Gehl Company, a manufacturer of compact construction and agricultural equipment, reported net sales for the year ended December 31, 2002 of $232.6 million, compared to $240.4 million recorded for the prior year. Net income, before non-recurring charges, for the year ended December 31, 2002, totaled $1.7 million, or $.30 per diluted share. Net income in 2001, exclusive of non-recurring charges, was $5.4 million, or $.99 per diluted share.
Non-recurring after-tax charges in 2002 were $621,000, or $.11 per diluted share, related to previously announced restructuring and plant rationalization initiatives. Non-recurring after-tax charges in 2001 were $3.1 million, including $2.8 million, or $.51 per diluted share, for plant rationalization initiatives, and $.3 million, or $.06 per diluted share, for strategic review process expenses. Net income for the year ended December 31, 2002, including non-recurring charges, totaled $1.0 million, or $.19 per diluted share, compared to $2.3 million, or $.42 per diluted share, in 2001. 2001 results included approximately $476,000 of goodwill amortization expense, or $.09 per diluted share.
For the quarter ended December 31, 2002, Gehl reported net sales of $51.2 million, an increase of 8 percent, compared to $47.4 million for the fourth quarter of 2001. The company reported a net loss for the quarter of $155,000, or $.03 per diluted share, excluding non-recurring after-tax charges of $150,000, compared to a net loss of $430,000, or $.08 per diluted share in the fourth quarter of 2001. Including the effect of the non-recurring after tax charges of $150,000 related to previously announced restructuring and plant rationalization initiatives, the net loss for the fourth quarter of 2002 was $304,000, or $.06 per diluted share. Fourth quarter 2001 results include approximately $119,000 of goodwill amortization expense, or $.02 earnings per diluted share.
"In general, our fourth quarter 2002 total net sales and our construction equipment sales were up, while our agricultural sales were down - which is the reverse of what we reported last year at this time," said Gehl Company Chairman, President and CEO, William D. Gehl. "Sluggishness in the U.S. economy affected us in general, while lower milk prices and unfavorable weather conditions in certain areas of the United States reduced demand for our agricultural equipment. In addition, industry-wide telescopic handler retail demand in North America in 2002 was down for the third straight year, which reduced shipments of our telescopic handlers."
"We continue," Gehl added, "to take aggressive steps to control costs. We’ve already realized some of the benefits of these efforts and expect to see more reflected in our future performance. Our plant rationalization project has been completed, in which we transferred and outsourced production, enabling us to close two of our plants. We will continue to reduce expenses and adjust production to reflect the demand for our products."
"On the positive side," continued Gehl, "good demand for the recently introduced all-wheel steer loader and compact tracked loader products, sales of telescopic handlers and compact excavators to Mustang dealers, and sales from the company’s new attachment business and the Company’s newest subsidiary, Gehl Europe, have all benefited total company sales."
CONSTRUCTION EQUIPMENT SALES
Sales of construction equipment in the fourth quarter of 2002 were $32.2 million, an increase of 40 percent over the $23.1 million recorded in the disappointing fourth quarter of 2001. Construction equipment sales for the full year ended December 31, 2002 were $135.1 million, an increase of 10 percent above the $122.3 million for the full year ended December 31, 2001. Sales of the new compact tracked loaders have been strong since their introduction in the second quarter of 2002.
In addition, construction equipment segment net sales in 2002 benefited from the introduction of new all-wheel steer loaders in the 2002 third quarter, contributions from telescopic handlers and compact excavator models sold through the Mustang distribution channel and net sales from the company’s new attachment business and the newly consolidated Gehl Europe subsidiary. These increases more than offset the reduction in telescopic handler shipments resulting from the continuing downward trend in that market. Net sales of $2.8 million and $10.0 million have been included in the 2002 fourth quarter and full year periods, respectively, as a result of including the newly consolidated Gehl Europe subsidiary.
AGRICULTURAL EQUIPMENT SALES
Sales of agricultural equipment in the fourth quarter of 2002 were $19.0 million versus $24.3 million reported in the fourth quarter of 2001, a decrease of 22 percent. Agricultural equipment sales for the full year ended December 31, 2002 were $97.5 million, 17 percent below the $118.1 million recorded for the full year ended December 31, 2001.
