Q1 2025 Alamo Group Inc Earnings Call
Good morning, and welcome to the Alamo group's first quarter 2025 conference call.
Operator: Good morning and welcome to the Alamo Group's first quarter 2025 conference. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key, followed by...
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Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note, this event is being recorded.
After today's presentation there'll be an opportunity to ask questions.
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To withdraw your question. Please press Star then two please.
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Edward Rizzuti: I would now like to turn the conference over to Edward Rizzuti, Executive Vice President, Corporate Development, Investor Relations, and Secretary. Please go ahead. Thank you. By now, you should have all received a copy of the press release.
Speaker Change: I would now like to turn the conference over to Edward Rizzuti Executive Vice President Corporate development Investor Relations and Secretary. Please go ahead.
Speaker Change: 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 to 73746, and we will send you a release and make sure you're on the company's distribution list.
Operator: However, if anyone is missing a copy and would like to receive one, please contact us at 212-827-3746 and we will send you a release and make sure you are on the company's distribution list.
Operator: 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 1-877-344-7529 with passcode 3570057. Additionally, the call is being webcast on the company's website at www.alamo-group.com, and a replay will be available for 60 days.
Speaker Change: 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 870 734 475 to nine with passcode 3570057. Additionally, the call is being.
Speaker Change: Webcast on the company's website at Www Dot Alamo dashed group Dot com and a replay will be available for 60 days on.
Edward Rizzuti: On the line with me today are Jeff Leonard, President and Chief Executive Officer, and Agnes Kamps, Executive Vice President and Chief Financial 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 applicable GAAP numbers are included in the attachments to our earnings release.
Jeff Leonard: On the line with me today are Jeff Leonard President and Chief Executive Officer, and Agnes camps, Executive Vice President and Chief Financial Officer.
Jeff Leonard: Management will make some opening remarks, and then we will open up the line for your questions.
Jeff Leonard: During the call today management may reference certain non-GAAP numbers in their remarks reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachments to our earnings release.
Speaker Change: Before turning the call over to Jeff I would like to make a few comments about forward looking statements.
Edward Rizzuti: Before turning the call over to Jeff, I would 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. Adverse economic conditions, which could lead to a reduction in overall market demand, supply chain disruptions, labor constraints, competition, weather, seasonality, currency-related issues, geopolitical events, and other risk factors listed from time to time in the company's SEC report.
Speaker Change: 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.
Speaker Change: 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 adverse economic conditions, which.
Speaker Change: It could lead to a reduction in overall market demand supply chain disruptions labor constraints competition weather seasonality currency related issues geopolitical events and other risk factors listed from time to time in the company's SEC reports.
Edward Rizzuti: The company does not undertake any obligation to update the information contained herein, which speaks only as of this date.
Speaker Change: The company does not undertake any obligation to update the information contained herein, which speaks only as of this date.
I would now like to introduce Jeff letter Jeff. Please go ahead. Thank.
Jeff Leonard: I would now like to introduce Jeff Leonard. Jeff, please go ahead. Thank you, Ed.
Speaker Change: Thank you Ed we wanted to thank everyone, who has joined US on the conference call today and express our appreciation for your continued interest in Alamo group.
Jeff Leonard: We want to thank everyone who's joined us on the conference call today and express our appreciation for your continued interest in Alamo Group. Our results for the first quarter were broadly aligned with our expectations. The Industrial Equipment Division, again, produced strong results as demand from governmental agencies and contractors remained quite strong. The Vegetation Management Division's results improved sequentially as cost reduction actions taken in the second half of 2024 improved profitability, and as rising order bookings began to indicate a modest market recovery.
Speaker Change: Our results for the first quarter were broadly aligned with our expectations. The industrial equipment Division again produced strong results as demand from governmental agencies and contractors remain quite strong the.
Speaker Change: The vegetation management division's results improved sequentially as cost reduction actions taken in the second half of 2020 for improved profitability and has rising order bookings began to indicate a modest market recovery.
Agnes Kamps: I would now like to turn the call over to Agnes, who will take us through a review of our financial results for the first quarter.
Speaker Change: I would now like to turn the call over to Agnes who will take us through a review of our financial results for the first quarter. I will then provide additional comments on the results and say a few words about the outlook for the second quarter. Following our formal remarks, we look forward to take your questions. I guess please go ahead.
Agnes Kamps: I will then provide additional comments on the results and say a few words about the outlook for the second quarter. Following our formal remarks, we look forward to taking your questions.
Agnes Kamps: Agnes, please go ahead. Thank you, Jeff.
Speaker Change: So Jess good morning, everyone.
Agnes Kamps: Good morning, everyone. Amid a dynamic operating environment, we continue to execute with discipline and delivered improved results to start 2025. Let's begin with reviewing our financial performance for the first quarter. First quarter of 2025 revenue was $391 million compared to strong prior year first quarter revenue of $425.6 million. Gross profit for the quarter was $102.8 million with a margin of 26.3% of net sales. The increase of 10 basis points compared to the same period in 2024 is a result of continuous improvement initiatives in our Industrial Equipment Division and cost reduction actions completed in our Vegetation Management Division.
Speaker Change: Amid a dynamic operating environment, we continue to execute with discipline and delivered improved results to start 2025.
Speaker Change: Let's begin with reviewing our financial performance for the first quarter.
Speaker Change: First quarter of 2025 revenue was $391 million compared to strong prior year first quarter revenue of $425 $6 million.
Speaker Change: Gross profit for the quarter was $102 $8 million with a margin of 26, 3% of net sales.
Speaker Change: The increase of 10 basis points compared to the same period in 2024.
Speaker Change: As a result of continuous improvement initiatives in our industrial equipment Division and cost reduction actions completed in our vegetation management Division.
Speaker Change: SG&A expenses were $54 $3 million, which is a reduction of 10% driven by savings in our vegetation management Division.
Agnes Kamps: SG&A expenses were $54.3 million, which is a reduction of 10% driven by savings in our vegetation management division. Operating income in the first quarter of 2025 was $44.5 million with an operating margin of 11.4% of net sales, reflecting an improvement of 40 basis points compared to the first quarter of 2024. Net income for the first quarter was $31.8 million or $2.64 per diluted share compared to net income of $32.1 million or $2.67 per diluted share last year at the same time. Interest expense decreased $2.9 million compared to the same period in 2024, driven by significantly lower debt levels.
Speaker Change: Operating income in the first quarter of 2025 was $44 $5 million with an operating margin of 11, 4% of net sales.
Speaker Change: Selecting an improvement of 40 basis points compared to the first quarter of 2024.
Speaker Change: Net income for the first quarter was $31 $8 million or $2.64 per diluted share compared to net income of $32 $1 million or $2.67 per diluted share last year at the same time.
Speaker Change: Interest expense decreased $2 $9 million compared to the same two anything 'twenty 'twenty four.
Speaker Change: Driven by significantly lower debt levels.
Agnes Kamps: The provision for income tax was $10 million, resulting in an effective tax rate of approximately 24 percent.
Speaker Change: The provision for income tax was $10 million, resulting in effective tax rate of approximately 24%.
