focus on top-line via H2 backlog reduction Maintained (execution emphasis)
DividendQ3 2024N/A$0.18/share; payable Sep 10; record Aug 15 Maintained continuity (298th consecutive)

Earnings Call Themes & Trends

Note: A Q2 2024 earnings call transcript was not available via our tools or public sources; themes are derived from prepared remarks and releases.

TopicPrevious Mentions (Q4 2023 and Q1 2024)Current Period (Q2 2024)Trend
Municipal/infrastructure demand (flood control, wastewater)Q4: +$4.9M uplift; positioned to benefit from infrastructure spending . Q1: strength led record orders; flood control/storm water management cited .Q2: +$6.7M sales; ongoing infrastructure tailwind .Strengthening/consistent tailwind
Pricing actions and margin mixQ4: GM +660 bps YoY; material cost/LIFO benefit and pricing realization . Q1: GM +200 bps; pricing realization/lower LIFO .Q2: GM +170 bps; 210 bps benefit from selling price increases; lower LIFO .Sustained margin improvement
Backlog normalizationQ4: backlog elevated entering 2024 . Q1: expect return to normal by year-end .Q2: H2 focus on backlog reduction for top-line growth .Transitioning from elevated to normal
Fire suppression normalizationQ4: increased domestic commercial construction . Q1: customer-related delays .Q2: sales -$8.0M YoY due to normalization; orders +11.2% YoY .Near-term headwind, orders recovering
Agriculture weaknessQ4: weather slowed demand . Q1: weather slowed demand .Q2: significant decline in farm income drove -$1.6M sales .Continued softness
Balance sheet and refinancingQ4: net debt down $58M; leverage improved . Q1: net debt down $1.6M YTD .Q2: refinancing completed; ~$7M annual interest savings expected ; interest expense down YoY .Deleveraging and lower interest burden

Management Commentary

  • “Incoming orders have continued at a solid pace…pricing strategies contributed to improved gross margin and increased adjusted earnings…focused on top line growth through backlog reduction in the second half…refinancing is expected to result in significant interest savings going forward.” — Scott A. King, President & CEO .
  • “Since the acquisition of Fill-Rite…we have been focused on reducing the debt…retire the higher interest unsecured subordinated debt, replacing it with lower interest secured debt…new structure provides flexibility and continues to position us to execute on our strategic initiatives.” — Jim Kerr, EVP & CFO .
  • “We continued to deliver gross margin and earnings improvement despite sales being down slightly…record incoming orders…backlog remains elevated…expect backlog to return to more normal levels by the end of the year.” — Scott A. King (Q1) .

Q&A Highlights

  • A Q2 2024 earnings call transcript was not available via our tools or public sources; therefore, specific Q&A themes, guidance clarifications, and tone changes cannot be reliably extracted for this quarter.

Estimates Context

  • Wall Street consensus from S&P Global was unavailable at time of query; comparisons vs SPGI are not provided.
  • Third-party sources indicate an adjusted EPS beat and modest revenue miss relative to their consensuses (EPS surprise +22.73%; revenue surprise -2.82%), suggesting estimates may need to adjust upward for margins and EPS but reflect cautious top-line expectations given fire suppression and agriculture pressure .

Key Takeaways for Investors

  • Margin resilience: Pricing actions and lower LIFO drove 170 bps GM expansion and 120 bps OM expansion; monitor sustainability as labor/overhead pressures rose 110 bps .
  • Debt refinancing is a tangible EPS tailwind: ~$7M annual interest savings expected; Q2 interest expense down to $9.0M; one-time fees depressed GAAP EPS in Q2 .
  • Order health supports H2: Q2 orders +5.5% YoY and backlog above year-end; management aims to convert backlog to sales in H2 to drive top-line growth .
  • Mixed end-market dynamics: Municipal strength offsets fire suppression normalization and agriculture softness; watch macro/farm income and commercial construction trends .
  • Non-GAAP adjustments matter: Adjusted EPS of $0.54 vs GAAP $0.32 highlights refinancing-related charges; adjusted EBITDA reached a record $35.4M .
  • Capital allocation: Continued dividend ($0.18/share; 298th consecutive), capex plan ~$20M for FY24 to support operations while deleveraging .
  • Near-term trading: Momentum catalysts include margin trajectory and visible interest savings; risk factors include execution on backlog reduction and demand normalization in fire suppression/agriculture .