Q4 2021 Alamo Group Inc Earnings Call
Thank you for holding ladies and gentlemen, you are online for the Alamo Group fourth quarter 2021 conference call. At this time, we are still gathering additional participants we will get started momentarily. We thank you for your patience and ask that you. Please continue to hold.
[music].
Good day and welcome to the Alamo Group fourth quarter 2021 conference call. Today's conference is being recorded at this time I would like to turn the conference over to Edward Rizzuti, Vice President General Counsel and Secretary. Please go ahead Sir.
Thank you.
By now you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one please contact us at 2128.
27374, 6%, we will send you a release to make sure you're on the company's distribution.
There will be a replay of the call, which will begin one hour after the call and run for one week. The replay can be accessed by dialing one eight.
Two zero to 31112 with the pass code 500, 363300. Additionally.
Additionally, the call is being webcast on the company's website at Www Dot Alamo group Dot com and a replay will be available.
Payable for 60 days.
On the line with me today are Jeff <unk>, President and Chief Executive Officer, Richard <unk>, Executive Vice President and Chief Financial Officer, Treasurer, Dan Malone, Executive Vice President and Chief Sustainability Officer.
Management will make some opening remarks, and then we'll open up the line for your questions. During the call today management may reference certain non-GAAP numbers in their remarks reconciliations of these non-GAAP results to GAAP numbers are included in the attachments to our earnings release.
Before turning the call over to Jeff I'd like to make a few comments about forward looking statements.
We will be making forward looking statements today that are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 forward looking statements involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results.
Among those factors, which could cause actual results to differ materially are the following market demand COVID-19 impacts, including operational and supply chain disruptions competition weather seasonality currency related issues geopolitical issues and other risk factors listed from time to time in the company.
Our SEC reports.
The company does not undertake any obligation to update the information contained herein, which speaks only as of this date.
I'd now like to introduce Jeff Jeff.
Jeff. Please go ahead. Thank you Ed we want to thank all of you for joining US today are Richard will begin our call with a review of our financial results for the fourth quarter and year end 2021, I will then provide more comments on the results. Following our formal remarks, we look forward to taking your questions. Richard. Please go ahead. Thanks.
Thanks, Jeff Good morning, everyone. We appreciate you joining us to hear about our fourth quarter and year end results.
One quick reminder, before we start and Thats the change that we announced in July of 2021.
Realize the previous two divisions agricultural and industrial into the vegetation management and industrial equipment divisions.
This change took effect at the beginning of the fourth quarter 2021, and the financial information and period to period comparisons for 2021 and 2020 are based on the two segments.
We delivered record results for the full year 2021, driven by a robust demand for our products in a very challenging operating environment.
Fourth quarter net sales for 2021 came in at $337 2 million, an increase of 17% over $288 6 million.
The same period last year.
Gross margin in the quarter improved compared to the fourth quarter of 2020, a specific price actions. We took during 2021 began to offset cost increases we incurred in late 2020 and throughout 2021.
Net income for the fourth quarter of 2021 was $19 2 million or $1 67.
Per share on a diluted basis, an increase of 108% versus net income of $9 3 million or <unk> 78 per diluted share for the fourth quarter of 2020.
Vegetation management Division had a solid fourth quarter for 2021, the capped off an excellent performance for the year.
Fourth quarter net sales were $204 3 million and <unk>.
Kris a 27% compared to $160 4 million for the fourth.
Fourth quarter of 2020.
The increase was primarily due to strong retail demand for forestry tree care at Boeing products and lower dealer inventories.
Income from operations for the fourth quarter of 2021 was $18 1 billion up 212% versus $5 8 million for the same period in 2020.
Industrial equipment Division net sales in the fourth quarter of 2021.
$132 8 billion up 4% compared to $128 2 million.
Fourth quarter of 2020, the increase was mainly due to higher net sales of excavator vacuum trucks, along with modest increases in other product lines.
And truck chassis deliveries due to ongoing computer chip shortages had a significant impact on the vocational truck business income from operations in the fourth quarter of 2021.
<unk> 7 billion down.
Down, 16% compared to $11 5 million for the fourth quarter of 2020.
Stability was hampered by supply chain problems and skilled labor shortages.
Consolidated net sales for 200 for 2021 were $1 3 billion up 15% compared to $1 2 billion for the full year of 2020.