Speaker Change: With that overview, let's take a closer look at our performance in our divisions.
Agnes Kamps: With that overview, let's take a closer look at our performance in our division. Vegetation Management Division reported net sales of $163.9 million, a 26.8% reduction compared to the first quarter of 2024. While it is a reduction compared to the strongest quarter in 2024, it is a 2.6% sequential improvement as bookings and backlog appear to have stabilized. Operating income for this division was $13.3 million, representing 8.1% of net sales. We are pleased to see that savings from our cost reduction actions taken in 2024 are evident in our results as vegetation management division operating margin improved 410 basis points sequentially.
Speaker Change: Legislation management Division reported net sales of 163 $9 million or 26, 8% reduction compared to the first quarter of 'twenty 'twenty four.
Speaker Change: Well it is a reduction compared to the strongest quarter in 2024. It is a two 6% sequential improvement.
Speaker Change: Bookings and backlog appear to have stabilized.
Speaker Change: Operating income for this division was $13 $3 million, representing 81% of net sales.
Speaker Change: We are pleased to see that savings from our cost reduction actions taken in 2024 are evident in our results as vegetation management Division operating margin improved 410 basis points sequentially.
Speaker Change: Industrial equipment Division net sales were a record $227 $1 million, representing 12, 5% organic growth compared to the first quarter of 'twenty 'twenty four.
Agnes Kamps: Industrial Equipment Division net sales were a record $227.1 million, representing 12.5% organic growth compared to the first quarter of 2024. Growth in the first quarter was driven by strong sales of excavator and vacuum trucks, as well as snow removal equipment. Operating income was also a record, $31.2 million, or 13.7% of net sales, which was a 120 basis point improvement compared to the same period last year, a result of our Operational Excellence Initiative.
Speaker Change: Growth in the first quarter was driven by strong sales of excavator and vacuum trucks as well as snow removal equipment.
Speaker Change: Operating income was also a record $31 $2 million or 13, 7% of net sales, which was 120 basis point improvement compared to the same period last year, a result of our operational excellence initiatives.
Speaker Change: Moving onto the balance sheet.
Agnes Kamps: Moving on to the balance sheet. We had a good start to the year. Our financial position remained strong, providing us with flexibility to support ongoing initiatives and future investments. Our total assets were $1,505,000,000 at the end of first quarter, representing a decrease of $14.7 million or 1% compared to last year at the same time. An increase in cash and cash equivalents was offset by decrease in accounts receivable and inventory. We reduced our accounts receivable by $53.3 million to $339.6 million, also representing a reduction in day sales outstanding compared to the same period in 2024. Inventory of $356.4 million was also reduced by $28.1 million compared to last year.
Speaker Change: We had a good start to the year, our financial position remains strong providing us with flexibility to support ongoing initiatives and future investments.
Speaker Change: Our total assets were $1.505 billion at the end of first quarter, representing a decrease of $14 $7 million or 1% compared to last year at the same time.
Speaker Change: An increase in cash and cash equivalents was offset by decrease in accounts receivable and inventory.
Speaker Change: We reduced our accounts receivable by $53 3 million to $339 $6 million also be presenting a reduction in days sales outstanding compared to the same period in 2024.
Speaker Change: Inventory of $356 $4 million was also reduced by $28 $1 million compared to last year.
Agnes Kamps: Reductions we achieved in the Vegetation Management Division offset an increase in Industrial Equipment Division. Higher inventory in the Industrial Equipment Division supports double-digit growth in that division. As a result of our disciplined cash management, the operating cash flow in the first quarter of 2025 was $14.2 million. At the end of first quarter 2025, our total debt was $216.8 million and debt net of cash was $16.5 million. This is an improvement of $183.2 million or 91.7% compared to the first quarter in 2024, driven by strategic debt reduction and strong cash generation.
Speaker Change: Reductions we achieved in the vegetation management division offset an increase in industrial equipment Division.
Speaker Change: Higher inventory in the industrial equipment Division supports a double digit growth in that division.
Speaker Change: As a result of our disciplined cash management, the operating cash flow in the first quarter of 2025 was $14 $2 million.
Speaker Change: At the end of first quarter 2025, our total debt was $216 $8 million and debt net of cash was $16 $5 million. This is an improvement of $183 2 million from 91, 7% compared to the first quarter 2024, driven by strategic.
Speaker Change: Debt reduction and strong cash generation.
To conclude I would like to emphasize our commitment to delivering long term value to our shareholders.
Agnes Kamps: To conclude, I would like to emphasize our commitment to delivering long-term value to our shareholders. We are pleased that our board has approved a quarterly dividend of $0.30 per share. As we move forward, we will remain focused on driving growth and optimization of our operations. Thank you.
Speaker Change: We are pleased that our board has approved a quarterly dividend of <unk> 30 per share.
Speaker Change: As we move forward, we will remain focused on driving growth and optimization of our operation.
Thank you I'll turn it over back to Jeff. Thank.
Jeff Leonard: I'll turn it over back to Jeff. Thank you, Agnes.
Speaker Change: Thank you I guess I'd like to add a personal welcome to everyone who was on the call with US This morning.
Jeff Leonard: I'd like to add a personal welcome to everyone who is on the call with us this morning. The company's first quarter results were broadly in line with our expectations, given the mixed conditions that continue to be evident in our markets. The governmental, industrial, contractor, and vegetation markets continue to develop at different tempos during the first quarter of 2025. Fleet renewal and maintenance investments by governmental and industrial contractor customers served by our Industrial Equipment Division continued at a robust level and market activity remains strong from these key customer groups. Industrial Equipment Division first quarter net sales of $227 million were up 12.5% compared to the first quarter of 2024.
Speaker Change: The company's first quarter results were broadly in line with our expectations given the mixed conditions that continued to be evident in our markets. The governmental industrial contractor and vegetation markets continue to develop a different tempos during the first quarter of 2025 fleet.
Speaker Change: Fleet renewal and maintenance investments by governmental and industrial contractor customers served by our industrial equipment Division continued at a robust level and market activity remained strong from these key customer groups industrial.
Speaker Change: Industrial equipment Division first quarter net sales of $227 million were up 12, 5% compared to the first quarter of 2024.
Jeff Leonard: Sales of the division's vacuum trucks and excavators were sharply higher than the prior period first quarter, driven by strong demand from rental fleet operators and municipalities. Sales of snow removal equipment were also sharply higher year over year as large contractors continued to upgrade their fleets with the latest equipment including our unique wide-wing plow system that allows a single plow truck to clear snow and ice from two traffic lanes simultaneously. Sales of sweepers also improved nicely, while sales of leaf collectors and highway safety equipment were modestly lower compared to the same period in the prior year.
Speaker Change: Sales of the division's vacuum trucks, and excavators were sharply higher than the prior period first quarter driven by strong demand from rental fleet operators and municipalities.
Speaker Change: It was a snow removal equipment were also sharply higher year over year as large contractors continue to upgrade their fleets with the latest equipment, including our unique wide win cloud system that allows a single cloud drug to clear snow and ice from two traffic lanes simultaneously.