Agricultural implement net sales were adversely impacted by the significant decline in milk prices as well as drought conditions in certain regions of the United States. Sales of the new compact tracked loaders introduced in the 2002 second quarter, the introduction of new all-wheel steer loaders in the 2002 third quarter, increased shipments of compact excavators to select rural equipment dealers, and increased sales from the Company’s new attachment business partially offset reduced implement and skid loader net sales in the agricultural segment.
GROSS MARGINS AND OPERATING EXPENSES
For the fourth quarter of 2002, the Company’s total gross margin was 18.6 percent, versus 20.8 percent for the fourth quarter of 2001. For the full year 2002, total gross margin was 21.0 percent versus 22.2 percent for 2001. Gross margin for construction equipment was 20.6 percent and 21.3 percent for the 2002 fourth quarter and full year periods, respectively, compared to 22.1 percent and 20.6 percent, respectively, for the comparable periods of 2001. The increase in the construction equipment gross margin for the full year 2002 was primarily due to lower levels of discounts and sales incentives associated with the mix of products shipped as well as improved manufacturing efficiencies.
The reduction in the construction equipment gross margin for the fourth quarter of 2002 was due primarily to lower production levels and less favorable mix of product shipments. Gross margin for agricultural equipment was 15.4 percent and 20.5 percent, for the 2002 fourth quarter and full year periods, respectively, compared to the 19.6 percent and 23.8 percent margins realized for the comparable periods of 2001. The decrease in the agricultural equipment segment gross margin was due to significant competitive pressure resulting in higher sales discounts and sales incentives, reduced production volume and a less favorable mix of product shipments.
Selling, general and administrative expense in the fourth quarter of 2002 was $9.3 million, or 18.2 percent of net sales, compared to $9.8 million (including approximately $119,000 of goodwill amortization), or 20.8 percent of net sales in the fourth quarter of 2001. For the full year 2002, selling, general and administrative expense was $42.7 million, or 18.4 percent of net sales, compared to $39.6 million (including $476,000 of goodwill amortization), or 16.5 percent of net sales for the full year 2001.
The increase in the dollar amount of expenses for 2002 is primarily due to the consolidation of Gehl Europe effective January 1, 2002 and expenses associated with the Company’s attachment business that was launched in July 2001. These costs, combined with a lower level of net sales, contributed to the company’s increased selling, general and administrative expense as a percentage of net sales for the full year 2002.
NEW ACCOUNTING PROCEDURES
Effective January 1, 2002, the company adopted the provisions of Emerging Issues Task Force ("EITF") 00-25 "Vendor Income Statement Characterization of Consideration Paid to a Retailer of the Vendor’s Products." As a result of this adoption, the company now classifies the costs associated with sales incentives provided to dealers as a reduction of net sales. These costs were previously included in selling, general and administrative expense. Net sales and selling, general and administrative expense for 2001 have been restated to conform with the current year presentation. This reclassification had no impact on reported income before income taxes, net income or income per share amounts.
Effective January 1, 2002, Gehl Company has accounted for its investment in a German distribution operation, Gehl Europe, as a consolidated subsidiary, as a result of its controlling influence on the operation as of such date. Net sales of $2.8 million and $10.0 million have been included in the 2002 fourth quarter and full year periods, respectively, as a result of this consolidation.
Effective January 1, 2002, the company adopted the provisions of Financial Accounting Standard No. 142 ("FAS 142") "Goodwill and Other Intangible Assets" which states that goodwill and intangible assets deemed to have indefinite lives are no longer subject to amortization, but will be tested for impairment at least annually. Upon adoption, Gehl discontinued the amortization of goodwill.
OUTLOOK FOR 2003
Demand for construction equipment in the North American market during 2003 is expected to be flat compared to 2002 levels, while demand for agricultural equipment in the North American market is expected to be flat to slightly down.
Based on the current market outlook, the company’s net sales are expected to range between being flat to up approximately 4 percent in 2003. Any growth in net sales is expected to result primarily from the sales of recently introduced products and new products to be introduced in 2003. Growth in net sales is more likely to occur in the construction equipment segment as compared with the agricultural equipment segment.
Overall, any anticipated sales growth would likely occur in the latter portion of 2003 based on the company’s expectation of a gradually improving economy. Operating margins are expected to improve as the result of further initiatives to reduce costs, the effect of factory rationalizations completed in 2002 and a more favorable product mix. While it is difficult to predict results in these unsettled economic times, if the economy experiences some gradual improvement and the company’s sales levels meet projected forecasts, the Company expects to earn in the range of $.60 to $.75 per diluted share in 2003.
For more information, visit www.gehl.com.
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