ALAMO GROUP INC Q3 FY2026 earnings call

• Strategic M&A Activity: Completed the acquisition of Econ Engineering for approximately $159 million. Econ is a leading UK manufacturer of vocational trucks with a strong rental fleet (90%+ utilization) and proprietary technology. This is Alamo’s second acquisition in 2026, following Peterson. The combined pro forma adjusted EBITDA margin is expected to rise from ~13% to just under 15%.
• Portfolio Simplification: Largely completed the divestiture or wind-down of several small businesses and product lines, primarily in the Vegetation Management Division. These actions removed approximately $30 million in non-recurring net sales and incurred $33.3 million in pre-tax restructuring charges, which are excluded from adjusted results.
• Vegetation Management Operations: Despite soft end markets (Agriculture, Tree Care, Municipal), underlying performance improved due to higher manufacturing throughput, favorable pricing, and cost reductions. Book-to-bill ratio was 0.92x. Backlog stands at $171 million (~3 months of sales).
• Industrial Equipment Operations: Sales declined due to softer municipal and Canadian snow markets and order timing. However, organic net orders grew strongly by 24% year-over-year. Key growth drivers include the new Multipurpose Chassis (MPC) and non-CDL sweepers/excavators targeting commercial/contractor segments. Backlog is $350 million (~4.5 months of sales).
• Financial Discipline & Capital Allocation: Maintained a balanced approach with dividends ($0.34/share), debt reduction ($30.4 million in Q3), and share buybacks. Target net leverage remains low (0.7x pro forma post-Econ) with significant liquidity ($363.6 million available revolver capacity). Long-term tax rate target is 25-26%.

• Vegetation Management Division: Net sales were $170.4 million (down 1.5% year-over-year, including divestiture impact; organic sales up 2.7%). Adjusted EBITDA was $21.3 million (margin of 12.5%, up from 9.7% last year). This division represents approximately 40% of total consolidated net sales.
• Industrial Equipment Division: Net sales were $232.8 million (down 5.8% year-over-year). Excluding the Peterson acquisition, sales declined 12.6%. Adjusted EBITDA was $31.1 million (margin of 13.4%, down from 15.5% last year). This division represents approximately 60% of total consolidated net sales.

• No specific financial guidance provided for Fiscal Year 2027.
• Vegetation Management Outlook: End markets (NA Ag, NA Tree Care, Europe) remain soft, down low-to-mid single digits. Management believes the market is near the bottom of the cycle, with stabilization expected but no meaningful recurring growth anticipated immediately.
• Industrial Equipment Outlook: Viewed as a transition year. Expectations for 2027 are flat to low-single-digit growth, driven by stable infrastructure spending and contractor replacement cycles, rather than robust expansion.
• Margin Recovery: Management expects pricing actions taken in Q3 to catch up with material and freight inflation costs over the course of Q4 and early 2027, assuming steel prices do not spike further.

• Macroeconomic Softness: High interest rates, inflation, and reduced farm income continue to weigh on demand in Agriculture and Tree Care markets. Municipal budgets are constrained, affecting sweeper and debris collector sales.
• Input Cost Inflation: Elevated prices for steel, fuel, salt, and freight are pressuring margins in the Industrial Equipment Division, requiring continuous pricing adjustments.
• Market Timing Volatility: Order patterns in the Industrial segment can be lumpy, with timing shifts causing quarter-over-quarter sales volatility (e.g., Excavator/Vacuum group sales impacted by delayed orders).
• Divestiture Execution Risks: While largely complete, winding down businesses involves one-time charges and potential operational disruptions during the transition.

Q: Chris Moore (CJS Securities) asked for visibility into FY2027 given limited guidance, specifically asking if consensus estimates might be too high or low considering the soft vegetation markets and industrial transition. / A: Robert Hureau stated that while they are not providing formal guidance, Vegetation end markets remain soft (low/mid single-digit declines) but appear to be hitting the bottom of the cycle. For Industrial, he characterized 2026 as a transition year with expectations for 2027 to be flat to low-single-digit growth, noting that construction spend is elevated but year-over-year change is flat. He emphasized cautious optimism among customers regarding stabilization.

Q: Peter Kellum (Robert W. Baird) inquired about the drivers behind the 200bps decline in Industrial margins, asking for a split between price/cost pass-through and volume leverage, and the timeline for pricing to recover inflationary pressures. / A: Hureau explained the compression was driven roughly equally by commodity/freight inflation, incomplete price pass-through, and lower volume leveraging fixed costs. He indicated that price increases implemented throughout Q3 should allow pricing to catch up with costs in Q4 or early 2027, barring unexpected spikes in steel prices. He confirmed industry-wide price movements support their ability to protect demand.

Q: Greg Burns (Sidoti & Company) requested quantitative details on the organic decline in Industrial segments to justify confidence in future flat/low-single-digit growth, and asked about the M&A pipeline post-Econ. / A: Hureau identified the Snow Group (particularly Canada) as the largest drag due to contractors refurbishing trucks amid high input costs, though long-term contract requirements ensure eventual replacement. Sweepers softened due to municipal budget constraints but showed green shoots with double-digit organic order growth. Excavators were flat due to timing. He affirmed no loss of market share and expressed confidence in the M&A pipeline, stating they have a long list of targets and aim for one to two tuck-in acquisitions annually.

Q: Sam Karlova (William Blair) asked about the progress and quantification of procurement savings contributing to gross margin resilience, and commented on the recent decline in rental equipment capital expenditures/depreciation. / A: Hureau noted that while exact procurement savings weren't quantified for the quarter, a major global initiative is underway, with benefits expected to accelerate in 2027. Regarding rentals, he clarified there was no strategic pullback; rental business actually performed well YoY, and the capex/depreciation trend reflects normal lifecycle management and selective investment choices between organic and M&A growth.

Q: Katherine Hubbinger (D.A. Davidson) asked about the impact of the Dixie Chopper divestiture on Q3 results and the annualized sales impact on FY2027. / A: Hureau stated there was no meaningful negative impact on Q3 earnings, as divested units were break-even at best. The YoY decline in Vegetation net orders was partly attributed to these exits. He quantified the aggregate annual sales impact of all divested product lines at approximately $30 million, representing about 5% of LTM Vegetation sales, which will not recur in 2027.