Speaker Change: Sales of Sweepers also improved nicely while sales of leaf collectors at highway safety equipment were modestly lower compared to the same period in the prior year.
Jeff Leonard: Ordering activity was solid across all product lines in this division, and bookings rose slightly compared to the prior year first quarter, which was by far the strongest quarter of 2024. Orders for the division's street sweepers, leaf vacuums, and highway safety equipment led the way and were up sharply compared to the first quarter of 2024. The division ended the quarter with backlog of 513 million dollars, down 8.3 percent from prior year, but up 6.6 percent sequentially. This division reported strong first quarter operating income of $31.2 million or 13.7% of sales versus $25.3 million and 12.5% of sales in the prior year.
Speaker Change: Ordering activity was solid across all product lines in this division and bookings rose slightly compared to the prior year first quarter, which was by far the strongest quarter of 2024.
Speaker Change: Orders for the Division Street, Sweepers leaf vacuums and highway safety equipment led the way and were up sharply compared to the first quarter of 2020 for the division ended the quarter with backlog of $513 million down eight 3% from prior year, but up six 6% sequentially.
Speaker Change: This division reported strong first quarter operating income of $31 $2 million or 13, 7% of sales versus $25 $3 million at 12, 5% of sales in the prior year EBITDA was $37 $3 million 16, 4% of sales versus $31 million and 15, 3%.
Jeff Leonard: EBITDA was $37.3 million, 16.4% of sales versus $31 million and 15.3% of sales one year ago. All in all, the Industrial Equipment Division produced excellent results and the 120 basis point expansion of its operating margin was especially noteworthy.
Speaker Change: Of sales one year ago, all in all the industrial equipment Division produced excellent results and a 120 basis point expansion of its operating margin was especially noteworthy.
Jeff Leonard: The Vegetation Management Division continued to face headwinds in several of its key markets during the first quarter, although a modest recovery in conditions was again evident. Dealers have remained cautious as hopes for additional interest rate relief dimmed in the face of current uncertainty surrounding global trade and tariffs. First quarter net sales of $163.9 million declined 27% versus the strong comparison period last year. Division operating income in the quarter was $13.3 million, 8.1% of net sales, marking a decline from $21.7 million and 9.7% of net sales in the first quarter of 2024. However, compared to the fourth quarter of 2024, operating income improved sequentially by $6.8 million, or 106%, reflecting the benefits of the efficiency measures implemented in the second half of last year.
Speaker Change: The vegetation management Division continued to face headwinds in several of its key markets during the first quarter, although a modest recovery in conditions was again evident.
Speaker Change: Dealers have remained cautious as hopes for additional interest rate relief dimmed in the face of current uncertainty surrounding global trade and tariffs.
Speaker Change: First quarter net sales of $163 $9 million declined 27% versus the strong comparison period last year Division.
Speaker Change: Division operating income in the quarter was $13 $3 million eight 1% of net sales, marking a decline from $21 $7 million at nine 7% of net sales in the first quarter of 2024.
Speaker Change: However, compared to the fourth quarter of 2020 for operating income improved sequentially by $6 $8 million or 106%, reflecting the benefits of the efficiency measures implemented in the second half of last year.
Jeff Leonard: More positively, vegetation management's first quarter order bookings marked a nearly 18% improvement from the first quarter of 2024 and a 3% sequential improvement from the fourth quarter of 2024. This was the fifth sequential quarter that vegetation management divisions have moved higher. Order cancellations were the lowest the division has recorded since the start of 2024 and represented less than 2% of orders received. We were pleased that orders for agricultural equipment in North America were up 26% in the first quarter versus the same period of 2024. According to the AEM's monthly tractor retail report, field inventory of tractors under 100 horsepower declined 2% in the first quarter, despite retail sales for these tractors declining nearly 14% over the same period.
Speaker Change: More positively vegetation management first quarter order bookings embarked at nearly 18% improvement for the first quarter of 2024, and a 3% sequential improvement from the fourth quarter of 2024. This was the fifth sequential quarter. The vegetation management divisions have moved higher.
Speaker Change: Order cancellations were the lowest of the division has recorded since the start of 2024 and represented less than 2% of orders received.
Speaker Change: We were pleased that orders for agricultural equipment in North America were up 26% in the core first quarter versus the same period of 2024. According to the EMS monthly tractor retail report field inventory of trackers under 100 horsepower declined 2% in the first quarter. Despite retail sales for these trackers declining nearly 14.
Speaker Change: Percent over the same period. This was partly attributable to pessimism among farmers due to ongoing concerns about the potential impact of tariffs on markets for crop exports.
Jeff Leonard: This was partly attributable to pessimism among farmers due to ongoing concerns about the potential impact of tariffs on markets for crop exports. The increased orders we've reported, in our view, also reflect the low level of channel inventory of our products. From the peak in early 2022, the number of our machines in the channel has declined by nearly 72%. Forestry and tree care equipment orders were also up strongly, nearly 52% this quarter compared to one year ago. This recovery was consistent across North America and Europe. Demand for tree care products was notably stronger, while demand for the larger industrial-scale chipping and grinding equipment continued to improve as the market stabilized.
Speaker Change: The increased orders we reported in our view also reflect a low level of channel inventory of our products from the peak in early 2022, the number of our machines in the channel has declined by nearly 72%.
Speaker Change: Forestry and tree care equipment orders were also up strongly nearly 52% this quarter compared to one year ago.
Speaker Change: This recovery was consistent across North America, and Europe demand for tree care products was notably stronger while demand for the larger industrial scale chipping in grinding equipment continued to improve as the market stabilized.
Jeff Leonard: mowing equipment orders from governmental agencies were up 35% versus the first quarter of 2024. This reflected not only strong demand from governmental buyers, but also increasing demand for the company's unique Mantis self-propelled tool carrier platform.
Speaker Change: Mowing equipment orders from governmental agencies were up 35% versus the first quarter of 2024. This reflected not only strong demand from governmental buyers, but also increasing demand for the company's unique mantas self withheld tool carrier platform.
Speaker Change: Finally order bookings from the division's customers in Europe declined 12% driven lower by concerns about global trade and tariffs. The decline is also partly attributable to an unusually large order in the first quarter of 2024 in the United Kingdom that made the comparison more challenging.
Jeff Leonard: Finally, order bookings from the division's customers in Europe declined 12 percent, driven lower by concerns about global trade and tariffs. The decline is also partly attributable to an unusually large order in the first quarter of 2024 in the United Kingdom that made the comparison more challenging. Vegetation Management Division first quarter EBITDA was $20.0 million or 12.2% of net sales compared to $29.2 million or 13% of net sales in the comparison period of 2024. On a sequential basis, EBITDA improved by nearly $4.7 million, marking an improvement of 260 basis points from the fourth quarter of 2024.
Vegetation management Division first quarter, EBITDA was $20.0 million or 12, 2% of net sales compared to $29 $2 million or 13% of net sales in the comparison period of 2024 on a sequential basis EBITDA improved by nearly $4 $7 million, marking an improvement of 200.
