SEGUIN, Texas, — Alamo Group Inc. (ALG) (NYSE: ALG) reported results for the third quarter ended Sept. 30, 2016.

Highlights for the Quarter

• Net sales of $216.8 million, down 6.4%
• Net income of $13.2 million, down 10.3%
• Net earnings per diluted share of $1.14, down 10.9%
• Gross margins at 25.2%, up 1.6%
• Nine month net sales of $639.2 million, down 2.4%
• Record nine month net income of $32.5 million
• Record nine month earnings per diluted share of $2.81
• Backlog at $137 million, up versus previous quarter, down versus last year
• Total debt, net of cash⁽¹⁾ is $53.9 million lower than previous year's third quarter

Net sales for the third quarter of 2016 were $216.8 million compared with net sales of $231.6 million for the third quarter of 2015, a decrease of 6.4%. The decrease in sales was the result of a variety of factors including the weak worldwide agricultural market, softness in sales of Industrial Division products to non-governmental entities, the weak overall European economy, and changes in exchange rates, particularly due to the strengthening U.S. dollar compared to the British pound which dropped significantly in the third quarter of 2016 following the Brexit vote in the U.K.

Net income for the quarter was $13.2 million, or $1.14 per diluted share, versus net income of $14.8 million, or $1.28 per diluted share for the third quarter of 2015. This decrease was primarily due to softer sales as discussed previously, despite improvements in gross margin to 25.2% in the third quarter of 2016 compared to 24.8% in the same period of the previous year.

For the first nine months of 2016, net sales were $639.2 million compared to $655.1 million in the prior year period, a decrease of 2.4%, primarily resulting from the effects mentioned previously. Net income for the nine month period was a record $32.5 million, or $2.81 per diluted share compared to $31.8 million, or $2.77 per diluted share for the same nine month period in 2015.

Sales by Division

Alamo Group's Industrial Division net sales in the third quarter of 2016 were $121.2 million compared to $127.4 million in third quarter 2015, a decrease of 4.9%. This decrease was primarily related to weaker sales to non-governmental end users, particularly of vacuum trucks. For the first nine months of 2016 net sales in the Division were $361.6 million, essentially flat compared to the previous year's nine month net sales of $362.8 million.

The Company's Agricultural Division reported net sales of $56.4 million in the third quarter compared to $58.9 million achieved in 2015, a decrease of 4.2%. The decrease was caused in large part by the ongoing weakness in the overall agricultural market.  For the first nine months of 2016 the Division's net sales were $157.0 million compared to net sales of $160.4 million in the prior year, a decrease of 2.1%.

Alamo's European Division net sales in the third quarter were $39.1 million versus $45.3 million in 2015, a decrease of 13.7%. The decrease was related to the Company's U.K. operations where we believe sales were affected by concerns and uncertainty over the recent Brexit vote combined with the decline in value of the British pound compared to the U.S. dollar which resulted in unfavorable currency translation effects for the quarter. These results were partially offset by improvements from the Company's French operations. For the first nine months of 2016 European Division net sales were $120.6 million compared with $132.0 million for the same period in 2015, a decrease of 8.6%.

Comments on Results

Ron Robinson, Alamo Group's president and CEO commented, “Weakness in several of our market sectors combined with unfavorable currency translation from the weaker British pound continue to constrain our Company's results. These effects impacted both our sales and earnings for the third quarter of 2016. Despite this, the Company made continued progress in other areas. Gross margins were up for both the quarter and year to date as we continue to work on operational improvement, even with lower volume. Our Balance Sheet also reflected positive developments as our inventory turns improved and our total debt, net of cash, has improved nearly $54 million in the last twelve months. Consequently, despite weak sales, the Company's financial strength continues to improve.

“The market conditions that have contributed to the lower sales have been impacting our results for nearly two years and are likely to continue for the remainder of 2016.  However, we are starting to see some signs of improvement, which we think bodes well for our 2017 outlook. While increases in agricultural commodity prices are likely to remain limited, we believe the outlook for implement suppliers such as Alamo could experience some upside due to the broader applicability of our product offering. We also feel the European market could exhibit modest improvement as more clarity emerges regarding Brexit. Recently we have seen an increase in inquiry levels in the U.K., although it is still too early to know if this is a lasting trend. Additionally, we feel activity in our infrastructure maintenance equipment sector should start to show some positive movement following the U.S. election with additional contributions from new product introductions. We are seeing some evidence of this improvement with the increase in our backlog compared to the previous quarter, but we remain cautious and are not sure whether this is a precursor of generally improving conditions. We are, however, confident that our ongoing operational improvement initiatives will allow us to maintain healthy levels of profitability and cash flow even as we deal with weak market conditions. Further, we believe these initiatives position us to provide increasing shareholder value when the markets start to rebound.

“We are also experiencing more acquisition activity and feel better about Alamo's near term prospects in this area. Not only are we seeing more opportunities, but the deal economics of potential acquisitions have moved to a more actionable level.

“While we remain concerned about challenging market conditions, we are generally pleased with what Alamo has been able to achieve in this climate and feel good about the outlook for our Company in 2017.”