Gross margin for 2021 slightly below the gross margin for 2020, as we experienced inflation pressures and material costs and raw steel and purchase components.
As well as high freight costs related to delivery of component parts.
Net income for the full year of 2021 was $80 2 million or $6 75 per diluted share versus a net income of $57 8 million or $4 88 per diluted share for the full year of 2020.
Increase of 39%.
Full year 2021, the vegetation management division came in at $812 7 million compared to $654 6 billion for the full year of 2020.
Up 24%.
The division experienced robust demand in all product categories, particularly in forestry tree care land clearing and agricultural hauling full.
Full year 2021 income from operations was $78 9 million up 69% versus $46 7 million for the full year 2020.
The strong results for the North American operations were supported by solid results in the U K, France, Brazil and Australia.
For the full year 2021, net sales for the industrial equipment Division.
$541 5 billion.
Compared to $508 8 million for the full year of 2020, an increase of almost 3%.
Sales of excavators vacuum trucks Street sweepers, three collectors led the way.
These sales increases were offset by lower net sales of snow removal products shortages of deliveries of engines for both snow blowers due to the lack of computer chips availability caused delays in completion manufactured units.
For full year income from operations for 2020 was $38 million.
Versus $48 1 million for the full year 2020, a decrease of 21%.
This division was significantly impacted by supply chain problems higher material and freight costs as well as skilled labor shortages and lower net sales and higher warranty cost of snow removal also had a negative effect.
<unk> ability in this division for 2021.
Just as in the previous three quarters strong order bookings continue for the fourth quarter 2021 resulted in a record backlog for the full year of 2021 coming in at just under $801 million, an increase of 126% compared to our backlog at the end of 2020.
Part of the higher backlog was due to supply chain issues that delayed the company completely manufactured products to ship.
Turning to a few additional highlights financial highlights for 2021, our balance sheet continues to remain extremely healthy accounts receivable were almost $238 million up 14% from a year ago solid sales volume.
Inventory increased 32%, which is a reflection of higher work in process material cost inflation as well as our efforts to purchase higher level are key components in service parts for our customers. During this time of constraint suppliers.
Finally, the company achieved a record EBITDA for full year 2021 of $162 1 billion up over 16% compared to a full year of 2012.
From a cash flow standpoint for 2021, the company use from operating activities to increase in the inventory by just over $78 million to support the higher backlog invested approximately $43 million for the acquisition and capital expenditures, which led to approximately $16 million for debt reduction for the year, we ended <unk>.
'twenty, one with a leverage ratio below 175.
Expect in 2022 to remain disciplined in our capital allocation strategy.
As our priorities remain to reinvest our artist Berg perfect reinvest in our facilities to support long term growth plans, both organically and through acquisitions and return cash flow to shareholders through dividends and to reduce debt levels to support continued financial flexibility. We're pleased that in January of this year. The company approved a 20.
9% increase in our quarterly dividend from <unk> 14, a share to <unk> 18 cents a share for the first quarter of 2022.
Let me turn it back to Jeff for a broader update on the call.
Thank you Richard business conditions in the fourth quarter continued the pattern, we have experienced for most of 2021, namely a combination of good market conditions and strong demand tempered by persistent headwinds, resulting from both direct and indirect impacts from the ongoing coronavirus pandemic our markets during the quarter remained strong.
Even as lead times for our products is naturally extended as a result of continued shortages of a number of industrial components, we required to manufacture our products our vegetation management division enjoyed sustained market tail wins across all of our served markets and in most regions, where we operate and the traditional agricultural segment shipments of tracker.
In the U S market declined seasonally in the fourth quarter, but increased more than 10% for all of 2021 low dealer equipment inventories combined with favorable commodity prices for coin corn soybeans cotton and cattle resulted in stronger than expected sales for our mowers intelligent equipment, particularly in North America, Brazil.
<unk> was another bright spot during the quarter and for all of 2021 as demand for our traditional mower products was augmented by strong demand for sugarcane harvesting and transport equipment. It.
It was gratifying to note that sales in our Brazilian company, although modest in overall scale, we're up over 90% compared to the fourth quarter of 2020, and nearly doubled compared to the prior year.
Activity in the governmental mowing segment was also at a good level during the quarter fourth quarter sales attractor amounted as self propelled mowers to governmental agencies approved nicely in North America, while growth was even stronger in the United Kingdom sale.