Speaker Change: 60 basis points from the fourth quarter of 2024.
Jeff Leonard: Positive benefits of the aggressive cost actions taken in the second half of 2024 are evident in these results. On a consolidated basis, first quarter net sales of $391 million, although down just over 8% compared to the prior year, reflected a modest sequential improvement versus the fourth quarter of 2024. Despite the lower sales, gross margin improved slightly. Operating income of $44.5 million was down 5.4% versus the first quarter of 2024, although operating margin improved by 40 basis points on the lower revenue. This reflected the more than 10% year over year reduction in consolidated SG&A expenses associated with the efficiency initiatives carried out last year.
Speaker Change: The positive benefits of the aggressive cost actions taken in the second half of 2024 are evident in these results.
Speaker Change: On a consolidated basis first quarter net sales of $391 million, although down just over 8% compared to the prior year reflected a modest sequential improvement versus the fourth quarter of 2024. Despite the lower sales gross margin improved slightly operating income of 44, and a half million dollars was down five point.
Speaker Change: 4% versus the first quarter of 2044, although operating margin improved by 40 basis points on the lower revenue. This reflected the more than 10% year over year reduction in consolidated SG&A expenses associated with the efficiency initiatives carried out last year.
Jeff Leonard: Sequentially, operating income improved by more than $10 million, or 29%, due to improvement in gross margin of 250 basis points. First quarter net interest expense also declined in line with the lower net debt. Our tax rate in the quarter was slightly higher than the first quarter of 2024, resulting in fully diluted earnings per share of $2.64, down $0.03 from the first quarter of 2024, but up $0.31 versus the fourth quarter of last year. The combination of the sustained strength of our industrial equipment markets, ongoing recovery on our vegetation management markets, improving internal efficiencies, and a lower administrative cost structure, boast positively for company performance over the next several quarters.
Speaker Change: Sequentially operating income improved by more than $10 million or 29% due to improvement in gross margin of 250 basis points first quarter net interest expense also declined in line with the lower net debt.
Speaker Change: Our tax rate in the quarter was slightly higher than the first quarter of 2024, resulting in fully diluted earnings per share of $2.64 down <unk> <unk> from the first quarter of 2024, but up 31 cents versus the fourth quarter of last year. The combination of the sustained strength of our industrial equipment markets on.
Boeing recovery of our vegetation management markets, improving internal efficiencies and a lower administrative cost structure, both positively for company performance over the next several quarters, while tariffs and uncertainty in global markets remain as risks. We believe we are taking the right actions to prepare for their known and potential impacts.
Jeff Leonard: While tariffs and uncertainty in global markets remain as risks, we believe we are taking the right actions to prepare for their known and potential impact.
Speaker Change: As a result, we are pleased with the company's current position and our outlook remains optimistic regarding our prospects for the remainder of 2025 before.
Jeff Leonard: As a result, we are pleased with the company's current position and our outlook remains optimistic regarding our prospects for the remainder of 2025.
Jeff Leonard: Before concluding my remarks today, I'd like to say a few words about our plans for corporate development. Agnes has provided an update on the strength of our balance sheet and our very low net debt at the end of the first quarter. As we have shared in our remarks several times recently, we are enjoying an increase in the number of opportunities for acquisitions of meaningful scale. We are encouraged at the level and quality of the opportunities we are seeing. This is the most active M&A market we've experienced for several years. We continue to actively pursue several smaller tuck-in opportunities as well that align with our strategy.
Speaker Change: Before concluding my remarks today I'd like to say a few words about our plans for corporate development. Agnes has provided an update on the strength of our balance sheet and our very low net debt at the end of the first quarter as we have shared in our remarks. Several times recently, we are enjoying an increase in the number of opportunities for acquisitions, a meaningful scale where incur.
Speaker Change: <unk> at the level and quality of the opportunities. We are seeing this as the most active M&A market. We've experienced for several years, we continue to actively pursue several smaller tuck in opportunities as well that align with our strategy.
Jeff Leonard: This concludes our prepared remarks. We're now ready to take your questions. Operator, please go ahead. Thank you.
Speaker Change: This concludes our prepared remarks, we're now ready to take your questions. Operator. Please go ahead.
Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Operator: We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then.
Christopher Moore: Our first question will come from Chris Moore with CJS Securities. Please go ahead. Hey, good morning guys, nice quarter. Thanks for taking a few questions.
Speaker Change: Our first question will come from Chris Moore with CJS Securities. Please go ahead.
Chris Moore: Hey, good morning, guys nice quarter, thanks for taking a few questions. So.
Jeff Leonard: Maybe we could just get a little, good morning, a little more specific in terms of the pain points from tariffs. My understanding is very little from Mexico. You'll need to move some production from Canada to the U.S. and you import some drivelines from China. Is that correct and is there anything else we should be thinking about? Yeah, that is broadly correct, Chris, and you know, during the first quarter, about 70% of our consolidated revenue came from within the U.S. and about 10% from Canada and then, you know, the other countries around the world represented a smaller amount because of the decline in activity in Europe that I referred to.
Chris Moore: Maybe we could get a little good morning, a little more specific in terms of that the pain points from tariffs my understanding is very little from Mexico are you.
Chris Moore: Need to move some production from from Canada to the U S and you imports some driveline shrunk from China first of all.
Chris Moore: That correct and is there anything that debt.
Chris Moore: Anything else, we should be thinking about.
Chris Moore: Yeah that is broadly correct, Chris and during the first quarter about 70% of our consolidated revenue came from within the U S and about 10% from Canada and then the other countries around the world represented a smaller amount because of the decline in activity in Europe that I referred to so as you think about tariffs, we're largely protected within the U S market from all but there were.
Jeff Leonard: So as you think about tariffs, we're largely protected within the U.S. market from all but the reciprocal tariffs, and as I've commented before, those will tend to flow through as cost inflation, and we are starting to see some of that come from a few suppliers. On the other hand, it's been more modest than I expected in terms of percentages, so that's a positive. From Canada, we export both snow removal equipment and our largest deck type mowers. The snow removal equipment we've largely already shifted or are in the process of shifting to our Worcester, Ohio facility so that we'll be able to produce the needs for the U.S.
Chris Moore: Separately tariffs and as I've commented before those will tend to flow throughs cost inflation, we are starting to see some of that come from a few suppliers on the other hand, it's been more modest than I expected in terms of percentages. So that's a positive from Canada, we export both snow removal equipment on our largest tech type mowers and snow removal equip.
Chris Moore: We have largely already shifted or in the process of shifting to our Wooster, Ohio facility. So that we'll be able to produce the needs for the U S market inside the U S and the needs from the Canadian market inside Canada. So I've been feeling very comfortable with that one are the large deck type mowers from solti. We're in the process of assessing what we can do with those were protected for the moment.
Jeff Leonard: market inside the U.S. and the needs from the Canadian market inside Canada, so I've been feeling very comfortable with that one. The large deck type mowers from Schulte, we're in the process of assessing what we can do with those. We're protected for the moment under the current terms of the current trade agreement, so we don't have an immediate risk there, but we could, for example, shift production of those mowers down to our facility in Selma, Alabama. It would take a little bit of time, probably a quarter or two, but it's a very doable thing for us.
