Gehl Company reported 2007 income from continuing operations of $24.9 million, or $2.00 per diluted share, on net sales of $457.6 million, and fourth quarter income from continuing operations of $4.7 million, or $0.38 per diluted share, on net sales of $102.2 million.
Net sales for full year 2007 were $457.6 million compared with $486.2 million for 2006, a decrease of 6 percent. Sales outside of the United States were $131.0 million, or 29 percent of total company sales, for 2007, an increase of 31 percent versus 2006.
Continuation of market share gains in the company’s two primary product categories: skid loaders and telehandlers; strong agricultural markets; and growth of the company’s international distribution footprint partially offset the impact of weaker North American residential construction activity and lower capital investments by equipment rental companies.
Although industry retail demand in North America for skid loaders and telehandlers was down 8 percent and 28 percent, respectively, for the full year 2007 compared to 2006, the company’s retail performance continued to reflect market share gains in these two key product categories as its skid loader and telehandler retail settlements decreased only 3 percent and 9 percent, respectively.
Gross margin improved to 22.6 percent for the full year 2007 compared to 21.5 percent in 2006. The increase was primarily driven by the favorable results the company continued to achieve from enhanced supply chain management and investments in manufacturing equipment.
Selling, general and administrative expenses were $59.6 million during 2007 compared to $58.3 million in 2006. As a percent of net sales, selling, general and administrative expenses increased to 13.0 percent compared to 12.0 percent in the prior year, which reflected planned incremental increases in research and development and information technology projects that totaled $2.5 million. In addition, due to the weakening North American economy, the company recorded an increase of $3.7 million in bad debt reserves on its non-securitized finance contract portfolio.
Net other expense was $5.5 million for 2007 compared to $3.9 million in 2006. The change reflects an increase in expected losses within the securitized finance contract portfolio, also a result of the weakening North American economy, of $2.6 million, partially offset by a decrease in other costs of selling finance contracts as a result of a $46.3 million decrease in the volume of finance contracts sold in 2007 compared to 2006.
Income from continuing operations was $24.9 million, or $2.00 per share, in 2007 compared to $28.1 million, or $2.26 per diluted share, in 2006. This includes a decrease in the company’s effective income tax rate to 33.2 percent in 2007 compared to 34.5 percent in 2006, reflecting a higher domestic manufacturing deduction and research and development credit.
Net sales for the fourth quarter ended Dec. 31, 2007, were $102.2 million, a decrease of 1 percent from the 2006 fourth quarter net sales of $103.6 million. Net sales remained solid in the quarter despite continued weakness in North American residential construction activity.
The company’s North American retail skid loader volume increased 12 percent during the fourth quarter of 2007 versus the same period of 2006, while the overall industry retail numbers increased 5 percent for the quarter. The company’s telehandler retail demand declined 16 percent in the fourth quarter in an industry-wide market that declined over 24 percent.
Gross margin improved to 23.1 percent in the fourth quarter of 2007 compared to 20.9 percent in the fourth quarter of 2006. The increase was primarily driven by the favorable results the company continued to achieve from its added supply chain resources and the favorable impact of changes in customer and product mix. These increases were partially offset by the impact of currency-related product cost increases and increased manufacturing spending.
Operating expenses were 13.5 percent of net sales in the fourth quarter of 2007, up from 13.3 percent in the fourth quarter of 2006. The increase was primarily driven by $2.8 million of additional bad debt reserves on the company’s non-securitized finance contract portfolio and the planned incremental increases in research and development and information technology projects that totaled $0.6 million in the quarter.
Income from continuing operations was $4.7 million, or $0.38 per diluted share, for the fourth quarter of 2007 compared with income from continuing operations of $4.9 million, or $0.40 per diluted share, for the fourth quarter of 2006. This includes a decrease in the company’s effective income tax rate to 26.9 percent in the fourth quarter of 2007 compared to 34.5 percent in 2006, reflecting a higher domestic manufacturing deduction and research and development credit.
“We are pleased to report significant improvement in the company’s performance in difficult domestic markets, as reflected by our continued market share gains,” said William D. Gehl, chairman and chief executive officer.
“Gross margin expansion and the growth of our international sales are positive developments reflecting our global compact equipment strategy, investments in product research and development and continued emphasis on cost reductions.”
2008 Full Year Outlook
The company does not anticipate that North American housing conditions will improve appreciably in 2008. While the company anticipates continued growth in the international markets, current forecasts anticipate that North American compact equipment markets will decline 10 percent to 30 percent in 2008, varying by product category.
The company’s backlog as of Feb. 22, 2008, of $95.9 million was up $56.3 million, or 142 percent, from the Dec. 31, 2007, backlog level of $39.6 million.
Based on current 2008 market forecasts, current company backlog position, new product acceptance rate, targeted market share gains and field inventory adjustments, the company expects 2008 net sales to be in the range of $405 million to $425 million.
The company intends to continue reducing North American field inventory levels in 2008 to position dealer inventory levels in advance of new product introductions in 2009.
Gross margin in 2008 is expected to decline due to a change in product mix, increasing commodity costs, primarily steel, and lower production volumes compared to 2007. In addition, operating expenses will increase due to planned incremental investments in product research and development, information technology projects and programs designed to enhance dealer communication totaling approximately $3.2 million.
The company expects income per share from continuing operations of $0.95 to $1.20 in 2008. The company anticipates generating operating cash flow of $40 million to $60 million driven by decreases in field and factory inventory.
For more information, visit www.gehl.com.
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