Sales also increased but less significantly in France, and certain other parts of Europe .
Sales of our forestry and free care products were also sharply higher in the fourth quarter. As we continued to experience very strong demand for our tool carriers and related mulching attachments to address the increasing business potential in this segment. We have initiated several projects to expand our manufacturing capacity improved efficiency and reduced cycle times associated with.
Building these products.
Demand for our large industrial shippers and waste wood recycling equipment also remained strong in the fourth quarter as they have throughout 2021 sales of our trio gross shippers remained at a good level, although the fourth quarter is normally a bit slower for these products.
We were also very pleased to complete the acquisition of timber Wolf and the United Kingdom during the quarter, although a modest size. This acquisition strengthens our tree care product offering in the small to mid sized chop Chipper range offers nice cross branding opportunities and gives us a stronger channel into the forestry tree care markets in the United Kingdom and Continental Europe .
Temporal lobe produces excellent high quality products and the company has an outstanding reputation for efficiently service, serving its customers both before and after the sale.
With strong demand for its products across most of its markets. The vegetation management Division produced excellent results for the fourth quarter in spite of headwinds of material cost inflation and skilled labor shortages. It was gratifying to see that as a result of timely pricing actions implemented throughout 2021 gross margin in this division was slightly higher than it was in <unk>.
'twenty, despite higher input costs.
With strong topline leverage in its operations vegetation management profitability was excellent in the fourth quarter and also for the full year 2021 the.
The division's order bookings were again up nicely in the fourth quarter and were also up significantly for the full year compared to the prior year order backlog in this division increased over 100% compared to the fourth quarter of 2020.
Our industrial equipment Division also experienced market tailwind in the fourth quarter in the United States governmental agencies at the state County, and local levels generally remain in good physical shape, partly due to expanded pandemic related federal support for example, 47 States reported General fund revenue for 2021 came in above their original budget.
<unk>.
<unk> revenues were strong in the first half of the year softened slightly in the second half largely due to a flatter property tax revenues.
Industrial divisions order bookings in the fourth quarter and for the full year were sharply higher relative to the same periods in 2021 and its year end order backlog was more than 150% higher than prior year. The division sales in the fourth quarter and for the full year <unk> increased slightly relative to the corresponding periods of 2020.
As the ongoing impacts of the truck chassis shortage labor shortage and other supply chain limitations constrained revenue growth. Despite the strong demand for its products that was evidenced in the development of new orders and order backlog.
Gross margin improved somewhat in the fourth quarter, but was flat on a full year basis compared to 2020.
Most of the divisions sales are to governmental agencies, who generally cannot accept surcharges price escalation mechanisms or repricing of open contracts.
Sales of this division's excavators and vacuum trucks improved in the fourth quarter and were higher for the full year compared to the same periods in 2020.
Order bookings remained strong in the fourth quarter as they were throughout 2021.
Street Sweeper and debris collector sales increased slightly in the fourth quarter and grew nicely for the full year, although the increase came mainly from pricing.
<unk> of snow removal products declined in the fourth quarter and were also modestly lower for the full year compared to the prior year snow removal equipment sales were constrained by limited availability of truck chassis industrial engines and other components at this part of the division struggled with operational efficiency as a result.
<unk> found engine deliveries delayed preplanned preseason production snow blowers, and this negatively impacted sales in the quarter I steel costs and increased warranty expense is also negatively impacted profitability in our snow removal segment during the quarter more positively fourth quarter order bookings stronger aided by several early winter storms in the U.
The us and Canada, the increased demand for spare parts and services snow removal equipment orders for the full year also showed a nice improvement compared to 2020.
The industrial equipment divisions production rates and efficiencies were impacted in the fourth quarter as they had been all year by material cost inflation delivery delays and postponements of many key components needed to produce its products. In addition to the impact of chassis availability shortages associated with other commodities such as hydraulic components.
Axles and wiring harnesses impacted both the capacity and the efficiency of the division's manufacturing operations and increased variances the pressure gross margin.
We were pleased however that the resulting impact on gross margin was largely offset by price actions taken earlier in the year expenses were higher however, as selling activities returned to normal pre pandemic levels and sales commissions increased <unk>.