Chris Moore: The current terms of the current trade agreements. So we don't have an immediate risk there, but we could for example shift production of those mowers down to our facility in Selma, Alabama would take a little bit of time, probably a quarter or two but it's very doable thing for us. So we're feeling pretty confident about it at the moment, we've taken all the steps we can to mitigate it.
Jeff Leonard: So we're feeling pretty confident about it at the moment. We've taken all the steps we can to mitigate it. It's really these reciprocal tariffs that are a little bit of an unknown because there's Chinese content, for example, in lots of things, and we don't always know as you get down into industrial components how much Chinese content there is when you get down into it, but we're watching it very, very closely, and we've been successful so far in pushing back on our suppliers as they've sought larger increases than we felt were warranted by the actual impact of the tariffs.
Chris Moore: It's really these reciprocal tariffs that are a little bit of an unknown because there's Chinese content. For example in lots of things and we don't always know as you get down into the industrial components how much.
Chris Moore: Chinese content there is when you get down into it but we're watching it very very closely and we've been successful. So far are pushing back on our suppliers as they absorb larger increases than we felt were warranted by the actual impact of the tariffs. So at the moment things are going pretty well and I'm happy with the direction of it.
Christopher Moore: So at the moment, things are going pretty well, and I'm happy with the direction. Thank God. Very helpful.
Chris Moore: Got it very helpful.
Speaker Change: Maybe just staying with tariffs for a second is it fair to say that.
Jeff Leonard: Staying with tariffs for a second, is it fair to say that Perhaps the biggest unknown right now would be the, you know, the inflationary impact ultimately impact, you know, on customer demand in two ways. Yeah, that is a fair thing, Chris. That's how I'm thinking about it. And I think that demand to change, if it comes, would be mostly in non-governmental markets. I don't think it's going to impact governmentals too much. The latest information on the governmentals continues to show they're in great fiscal shape. So there's been no change there. And, in fact, they're increasing their spending on all things maintenance-related at the moment.
Speaker Change: Perhaps the biggest unknown right now would be the you know the inflationary impact ultimately impact on customer demand and in two age.
Speaker Change: Yes that is a fair thing, Chris that's how I'm thinking about it and I think that demand change. If it comes would be mostly a non-governmental markets I don't think it's going to impact governmental too much but.
Speaker Change: Our latest information on the Gaba levels continues to show Theyre in great physical shape.
Speaker Change: So theres been no change there and in fact, they are increasing their spending on all things maintenance related at the moment. So that's good to see.
Jeff Leonard: So that's good to see. But a generalized recession or stagflation are the things that we should be thinking about and should be worrying about because those take all of our businesses down, as they do virtually every industrial company. I see no evidence of that yet, but it certainly remains a risk. And I'm encouraged that we're starting to see some signs of peace in the tariff fights that are ongoing. And, obviously, the market's been reacting pretty positively to that as well. So, yes, you're thinking about it correctly.
Speaker Change: But a generalized recession or stagflation or the things that we should be thinking about it should be worrying about because those take all of our business is down as they do virtually every industrial company I see no evidence of that yet, but it certainly remains a risk and I'm encouraged that we're starting to see some signs of peace in the tariff fights.
Chris Moore: That are ongoing and obviously the market's been reacting pretty positively to that as well so yes, youre thinking about it correctly Chris.
Chris Moore: Very helpful. And then maybe just the last one for me just in terms of.
Jeff Leonard: Very helpful, maybe just the last one for me, just in terms pricing power, you know, are there some products market where it's stronger than others and just, you know, kind of how are you thinking about that. Yeah, we've still got reasonable pricing power in the governmental and industrial segment because our lead times are still in pretty good shape compared to some of our other competitors. So that's helping us a bit. In the vegetation side, we don't have a lot of pricing power right now. The markets are just starting to crawl up off their knees. But I think that'll come back relatively quickly.
Chris Moore: Of pricing power you know are there some products markets, where it's stronger than others and just you know kind of hey, how are you thinking about that.
Chris Moore: Yeah, we still got reasonable pricing power in the governmental and industrial segment, because our lead times are still in pretty good shape compared to some of our other competitors. So that's helping us a bit in the vegetation side. We don't have a lot of pricing power right now the markets are just starting to crawl up off their off their knees.
Chris Moore: But I think that will come back relatively quickly and I commented last quarter I still feel that way that the back half of 2025 is going to look significantly better and vegetation and all the indicators continue to support that so we may see a little bit of pricing leverage come back from that space of S. One as well.
Christopher Moore: And I commented last quarter, and I still feel that way, that the back half of 2025 is going to look significantly better in vegetation, and all the indicators continue to support that. So we may see a little bit of pricing leverage come back in that space eventually. Very helpful. Thanks, Jeff. I'll jump back in line.
Speaker Change: Yeah very helpful. Thanks, Jeff I'll jump back in line.
Chris Moore: Thanks, Chris.
Speaker Change: Our next question will come from Michael Slutsky with D. A Davidson. Please go ahead.
Linda Wiley: Our next question will come from Michael Shlisky with D.A. Davidson. Please go ahead. Hi, good morning.
Michael Slutsky: Hi, good morning.
Linda Wiley: This is Linda Wiley on for Mike. Thank you for letting us ask questions. And congratulations on the great quarter. So my first question is, you guys reported 40 basis point year over year increase in operating margin, despite sales being down. Can you help us understand what drove that? Was it mix? Or was it like the effect of your cost reductions? What were the main drivers?
As Linda wildly on for Mike I think you're finding that to ask the questions and congratulations on a great quarter.
Speaker Change: First question is are you guys reported a 40 basis point year over year increase in operating margin.
Michael Slutsky: Despite sales being down can.
Michael Slutsky: Can you help us understand what drove that was it makes oh, what's it like the effect of cost reductions what were the main drivers.
Michael Slutsky: Hi, Linda it's nice to hear you again, and let me take that first you might remember last year in light of the downturn and vegetation management Division.
Agnes Kamps: Hi, Linda. Nice to hear you again. Let me take that first. You might remember last year, in light of the downturn in vegetation management division in agricultural markets, we took an initiative to cut costs. We have announced about $25 to $30 million on a 12-month basis, and so those cost-cutting initiatives have benefited us in the first quarter. So, as you've seen, vegetation management margins, that is all driven from those cost reduction actions. mainly, so you can see that in hDNA, you can see that in gross margin as well. And Linda, keep in mind, since we are now...
Michael Slutsky: And agricultural markets, we took an initiative to cut cost, we have announced about $25 million to $30 million on 12 month basis, and so are those cost initiatives cost cutting initiatives have benefited as one of the first quarter. So I'm sorry have you seen vegetation.
Michael Slutsky: Management margins that that is all driven from those cost reduction actions.
Michael Slutsky: Mainly so you can see that in SG&A, you can see that in the in gross margin as well.
