Gehl Reports Record 2006 Sales, Issues 2007 Outlook

Thu April 05, 2007 - National Edition
CEG



Gehl Company reported record fourth quarter 2006 sales to complete a record year. Full year 2006 net sales were $486.2 million, an increase of 9 percent from 2005 net sales of $447 million. Global market share gains in the company’s skid loader product line, along with strong demand throughout most of the year for its telehandler product line and improved product price realization, all contributed to the company’s revenue growth.

Income from operations was $46.1 million, or 9.5 percent of net sales, in 2006 compared to $38.8 million, or 8.7 percent of net sales, in 2005. Operating expenses as a percent of sales remained flat at 12 percent in 2006 compared to 2005. This result was achieved despite a pre-tax compensation expense of $1.1 million, or 0.2 percent of net sales, related to the expensing in 2006 of stock-based awards pursuant to FASB Statement No. 123R and a fourth quarter pre-tax charge of $1.1 million for an accounts receivable reserve related to a customer account currently in collection.

Gross margin improved to 21.5 percent in 2006 compared to 20.6 percent in 2005. The increase in gross margin was primarily due to improved product price realization and ongoing cost reduction initiatives. These increases were partially offset by the impact of changes in customer mix and cost increases associated with steel and component parts.

Net income from continuing operations was $28.1 million, or $2.26 per share, for 2006 compared with net income from continuing operations of $22.1 million, or $2.00 per share, for 2005. The 2006 net income from continuing operations includes the previously discussed accounts receivable after-tax charge of $0.7 million, or $0.06 per share, and the after-tax impact of the FASB Statement No. 123R expense of $0.7 million, or $0.06 per share.

Net sales for the fourth quarter ended Dec. 31, 2006, were a record $103.6 million, an increase of 1 percent from the 2005 fourth quarter net sales of $102.4 million. Net sales remained solid in the quarter despite softening conditions in certain markets and product categories. The North American skid loader and telehandler markets decreased 22.9 percent and 11.6 percent, respectively, during the fourth quarter of 2006 versus the fourth quarter of 2005. During the comparable period, the company experienced only a 17.6 percent decline in skid loader demand and an increase in telehandler demand of 7.4 percent, demonstrating the continuation of its market share gains.

Income from operations was $7.9 million, or 7.7 percent of net sales, in the fourth quarter of 2006 compared to $9.5 million, or 9.2 percent of net sales, in the fourth quarter of 2005.

Operating expenses were 13.3 percent of net sales in the fourth quarter of 2006, up from 10.7 percent in the fourth quarter of 2005. The increase in operating expenses as a percentage of net sales was due, in part, to pre-tax compensation expense of $0.3 million, or 0.2 percent of net sales, related to the expensing of stock-based awards in 2006 pursuant to FASB Statement No. 123R and the fourth quarter pre-tax charge of $1.1 million, or 1.0 percent of net sales, for an accounts receivable reserve related to a customer account currently in collection.

In addition to the current year adjustments, the 2005 fourth quarter was positively impacted by $2.3 million, or 2.2 percent of net sales, as a result of reversing a warranty charge the company had recorded in its second quarter of 2005.

Gross margin improved to 20.9 percent in the fourth quarter of 2006 compared to 19.9 percent in the fourth quarter of 2005. The increase in gross margin was primarily due to improved product price realization and reduced manufacturing spending. These increases were partially offset by the impact of changes in customer mix and cost increases associated with steel and component parts.

Net income from continuing operations was $4.9 million, or $0.40 per share, for the fourth quarter of 2006 compared with net income from continuing operations of $5.8 million, or $0.46 per share, for the fourth quarter of 2005. The fourth quarter 2006 net income from continuing operations includes the previously discussed accounts receivable after-tax charge of $0.7 million, or $0.06 per share, and the after-tax impact of stock-based compensation expense under FASB Statement No. 123R of $0.2 million, or $0.02 per share. In addition, the 2005 fourth quarter net income from continuing operations was positively impacted by $1.5 million after-tax, or $0.12 per share, as a result of the warranty reversal previously described.

“The employees of Gehl Company pulled together to produce another year of excellent financial results as we recorded record sales, income and earnings per share from continuing operations. We gained market share in our two largest product categories, skid loaders and telehandlers, despite the market for North American skid loaders being down from 2005,” said William D. Gehl, chairman and chief executive officer. “We believe our focus on compact equipment, recent investments in the business, and continued focus on cost savings are the right strategies to position the company for the future.”

2007 Full Year

Outlook

As new housing starts in North America declined in the second half of 2006, demand for the company’s products in its North American markets slowed mid-way through the fourth quarter of 2006. Backlog as of Feb. 23, 2007, of $125 million decreased 42 percent from the same time a year earlier, but is up $71 million, or 131 percent from the Dec. 31, 2006 backlog level. Additional industry manufacturing capacity and available inventory in the market resulted in customers delaying orders due to a decrease in lead times, according to the company.

North American markets are currently forecasted to be down through the first half of 2007 with some recovery anticipated over the second half of the year. Industry forecasts for the first quarter alone project a reduction in demand of anywhere from 5 percent to 30 percent depending on the product category.

Based on current 2007 market forecasts, current company backlog position, new product acceptance rate and targeted market share gains, the company expects 2007 net sales to be in the range of $465 million to $495 million. Despite improving gross margin, full year operating margin is expected to decline slightly due to incremental operating expense investments in product research and development and information technology projects totaling approximately $4.3 million. The company expects net income per share from continuing operations of $2.00 to $2.30 in 2007.

“We share the belief with many others in the industry that 2007 represents a market pause and anticipate the continuation of the current growth cycle in 2008,” said Gehl. “By historical standards, 2007 will be a strong year and we are confident that our key customer relationships and sole focus on compact equipment provide the foundation to deliver solid performance in 2007 and beyond.”

All income per share information included in this release is on a diluted basis.

For more information, call 262/334-9461 or visit www.gehl.com.