The Division also increased its investment in research and development in the quarter, partly through the establishment of an advanced vehicle technologies center to accelerate work on hybrid and electric drives Fritz vocational trucks. These factors combined resulted in the industrial division producing lower profitability in the fourth quarter and also for the full year of 2021.
As we look ahead now into the first half of 2022, we expect to encounter more of the same headwinds that we experienced in the second half of 2021 with expected interest rate hikes, adding one more potential challenge to the current mix the spread of the omicron Blackberry engine of the Corona virus, while currently declining certainly.
Impacted several of our operations in January after employees returned from the yearend holidays. Unfortunately after recent meetings with the major truck Oems is now evident that we can't reasonably expect meaningful improvements in truck chassis deliveries until the second half of the year at the earliest as the impact of the semiconductor shortage persists we all.
So don't expect consistent improvement in hydraulic and electrical component availability in the coming months as the industry demand continues to outstrip supply.
One bright spot as steel prices declined sharply in the fourth quarter and are expected to stabilize at these lower levels, which should benefit us in the early months of 2022, and our markets, though the strong tailwind as experienced in the fourth quarter appear that they will continue for the foreseeable future as orders continue to flow in a very good rate.
In both of our operating divisions, but particularly so in industrial equipment.
I'm confident that our teams will continue to find creative ways to mitigate the impact of the many challenges on the supply side.
With our record backlog at the end of the year and with good sustained good momentum in all of our markets I remain optimistic about Alamo group's prospects for 2022 and beyond this concludes our prepared remarks, we're now ready to take your questions. So operator. Please go ahead.
Thank you well if he would like to ask a question. Please signal by pressing star one on your telephone keypad.
Using a speaker phone. Please make sure mute function is turned off to like your signal to reach our equipment.
The star one for any questions.
We'll take our first question from Chris Moore CJS Securities.
Good morning, guys. Thanks for taking a few questions.
<unk> monitors.
Obviously, you talked about you know a bunch of the challenges in Q4 chassis availability.
Et cetera.
Can you maybe just ballpark how much additional revenue.
Recognizing Q4 without some of those challenges.
I don't know that I would want to give you a discreet number Chris but it was significant for sure.
We had some pretty healthy quantities of our excavators as well as vacuum trucks parked along the fence built and waiting for one component or another.
So.
Definitely significant.
Got it.
When we look at you know revenue up 17%.
In Q4 can you, maybe just kind of give a rough breakdown between price and volume.
I think it varies a lot by the two divisions, Chris I mean, if you look at vegetation management, there was a combination of price and volume, but mostly volume.
Because what has happened with our forestry and treated care side their supply chain was very disrupted in Q3, and we finally started to get some meaningful supply, particularly of diesel engines to big inches, we need for our big poultry Tippers arc riders.
Flowing through into Q4, which helped them a lot.
On the traditional AG side of that division's operations, probably a little bit more price.
50, 50 would give you a rough estimate.
We're all in on the governmental mowing side, it's really a combination of both again it was very mixed on the governmental side.
And vegetation management and in our industrial Division is a very important distinction you need to understand in the AG side of our business and the AG market because we have long established relationships with many of our dealers we were actually able to go and renegotiate pricing on orders and backlog, but had not yet been retailed on to end users.
It helped that division along a great deal on the governmental side, both in governmental mowing, which is part of vegetation management, but also in our vacuum trucks sweepers. Once you have a contract with the governmental it's fixed it takes activist City Council where state board.
To approve those purchases in the first place.
So theres not as much opportunity to reprice on the governmental side.
<unk> ended the quarter with a healthy backlog to begin with which is largely fixed so I mean, it's a mix, but certainly in vegetation management. It was probably more volume and a little bit less price in industrial equipment was mostly price.
Got it very helpful makes sense I know you don't guide in terms of you know 22 revenue but.
When you look at 'twenty two you know just in terms of that that volume versus price discussion.
Do you see kind of one of them being that the most important driver.
I think that's going to vary a lot throughout the year. Chris is the answer I would give to you I mentioned the drop in steel prices in Q4, a sharp drop.
Which creates an additional a little bit of a tailwind although that will eventually get priced nor inventory as well. So that's a big benefit for us.
On the volume side first.
First half for industrial equipment is still going to be constrained by supply chain. This truck chassis situation is just not improving.