Linda: And Linda keep in mind since we end up.
Jeff Leonard: Sorry, go ahead. You go ahead. Go ahead, Jeff. No, go ahead. I was just going to add a little bit of color. Since we announced those cost reduction actions, we've really much completed these two very large facility consolidations, moving our forestry business out of the Worcester facility up to the Wynn, Michigan facility and transferring the rhino mower production from our Gibson City, Illinois plant down to our Selma, Alabama plant. So we've gained efficiencies in those facilities as a result. And then we made a fairly significant move in the SG&A, as you can see in our financial statements.
Michael Slutsky: Sorry go ahead you go ahead.
Michael Slutsky: No go ahead.
Michael Slutsky: I was just going to add a little bit of color since since we announced those cost reduction actions. We've really much completed these two very large facility consolidations moving our forestry business out of the Worcester facility up to the win Michigan facility and transferring the Rhino mower production from our Gibson City, Illinois plant down to our Selma, Alabama plant. So we've.
Michael Slutsky: Gained efficiencies in those facilities as a result, and then we made it fairly significant move in the SG&A as you can see in our financial statements. So those are those are really what drove it.
Jeff Leonard: So those are those are really what drove it. Thank you both for the clarification. I remember you announcing that, and it's tango, so it's great to see. So my second question is, Alamo is nearly debt-free at this point, net of cash. So now you can start putting this cash you generate that you have been putting towards the debt to other use. Can you give us a little more color on the M&A market? I know you gave us a little update, but more color would be helpful.
Speaker Change: Well. Thank you both for the clarification, there I remember you're announcing bad and it's paying off so that's great to see so my second question is on all of them. All is nearly debt free at this 0.0 gosh. So now you can start putting this cash that you have been putting points that that's oh there he is.
Speaker Change: Can you give us a little more color on the M&A market I know you gave us a way to update that more color would be helpful. And then outside of M&A, you're shack count is so low but.
Jeff Leonard: And then outside of M&A, your share count is so low, but would you consider buying back shares or starting a special annual dividend maybe? Yeah, I mean, our first priority is clearly M&A at this point, Linda. There's a couple of large transactions in the works that are moving at the moment, not just talk, but actually moving, that are of interest to us, and we're pursuing them vigorously. And then as I commented on the call, there's a couple of nice tuck-ins for us that are, you know, moving along at a very nice pace as well. So it's clearly M&A, and we've just discussed that with our board at length.
Speaker Change: But would you consider buying back shares or starting a special annual dividend maybe.
Speaker Change: Yeah, I mean, our first priority is clearly M&A at this point Linda there is a couple of large transactions in the works that are moving at the moment not not just talk but actually moving that are of interest to us and we're pursuing them vigorously in that as I commented on the call. There's a couple of nice tuck ins for us that are needle moving along at a very nice pace as well so it's clearly M&A in <unk>.
Speaker Change: We've just discussed that with our board at length that remains our first priority we have authority to buy back shares if for some reason these M&A opportunities don't materialize, but I'll be very disappointed if that's the direction I'm feeling pretty confident about the direction of the M&A at the moment.
Jeff Leonard: That remains our first priority. We have authority to buy back shares that for some reason these M&A opportunities don't materialize. But I'll be very disappointed if that's the direction. I'm feeling pretty confident about the direction of the M&A.
Speaker Change: Got it and then lastly.
Jeff Leonard: And then lastly, on vegetation, so vegetation already is being up. That's very promising. What's your line of sight to seeing vegetation revenues increasing year over year in the back half of 2025 and as well as 2026? Yeah, that's a great question. Like I said, this is the fifth quarter in a row we've seen improvement in bookings in that part of our business. And it was widespread. It was across ag as well as forestry and tree care. The only part that was down a little bit was our European operations. So the backlog is building. It's not building dramatically yet, but it's building and it's building consistently.
Speaker Change: Vegetation and so I think he takes on arguments being up that's very promising what's your line of sight I'm, just seeing and detection revenues increasing year over year in the back half for 25 and as well as 2026.
Speaker Change: Yeah. That's a great question like I said this is the fifth quarter in a row, we've seen improvement in bookings in that part of our business and it was widespread it was across AG as well as forest Green tree care, where the only part that was down a little bit was our European operations.
Speaker Change: So the backlog is building its not building dramatically yet, but its building and its building consistently in the quality and the backlog looks pretty good and the mix of the orders that are coming in is actually is very favorable at the moment. So we're opportunistic we're optimized already optimistic oh.
Jeff Leonard: And the quality of the backlog looks pretty good. And the mix of the orders that are coming in is actually very favorable at the moment. So we're opportunistic or we're optimistic about the back half of this year looking a lot better than the last few quarters have been in that space. So I feel very good about the direction of vegetation right now. And I kind of like the fact that the upward pace is modest at the moment and not another sort of ground surge as we saw during the pandemic, which obviously was not all real demand at that point.
Speaker Change: About the back half of this year looking a lot better than the last few quarters had been in that space. So I feel very good about the direction of vegetation right now and I kind of liked the fact, the upward pace is modest at the moment and not another sort of ground surge as we saw during the pandemic, which obviously was not all real demand at that point. This is real demand is as people are putting down there.
Jeff Leonard: This is real demand. This is people who are putting down their money in relatively higher interest rate environments than you know this year is probably.
Speaker Change: Relative to the higher interest rate environment. So you know there are serious buyers.
Speaker Change: Thanks, So if I can sneak in one more education text on why you're just saying so is that to say that you've seen are your dealers being more open to take on inventory and vegetation.
Jeff Leonard: So if I can sneak in one more on vegetation based on what you just said. So is that to say that you've seen your dealers be more open to take on inventories in vegetation? Yeah, I wish I could say that. That is true in forestry. Our dealers are getting more active in forestry, and again, in forestry, they don't inventory as much material as they do in ag. In the ag space, the dealers are still feeling a lot of pressure, but our situation is now pretty unique in that our inventory, our own channel inventory, is remarkably low.
Speaker Change: Yeah, It's I wish I could say that that is true and forestry, our dealers are getting more active in forestry and again in forestry, they don't inventory as much material as they do in AG in the AG space. The dealers are still feeling a lot of pressure, but our situation is now pretty unique in that our inventory our own channel inventory is remarkably low.
Jeff Leonard: I commented on the call, it's down over 70%, 7-0% from its peak. So, at the moment, we're getting these orders based off of our own inventory. We're supporting the dealers with the inventory that's in our hands, and you saw our inventory came down as well during the quarter. So, that bodes well, and our dealers have said now they will begin restocking. I think we're going to see that start to happen in the second quarter. So, the direction is clearly upward at this point, although there's still a lot of pressure on that. That makes sense.
Speaker Change: Comment on the call it's down over 70% seven zero percent from its peak so at the moment, we're getting these orders based off of our own inventory, we're supporting the dealers with the inventory that's in our hands and you saw our inventory came down as well during the quarter.
Speaker Change: So that bodes well and our dealers have said now they will begin restocking I think we're going to see that start to happen in the second quarter. So the direction is clearly upward at this point, although there's still a lot of pressure on these dealers.
