Gehl Company, a worldwide distributor and manufacturer of compact construction and agricultural equipment, reported record net sales of $95.5 million in the quarter ended June 26, 2004, an increase of $26.9 million, or 39 percent, from second quarter 2003 net sales of $68.6 million.
Significantly higher net income for the second quarter ended June 26, 2004, of $3.9 million, or $.69 per diluted share, compared to net income of $2.2 million, or $.42 per diluted share, in the second quarter of 2003, an increase of 75 percent.
For the first six months of 2004, Gehl reported net sales of $180.2 million, compared to $127.1 million in the first half of 2003, an increase of $53.1 million, or 42 percent.
Net income of $6.8 million, or $1.22 per diluted share, in the first six months of 2004 compared to net income of $2.7 million, or $.51 per diluted share, in the first half of 2003, an increase of 148 percent.
William D. Gehl, chairman and CEO, said, “We are extremely pleased with our second quarter and first half results. The second quarter shipment level represents the highest quarterly net sales in the company’s history. The strong market acceptance of the new Gehl skid loader models introduced earlier this year, the increasing demand for telescopic handlers by large rental customers and the growing demand for compact track loaders combined to generate significant growth in net sales over last year’s second quarter.
“For the second consecutive quarter, the sales increases were stronger than anticipated, improving our revenue outlook for the remainder of 2004. Though we continue to exert strong control over our cost structure, higher steel prices and availability issues have had a negative impact on margins in the first half of 2004, and these pressures on margins are expected to continue for the balance of the year.”
Construction Equipment Sales
Construction equipment net sales in the second quarter of 2004 were $61.6 million, a 40 percent increase from second quarter 2003 net sales of $44.1 million.
Shipments of skid loaders in the second quarter of 2004 were up significantly from 2003’s comparable period due to demand for new Gehl skid loader models introduced in January 2004, as well as increased demand for Mustang brand skid loaders. Telescopic handler shipments increased more than 80 percent during the quarter as demand from larger rental customers continued in the second quarter.
Demand for compact track loaders, a product introduced in mid-2002, continued to grow and resulted in 2004 second quarter shipments which were up more than 30 percent from the 2003 level.
The company’s European subsidiary, Gehl Europe, also posted strong sales during the quarter.
Agricultural Equipment Sales
Agricultural equipment net sales in the second quarter of 2004 were $33.9 million, a 39-percent increase from $24.4 million in the year-ago period.
Milk prices paid to dairy farmers in the second quarter of 2004 averaged nearly $17.75 per hundred weight, compared to approximately $9.43 per hundred weight in the comparable period of 2003. The significant increase in milk prices and the generally improved economic environment, compared to the second quarter of 2003, have combined to increase dairy farmers’ willingness to purchase new equipment.
Skid loader shipments during the second quarter of 2004 were up approximately 50 percent as demand for the new models of Gehl brand skid loaders introduced in January 2004 remained strong during the quarter. Shipments of agricultural implements increased 20 percent from the second quarter of 2003 levels.
Gross Margins, Expenses
For the second quarter of 2004, Gehl’s gross margin was 19.9 percent, versus 21.1 percent during the same period in 2003. Gross margin for the construction equipment segment was 21.3 percent for the second quarter of 2004, compared with 23.2 percent in the year-ago period.
Gross margin for the agricultural equipment segment was 17.5 percent for the second quarter of 2004, compared with 17.4 percent in 2003.
The 2004 second quarter gross margin for both segments was adversely impacted by rising costs of steel and other component parts and increased costs of finished goods sourced from overseas due to the weak U.S. dollar versus the Euro and the yen.
Gross margin has been, and will likely continue to be, adversely impacted by the steel price situation. The unfavorable impact of these issues on the agricultural segment gross margin was offset by a more favorable mix of products shipped, as well as lower levels of discounts and sales incentives incurred in the quarter.
The construction segment gross margin further reflects the unfavorable mix of both product shipments and customers shipped to during the quarter.
Selling, general and administrative expense levels in the second quarter of 2004 were $12.3 million, or 12.9 percent of net sales, compared to $10.8 million, or 15.8 percent of net sales, in the second quarter of 2003.
The increase in selling, general and administrative expenses is primarily the result of items that vary with sales levels. However, selling, general and administrative expenses as a percentage of net sales improved as the growth in net sales exceeded expense increases.
Higher costs of selling retail finance contracts, resulting from an increasing interest rate environment and a higher level of retail finance contracts being sold during the second quarter of 2004, and foreign exchange transaction expense in the second quarter of 2004 compared to foreign exchange transaction income in the comparable period of 2003, adversely impacted earnings in the 2004 second quarter compared to the 2003 second quarter.
This unfavorable impact on earnings was partially offset by lower interest expense, due to lower average outstanding debt and lower average borrowing costs during the respective second quarters.
Full Year Outlook
First half sales were stronger than the company had originally forecasted and order backlog remains robust, indicating that the company’s markets continue to show signs of strength.
Offsetting this positive trend, however, is the continued uncertainty over the magnitude and duration of higher steel prices. If the situation continues as it is today, these increased costs may offset some of the benefits of higher sales.
Based on actual results for the year to date, along with the current market outlook, the company now expects its net sales for the full year 2004 to be in the range of 42 percent to 45 percent over 2003 levels. If the company’s sales levels meet projected forecasts, the company expects to earn in the range of $1.90 to $2.05 per diluted share in 2004, after giving effect to the 961,768 newly issued shares purchased by Manitou in conjunction with a recently announced strategic alliance.
For more information, call 262/334-9461 or visit www.gehl.com.
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