As I said, we met with all the big truck Oems and we're hopeful that they could give us some upside here or at least pointing to the back half of the year give us some commitment for increased volumes, which so far they're not prepared to make meaningful commitments on.
Even on 2023, we pressed hard to get some better indicators for 2023, and I think all of them are remaining cautious and you can go out for example, and look at the Daimler trucks investor day's presentations and hear what their chairman and there are sectors are saying about that just to give yourself a good cross check.
So I think from a revenue standpoint vegetation management and a real nice position.
The fourth quarter can be seasonally softer, but with the backlog. They have the seasonality gets flushed out of the business pretty consistently so I think they're sitting in a pretty nice position industrial.
Industrial equipment is the same way I think industrial equipment will accelerate a little bit more in first quarter and notably in second from where they were and I am hopeful and I said hopeful that their revenue build will start to improve as supply chain improves its not all truck chassis, Chris I mean, it's things like the transfer cases, and as I mentioned have wiring harness.
There's all kinds of things that you would ordinarily not have problems getting our problematic right now for us. So it's really hard to predict the revenue I'm not just being core coy, because we don't guide, but I mean this is a moving target every week every day every month.
In terms of what supplies we receive.
The engine situation. The diesel engine situation is improving a little bit all those tools are difficult and obviously that hit our snow removal business really hard in the fourth quarter.
We do have planned preseason build of snow blowers, and we were told in the weeks just before we start that build that all of our engine deliveries for that line, we're going to be deferred into 2022. So we literally lost a season to build and we were proud to buy as many as we could to build that product.
One of the reasons why snow removal, which is part of industrial equipment got hit pretty hard. So I hope that gives you some flavor of it I mean, obviously with the backlog as soon as the supply chain situation starts to ease we're gonna be hitting on all cylinders I mean, we're in a nice position.
Before you ask me I can tell you our backlog remains very solid we have not seen any material cancellations anywhere to speak of at least I'm not aware of any and I think my team would have told me if their work so I feel pretty good about it one additional thing I mentioned in the call, but I do want to highlight a January got off to a rough start because <unk> started to really wave through our workforce and.
It's different than the Delta very when we add Delta, we had people getting sick and going out sometimes weeks at a time and we werent sure when they would come back with all mccraw and it was waves of illness that went through our workforce and we'd lose four five people in our it department for a week, but then predictably they've come back a week later, so it is different but the impact was significant in January .
Had a lot of people fall sick madama crop.
During the early weeks of the year right. After the Christmas break so we're starting off in a little bit of a hole in January we've got some work to do to make that up in Q1. So I hope that helps you.
Very myself.
Last last one for me.
Operating margins were eight 8% in.
In 'twenty one.
What would have to happen to get to that.
The 10% level in 2002.
Just things kind of normalizing on the supply chain side in the second half of the year.
Good day out there.
Yeah, Let me, let me comment and then I'll, let Richard make some comments as well he is itching to get to work in here for me.
If you look, particularly at our industrial equipment Division there their operations were very heavily disrupted so our manufacturing variances were significantly higher than what we expect to see in that division and Chris. It's a simple thing you start building a product and then you realise a parts you need to complete it isn't available. So you stop working on that product and we start working on something.
Els and what I always refer to as the manufacturing cadence that we rely on for continuous improvement and to make sure that our labor costs remain in line and so on get really disruptive in that period. So for us to get back to 10% margin. We just need the supply chain to settle down a little bit and we will be right. There because the differences in the variances and we've been there.
Before and we'll get there again.
And you will see us very shortly start to set some more aspirational targets here for income for this company and so having said that I will turn it back over to Richard Chris couple of things.
You see that steel prices are down, but a lot of our purchase components that use steel warehouse.
<unk> dropped yet that's what would really be helpful for us because obviously in the materials or products that we make is not just steel it's everything else that goes along with it so.
Could see some improvement as well of that that would be awesome I think the other thing thats, probably a bit cautionary through us as we go forward as freight there as well.
A lot of volatility in freight both in selling freight at outgoing freight shortage of drivers and just a lie.
Trucks lined up to be able to make the deliveries for us.
Yes.
It's at a level.
The level, where we're at now it's like unheard of what we used to be it was very easy to do no. It's somewhat of a struggle almost every month that we go through it so.
We can get some stability in that that would be something that would be great.
Got it. Thank you guys very helpful.
Back in line.
Thanks, Chris.
