Alamo Group, Inc. 2026 Q2 Earnings Call

By now, you should have received a copy of the press release. If anyone is missing a copy and would like to receive one, please contact us at 212-827-3746 and we will send you a copy of the release and make sure you're on the company's distribution list. There will be a replay of the call, which will begin 1 hour after the call and run for 1 week. The replay can be accessed by dialing 1-855-669-9658 with the passcode 750-9167. Additionally, the call is being webcast on the company's website at www.alamo-group.com, and a replay will be available for 60 days. On the line with me today are Robert Hureau, our President and Chief Executive Officer, and Agnes Kamps, Executive Vice President and Chief Financial Officer.

Management will make some opening remarks, then we will open up the line for your questions. During the call today, management may reference certain non-GAAP numbers in their remarks. Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachments to our earnings release. Before turning the call over to Robert, I would like to make a few comments about forward-looking statements. We will be making forward-looking statements today that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results.

Among those factors which could cause actual results to differ materially are the following: adverse economic conditions which could lead to a reduction in overall market demand, supply chain disruptions, labor constraints, increasing costs due to inflation, disease outbreaks, geopolitical risks, including tariffs, trade wars, and the effects of the war in Ukraine and the Middle East, competition, weather, seasonality, currency-related issues, and other risk factors listed from time to time in the company's SEC reports. The company does not undertake any obligation to update the information contained herein, which speaks only as of this date. I would like now to introduce Robert Hureau. Robert, please go ahead. Thank you, Kevin.

I'd like to thank everyone for joining our second quarter earnings conference call. We appreciate your continued interest in Alamo Group. Overall, we're pleased with the second quarter results. We made good progress across our key initiatives, highlighted by strong sales, improved adjusted earnings, and solid adjusted EBITDA performance. We're encouraged by the volume, the pace, and the quality of customer activity we continue to see across our business. Our teams remain focused on operational improvement and disciplined execution of our strategic priorities. I'll turn the call over to Agnes to review our financial results in detail. When she's finished, I'll come back and discuss the performance of each of our divisions and make some remarks regarding our long-term strategic priorities.

Agnes? Thank you, Robert. Good morning, everyone.

Net sales for the second quarter of 2026 were $415.7 million, an increase of 7.6% compared to the second quarter of 2025. Organic net sales increased 1.3% compared to the second quarter of 2025. Gross profit for the second quarter of 2026 was $110.9 million compared to $108.3 million for the second quarter of 2025. Gross margin for the second quarter of 2026 was 24.6%, down 120 basis points compared to the second quarter of 2025. The year-over-year decline in gross margin reflected the impact of net sales mix and investments we are making to support long-term growth, partially offset by favorable pricing, procurement savings, and continued operating disciplines. Selling, general, and administrative expense or SG&A expense for the second quarter was $60.1 million, up 5.1% from the second quarter of 2025.

SG&A expense in the second quarter of 2026 included acquisition and integration expenses, restructuring expenses, and the addition of Petersen and Ring-O-Matic businesses. SG&A expense as % of net sales in the second quarter of 2026 was 13.3% compared to 13.6% in the second quarter of 2025. Excluding acquisition, integration, and restructuring expenses in both periods, SG&A expense as % of net sales was approximately 12.5% in the second quarter of 2026. Compared favorably to approximately 13.5% in the second quarter of 2025. We remain focused on the productivity of our teams, including early efforts to apply artificial intelligence across the organization. We expect these efforts to help us manage SG&A as % of net sales over time.

Net interest expense for the second quarter of 2026 was $3.6 million, compared to $2.5 million in the second quarter of 2025, higher year-over-year, primarily as a result of Petersen acquisition and related financing activity. The effective income tax rate was 25.6%, in line with our current and long-term expectations. During the second quarter of 2026, we recognized $4.3 million of acquisition integration and restructuring expenses. These costs included $0.3 million of acquisition integration expense and $4 million of restructuring expenses, which were inclusive of investments to transform our manufacturing activities and supply chain function, leadership changes, and cost to consolidate and streamline certain manufacturing facilities. Of the $4.3 million, $3.5 million was recorded in SG&A. All of these amounts are treated as adjustments to certain non-GAAP measures as shown in the press release.

Adjusted EBITDA for the second quarter of 2026 was $63.9 million or 14.2% of net sales, compared to $58.8 million or 14% of net sales in the second quarter of 2025. Adjusted earnings per share on a fully diluted basis for the second quarter of 2026 were $2.82, up 7.2% compared to $2.63 in the second quarter of 2025. Now I'll share some comments regarding the results of each of the divisions. Net sales in the Industrial Equipment Division for the second quarter of 2026 were $271.6 million, an increase of 12.8% compared to net sales of $240.7 million in the second quarter of 2025. The year-over-year increase reflected organic demand and the contribution from Petersen, which was acquired earlier in 2026, as well as the contribution from Ring-O-Matic, which was acquired during 2025.

Organic net sales in the Industrial Equipment Division increased 2.6% compared to the second quarter of 2025. Adjusted EBITDA in the Industrial Equipment Division for the second quarter of 2026 was $45.3 million or 16.7% of net sales, compared to $40.3 million or 16.8% of net sales for the second quarter in 2025. We are pleased with the continued strong performance in this division, and particularly with the successful integration of our recent acquisitions. Net sales in the Vegetation Management Division for the second quarter of 2026 were $179.1 million, an increase of 0.4% compared to net sales of $178.4 million in the second quarter of 2025. Sales were relatively stable compared to the prior year, despite continued pressure in certain end markets. This marks the second consecutive quarter of year-over-year growth in this division after eight quarters of declines.

Adjusted EBITDA in the Vegetation Management Division in the second quarter of 2026 was $18.6 million or 10.4% of net sales, compared to $18.5 million or 10.4% of net sales for the second quarter of 2025. We remain focused on improving margins through operational execution, cost discipline, and targeted actions across the portfolio. Moving on to the balance sheet and cash flow. For the six months ended June 30th, 2026, cash provided by operations was $22.7 million. Investing cash outflow was $171.6 million, primarily reflecting the Petersen acquisition and capital expenditures. Financing cash inflow was $37.3 million. Looking at the last 12 months ended June 30th, 2026, free cash flow, which we define as cash flow from operations less capital expenditures, was $135.3 million or 134% of net income, which continued to compare favorably to our long-term target of 100%.

In May 2026, we renewed our credit facility on improved terms across the facility, extending maturity to 2031 and further strengthen our liquidity profile and financial flexibility. The renewed facility provides $602.5 million of committed capacity, including $400 million revolving credit facility and $202.5 million term loan facility, supporting ongoing capital deployment priorities, working capital needs, and long-term growth initiatives. At June 30th, 2026, we had $195 million of cash and total debt was $262.7 million. We ended the quarter with strong liquidity position, supported by substantial cash balances and available borrowing capacity on the recently renewed credit facility. The net leverage at quarter end was less than one times, leaving a significant capacity to fund our capital deployment priorities. Regarding our capital allocation activities during the quarter, we paid $4.1 million in dividends, and our board once again approved a quarterly dividend of $0.34 per share.

We repurchased $9.4 million of shares under 2024 $50 million board-approved share repurchase program, or approximately 19% of total authorization. We repaid $25.9 million on the revolver, which was drawn to finance the Petersen acquisition. All of these activities demonstrate the strength of our cash generation and a disciplined, balanced approach to deploying it. As we move forward, we remain well-positioned to drive growth, further strengthen operation, and return value to shareholders through disciplined capital allocation. Thank you. I turn it back over to Robert.