Speaker Change: That makes sense. Thank you for your time this morning.
Linda Wiley: Thank you for your time this morning. Great to talk to you, Linda.
Speaker Change: Great to talk to your limit.
Speaker Change: Our next question will come from Greg Burns with Sidoti and company. Please go ahead.
Gregory Burns: Our next question will come from Greg Burns with Sidoti and Company. Please go ahead. Morning. When we consider, hi, when we consider. Some of the cost initiatives, the facility consolidations that you've worked on. been engaged in on the registration management side of the business. Are those fully complete or are there other kind of... Projects and Finishing up and how should we think about the... What is left to gain? Projects that you have. From a cost and efficiency perspective.
Speaker Change: Good morning.
Speaker Change: When we got Greg Center high when we consider.
Speaker Change: Some of the the cost initiatives the facility consolidations are you.
Speaker Change: <unk> been engaged in on the vegetation management side of the business are those fully complete or are there other kind of.
Speaker Change: Projects in the pipeline here that are still.
Speaker Change: Finishing up and how should we think about the.
Speaker Change: What is left to gain from from these projects that you have.
Speaker Change: From a cost and efficiency perspective.
Speaker Change: Hi, Greg good to hear you again from cost reduction initiatives. Those are completed so that those deals have been done in the second half of last year.
Jeff Leonard: Hi, Greg. Good to hear you again. From cost reduction initiatives, those are completed. So those have been done in the second half of last year. However, with the consolidations of the factories, we still have some work to do to gain efficiency from our processes, from our manufacturing layouts and whatnot. So there's certainly more efficiencies coming in the pipeline. And as always, we have quite active contingency planning, so there's always activities and planning going on. But certainly, as we look into the following quarters, there will be more benefit from efficiencies in those factories.
Speaker Change: However, with the.
Speaker Change: The consolidations of the factory, we still have some work to do to to and gain efficiencies from our processes from our own manufacturing and lay out kind of what's not so there's certainly more efficiencies are coming in the pipeline and as always we are we have a quite active contingency planning so.
Speaker Change: There's all of these activities and planning going on.
Speaker Change: But certainly as we look into the following quarters, there will be more benefit from efficiencies in those factories.
Jeff Leonard: And it's Jeff here.
Jeff Leonard: Yeah, it's Jeff here. There's still follow on work we're doing that goes beyond the initially announced cost savings. There's still another plant consolidation we're working on in Europe and another one in North America. So there's still more to come. We're not resting on our laurels. So that's kind of how we're thinking about hedging the recession risk that may come here. So we're going to keep driving. We're not ready to announce the value of those yet, but we will in due course.
Jeff Leonard: Theres still follow on work, we're doing there that goes beyond the initially announced cost savings there's still another plant consolidation, we're working on in Europe and another one in North America.
Jeff Leonard: So there's still more to come we're not resting on our laurels. So that's kind of how we're thinking about hedging the recession risks that may come here. So we're going to keep driving we're not ready to announce the value of those yet, but we will in due course.
Jeff Leonard: Okay, and then considering the leaner cost structure on the division.
Jeff Leonard: Okay, and then considering the leaner cost structure on the The Vegetation Management Business Looking forward, you know, as markets recover, volumes start recovering, how should we think about the margin profile of that business? on a go-forward basis versus maybe where it was in the prior peaks of the March. You know, Greg, in terms of percentage margin, I'll be disappointed if we don't get back at least to where we were because we've taken so much cost, fixed cost out of that business. So we should get quite a bit of leverage as the top line recovers in that space.
Jeff Leonard: The vegetation management business.
Jeff Leonard: Looking forward you know as markets recover volume start recovering.
Should we think about the margin profile of that business.
Jeff Leonard: On a go forward basis versus maybe where it was.
Jeff Leonard: The prior peaks of the market.
Jeff Leonard: Yeah.
Jeff Leonard: You know Greg in terms of percentage margin. So I'll be disappointed if we don't get back at least to where we were because we've taken so much cost fixed cost out of that business. So we should get quite a bit of leverages. The topline recovers in that space. So we're still driving to a 15% margin target, that's where we want to go and we don't get there one of our divisions doesn't need it.
Jeff Leonard: So we're still driving to a 15% margin target. That's where we want to go. And we don't get there if one of our divisions doesn't meet it. So that's that's where we're going. So I think there's plenty of room to recover the margins. And I'm hoping we can go beyond where they were during the best period of the pandemic. We should be able to, because even in those great times, we were carrying quite a bit of facility under absorption. I've commented about that a few times. So by closing facilities, we take that fixed cost out of the business permanently, and therefore we should see that better leverage as the market recovers.
Jeff Leonard: So that's that's where we're going so I think there's plenty of room to recover the margins and I'm, hoping we can go beyond where they were during the best period of the pandemic years, we should be able to because even in those great times, we were carrying quite a bit of facility under absorption I'll comment about that a few times. So by closing facilities, we take that fixed cost out of the business permanently and therefore, we should see.
Jeff Leonard: That better Leverages the market recovers.
Jeff Leonard: Alright, great. Thank you.
Operator: All right, great. Thank you. Thanks, Frank. Again, if you have a question, please press star, then 1.
Craig: Thanks, Craig.
Craig: Again, if you have a question. Please press Star then one.
Mircea Dobre: Our next question will come from Mircea Dobre with Baird. Please go ahead. Thanks. Good morning. Just clarification on commentary on tariffs. The way I kind of heard you reference those, it's mostly on finished goods and kind of where you're shifting production. But I guess what I'm wondering is, within your U.S. business, How should we think about the impact on costs, on your costs, whether it's component or, you know, raw materials, things of that sort that might be subject to these tariffs? Yeah, thanks, Meg. That's a great question. As other industrial companies are reporting, we're sort of thinking that it may flow through as a 5% increase in purchase material costs.
Speaker Change: Our next question will come from Yorkshire, Dobra with Baird. Please go ahead.
Speaker Change: Thanks, Good morning.
Speaker Change: Just a clarification on the commentary on tariffs.
Speaker Change: The way I kind of heard you.
Speaker Change: You referenced those it's mostly on finished goods and kind of where where youre shifting production but.
Speaker Change: I guess, what I'm wondering is within your U S business, how should we think about the impact on costs.
Speaker Change: On your cost, whether it's components or you know raw materials things of that sort that might be.
Speaker Change: Subject to these duties tariffs.
Craig: Yeah. Thanks, Craig that's a great question.
Craig: As other industrial companies reporting we're sort of thinking that it may flow through was a 5% increase in purchase material costs and we've seen suppliers trying to move price a little bit more than that but it's just not warranted at this point. So that's the way we're modeling it out, but we haven't seen too much of it yet only a handful of suppliers have tried to push through price increases so far so it's early days.
Jeff Leonard: We've seen suppliers trying to move price a little bit more than that, but it's just not warranted at this point. So that's the way we're modeling it out, but we haven't seen too much of it yet. Only a handful of suppliers have tried to push through price increases so far, so it's early days. But it is all these reciprocal tariffs, Meg, as I've commented several times. Those are the ones that we'll have to work our way through, and we're going to have to manage that by both improving our own efficiencies, as we continue to do, as well as by really working our supply chain and working price.