We'll go next to make sense.
Davidson Your line is open. Please go ahead.
Yes, Hey, good morning, guys.
Good morning, Mike.
I wonder if that I feel quickly maybe asking about.
The very near term outlook here it sounds like you've had omicron issues, where the end of the fourth and first part of the first like most people out there most companies out there.
And in the supply chain is still a challenge is it possible that.
Q1 looks a lot like Q4 and are really quite quite a few ways as far as the P&L is concerned.
Yeah, I think broadly so.
Mike I think the one thing that will change as having snow removal won't be so much of a drag.
The early snows in the winter helped us a lot from a parts and service point of view and we will continue to have that as a little bit of improvement quarter over quarter, I know, Dan Malone wants to get a word in here about supply chain. So then go ahead, yeah. So one one help in the first quarter that will have.
The fact that.
Remember, we lag the steel price.
The mill price started dropping in the fourth quarter, our cost really didnt for steel really didn't start dropping in the fourth quarter, because we kind of lag that so we'll start getting some of that benefit of lower steel prices here in the first quarter, so that will be one.
Hopefully significantly a significant difference between first and fourth.
Gotcha.
Check this person.
Chris a modest improvement.
Sounds like a very broadly speaking that's great to hear.
And speaking of the snow business as well I know you had a good start but.
If folks have not been able to get the cloud at this point in the season.
Or snow equipment in general the crusher or whatever have you had any people canceling and saying, let's just wait till next year or are folks trying to hold on and get what they can know where.
Theyre pretty much holding on Mike in fact, our backlog was nicely up and snow removal significantly so which will it gave you a lot of encouragement that we actually continued to receive or is a pretty nice pace and we really didn't have any canceled I mean, the problem is that this is an industry whitish. These shortages of things like engines and chassis there theyre not discriminatory.
They affect everybody and I think the Oems that produce those kinds of components are being very careful not to show any favoritism among equipment suppliers like us because they know they need to be with us for the long term.
We're doing our best to make sure. That's the case, obviously, but it's affecting everybody in the industry, what's different for us in our snow blower business as that has a very distinctive business, we build a batch of snow blowers for the winter season, we plan and every year, we increase or decrease it based on what we think is likely to happen and this year that just got really hurt badly because we didnt receive the engines we were.
Got it.
I think one thing to add to that Mike is when we have a really good season, and so that really bodes well for the following year as well for new orders to covenants.
Yeah Yeah.
Alright, that's got maybe two more on the other side of the business.
Just how quickly on.
The Dixie Chopper brand.
Milligan General.
I'm seeing some.
Increased marketing activity has suddenly or some of your other competitors.
Competitors across zero turns it elsewhere.
I'm curious in your owned this for a while now it's okay. If you've had any changes or additions to the marketing plan for that brand.
2022.
We actually have I had a colleague note notice our Dixie Chopper brand that they've got the Daytona 500, just a couple of days ago. So we are taking steps to raise our profile. There Mike you may not have seen it yet, but yes, it's happening and it's happening right across the industry.
<unk> is just beginning to roll out our first prototypes of our EV zero turns which got a really good reception. We were impressed at how the dealers embrace that with open arms.
Dixie Chopper dealer guys that run on adrenalin.
Always have been and that's the nature of that brand and so we didnt know how they would take to an electric CET, but they were extremely enthusiastic about it and we've got a really nice reception to that product along the way. So now we are definitely taking steps to raise our marketing profile with the Dixie Chopper Brad.
Got it got it and then the other question I had on on.
Application was on.
The commodity prices.
USDA put out some numbers yesterday, how prices up 12% this year.
Corn prices down, but you know still a go $5 of Brussels.
Do you feel that these kind of price those up that they're putting out today are are conducive to two more orders in 2022, even if your backlog and so forth.
We can deliver until in some cases 2023.
Yes, I think so Mike, but you always have to remember that's balanced by increased input costs for things like fertilizer, along the way. So I mean, it's not all Sunshine and roses for producers of commodities along the way.
But no one driver really drives our AG business and the most important thing I can say to you is the dealer inventories remain really low.
So there's no pressure at all on that business, yet because everything that's being shipped as being retailed immediately do I expect that to be as strong in 2022 as it was in 'twenty to 'twenty, one I'd, probably not I think 2021 was a really extraordinary year in that market, but I think it's going to be another good year for sure.
In AG and so I think that part of our business will do well again.
Got it guys.
I'll hop back in queue. Thank you.
Thanks, Mike.
And as a reminder, it is star one if you had a question well go next to Greg Burns with Sidoti <unk> Company. Your line is open. Please go ahead.
Good morning.
Are you going to be putting out historical financials for the new reporting segments.
Yes, we will as we move into each of these quarters, Greg first second third you'll see that set up that way for both vegetation management and industrial Division.
Ah Okay. So we're just got to wait for the quarterly reports the no.
Nothing to correct.
Correct.
Okay.
And then in terms of pricing.
Pricing looking at the backlog and how it stands now how many quarters until you are.
Seeing the full benefit of the current pricing structure of flow through.
Well I think it vegetation management, we're already seeing some of that flow through in Q4, and the margins were really nice in that I think you noted.
Report on industrial equipment, I think it will start to flow out probably at the back half of Q1 this year.
Most of them are really troubled contracts were in things like snowplows, where the price is fixed and steel has gone up so much in the earlier quarters of 2000 22021.
And so I think that enterprise backlog will start to flow through I'm optimistic the industrial equipment margins are going to take a nice improvement for the next couple of quarters, that's my expectations to be clear with you.
Okay, Great and then when.
When we look at them.
Your capacity levels and the backlog once things start to normalize do you have sufficient capacity to produce to demand youre seeing do you feel like you need to add capacity, where where are you in terms of your capacity utilization and ability to ramp up.
Okay.
Our larger key factories, we're not at all capacity constrained in terms of footprint people are always an issue I don't off the good news is our employee turnover actually picked down a little bit in Q4 for the first time in several quarters. We were happy about that we've obviously had to take some steps to make sure that happened along the way we have a couple of plant expansions already.
You underway in several places, notably in Brazil, and I wanted to highlight Brazil, because we've been investing there for a number of years and we're really finally to get some nice traction down there. So we're putting in investment on that facility to expand its footprint now and may actually acquire some additional property to go a little bit harder there.
With it so no I don't feel like we're significantly capacity constrained the one area, where we have been struggling with capacities in our land clearing business, which came along with the acquisition of more bark and as I mentioned in my remarks, we're setting up a couple of additional assembly lines in a couple of different plants to really take a big step upward in our capacity there.
Been a nice business for us and the demand has been very steady over the last two years in that space. So youll see us shifting some production amongst our facilities to debottleneck those that are producing those products. In addition to setting up some additional assembly lines. So we're on it and we don't need more bricks and mortars to clear answer from a bricks and mortar point of view we're fine.
Yes.
Okay, great. Thank you.
We will return to Mike Ashley <unk> with D. A Davidson. Your line is open. Please go ahead.
Oh, Hey, thanks for taking my follow up question here.
I'm also I'd be curious a little bit about.
The recent infrastructure build out that that was that was passed.
Have you started seeing any orders related to funds flowing but not there yet.
Christine and excavators.
Certain kinds of more equipment or is that still something that's gonna be coming in the future.
You know Mike it's hard for me to give you a discrete answer to that although I can tell you. Our extraordinary excavator orders were really nice in Q4 and unusual for Q4. So I think that's a bit of an indicator to answer. Your question Secondly, as I've mentioned a couple of times in other places the states and municipalities are in pretty good shape.
These are in great shape as they go into 2022 and I believe that we're going to see really nice upticks in our governmental business in terms of orders compared to 2021, because the states, particularly our flush right now there aren't really good shape and some of that is the infrastructure village referring to Mike.
Negative is the one that I've talked to you about a few times in the past and that is that we're pouring gasoline onto a bonfire in terms of the supply chain. So the additional orders in the additional demand just makes our supply chain situation get more complex because people like cat and Deere and the big guys that are producing yellow iron they need as much as they can get because of the infrastructure Bill.
So that both positive and negative impacts Singles' day.
Got it thanks, so much guys I'll leave it there.
Thanks, Mike.
And with no one else holding I will turn the conference back to management for any additional or closing comments.
Okay.
<unk> remarks on the call. We look forward to speaking to you at our next quarterly call.
I appreciate you all joining us today, our next call will take place in May.
Ladies and gentlemen, we thank you for your participation you may disconnect at this time and have a great day.
Okay.
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