Craig: But it is all these reciprocal tariffs makers Ive commented several times those are the ones that will have to work our way through and we're going to have to manage that by both the proving our own efficiencies as we continue to do.
Craig: As well as by really working our supply chain and working price. All three dimensions are going to have to be part of the process to work through that to hold our margins.
Mircea Dobre: All three dimensions are going to have to be part of the process to work through that to hold our market. So, I'm sorry, that 5%, that was as a percentage of the cost of goods sold? Is that the way to think about it? of Purchase Material Costs Make. And can you, right, so can you size that in terms of dollars or percentage of cost of goods sold? I can't do it in terms of dollars out of my head, but in terms of actual cost of goods sold, it would be something like 1 to 2 percent.
Craig: Oh I'm sorry, it was that 5% that was as a percentage of the cost of goods sold.
Craig: No.
Craig: Our purchase material cost Mig.
Craig: And purchased in Q4.
Speaker Change: Right. So can you size that for us in terms of dollars or percentage of cost.
Speaker Change: I can do in terms of dollars out of my head, but in terms of actual cost of goods sold it would be something like 1% to 2%.
Speaker Change: Between you Peel off what we manufacture ourselves, which is large because our facilities are vertically integrated and peal labor back out and that's what you'd be left with.
Jeff Leonard: between, you know, you peel off what we manufacture ourselves, which is large because our facilities are vertically integrated, and peel labor back out, and that's what you'd be left with. Okay, so it would be a 5% increase on 1-2% of cost of goods sold. Yeah, no, that's not what I'm saying. It would be a 1-2% impact on cost of goods sold, 5% of purchased materials. It gets diluted because we produce a portion of our cost of goods sold ourselves, right, from raw materials, and we add the labor. So, you asked me, at cost of goods sold level, it would be 1-2%.
Speaker Change: Okay.
Speaker Change: So it would be a 5% increase on 1% to 2% of cost of goods sold you're saying.
Speaker Change: Yeah, no that's not what I'm, saying it would be a 1% to 2% impact on cost of goods sold 5% of purchase materials. It gets diluted because we produce a portion of our cost of goods sold ourselves right from from raw materials and we add the labor. So you asked me at cost of goods sold level, it would be 1% to 2%.
Speaker Change: Understood.
Mircea Dobre: understood. I apologize, just want to make sure that I understand all of that.
Speaker Change: I apologize I just wanted to make sure that I understand all of that and then that's why most of them are I'm I'm also wondering your thoughts on on steel prices and you know maybe.
Jeff Leonard: And then I'm also wondering your thoughts on steel prices. And, you know, maybe it is a good reminder here in terms of how important steel is for you and overall cost structure, because we've obviously seen higher steel costs after the tariffs were enacted back in March. So I'm curious how you think that's flowed. Those we've largely already passed on to the market make, we react really quick to those because we're used to these cycles and steel prices. They've been fluctuating quite a bit over the last few years, so we're pretty good at reacting to that.
Speaker Change: It is a good reminder, here in terms of how important steel is for you and all of our overall cost.
Speaker Change: Cost structure because.
Speaker Change: We've obviously seen higher steel costs.
Speaker Change: After the tariffs were enacted it back in March so our it.
I'm curious how you think that's going to flow through.
Speaker Change: Those we've largely already passed onto the market make we react really quick to those because we're used to these cycles and steel prices they've been fluctuate quite a bit over the last few years. So we're pretty good at reacting to that we track it very closely across the company and we produce reports every month.
Jeff Leonard: We track it very closely across the company and we produce reports every month of the steel price we're paying in every facility we have around the world. And then we bench those, the metals indexes around the world to the London Exchange, the American Metals Exchange, and so on, to make sure we're tracking the indexes very closely and not being taken advantage of in any way. We document those and we pass them on to our customers, and our customers are very used to that. That doesn't shock them. Understood.
Speaker Change: Steel price, we're paying in every facility, we have around the world and the weight bench dose the metals indexes around the world to the London exchange the American metals exchange and so on to make sure. We're tracking the index is very closely and not being taken advantage of in any way. We document those and then we pass them onto our customers and our customers are are used to that that doesn't shock them at all.
Speaker Change: Understood and then my final question I.
Jeff Leonard: And then my final question I think in your prepared remarks, you mentioned that you would give us some color on Q2, and perhaps I missed it, but again, how do you think about Q2 relative to Q1 for each segment? Yeah, okay, so I think let's start with the easy one. Vegetation management should continue to rise slowly, both in terms of sales and margin. That's my expectation. We've got all the cost of the cost, if you want to call it that, the impact of the cost reduction programs, the costs associated with those are behind us. So we should start to see that margin and vegetation expand as we did in this quarter.
Speaker Change: I think in your prepared remarks, you you mentioned that you would give us some color on Q2, and perhaps I missed it but again, how do you think about Q2 relative to Q1 for each segment. Thank you.
Speaker Change: Yeah, Okay. So I think let's start with the easy one vegetation management.
Speaker Change: To rise slowly big both in terms of sales and margin. That's my expectation. We've got all the cost the cost of the cost if you want to call. It that the impact of the cost reduction programs. The costs associated with those are behind us. So we should start to see that margin and vegetation expand as we did in this quarter is sequentially, improving and I think it will sequentially improve again.
Jeff Leonard: It's sequentially improving, and I think it will sequentially improve again in Q2. In industrial, I think we'll continue to also see an expansion of both sales and margin. Both Q2 and Q3 in industrial look quite good. The backlog in that division is back above half a billion dollars again, and the quality of the backlog is really good. You'd commented in Q4 about the short orders at that time, and I think I said to you it was mostly timing, and so you've seen the timing sort of catch up now in the first quarter, which was very gratifying to see.
Speaker Change: In Q2 in industrial I think will continue to also see an expansion of both sales and margin both Q2 and Q3 in industrial look quite good the backlog in that division is back above half a billion dollars again in the quality of the backlog is really good you you'd commented in Q4 about the store orders at that time, and I think I said it was <unk>.
Speaker Change: Mostly timing and so you've seen the timing sort of catch up now.
Speaker Change: In the first quarter, which was very gratifying to see so I think that we're going to see a nice improvement in Q2 in industrial and another sequential improvement in vegetation in the second quarter.
Jeff Leonard: So I think that we're going to see a nice improvement in Q2 in industrial, and another sequential improvement in vegetation in the second quarter. All right.
Speaker Change: Alright, thank you.
Speaker Change: With no further questions. This will conclude our question and answer session I would like to turn the conference back over to management for any closing remarks.
Operator: With no further questions, this will conclude our question and answer session. I would like to turn the conference back over to management for any closing. Thank you for joining us today on the call. We look forward to speaking with you on our first quarter conference call in August. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker Change: Thank you for joining us today on the call. We look forward to speaking with you on our first quarter conference call in August.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].