Alamo Group's Petersen Deal Widens Gap Between GAAP and Adjusted Profit
Alamo Group posted 7.6% net sales growth to $450.7 million in the second quarter, while restructuring charges tied to its Petersen Industries acquisition held GAAP earnings nearly flat.
Alamo Group (ALG), the maker of agricultural and infrastructure maintenance equipment, reported second-quarter net sales of $450.7 million, up 7.6% from $419.1 million a year earlier and an acceleration from the 6.7% growth posted in the first quarter. Diluted earnings per share came in at $2.55, nearly unchanged from $2.57 in the year-earlier period, even as adjusted diluted EPS rose 7.2% to $2.82 from $2.63.
The divergence between the two figures traced to a new restructuring charge that scaled up sharply to $3.998 million in the quarter from $605,000 a year earlier, bringing the six-month total to $5.94 million versus $1.367 million in the first half of 2024. Restructuring has replaced CEO transition costs as the largest driver of the gap between reported and adjusted earnings; those transition costs, which totaled as much as $451,000 in prior 2024 quarters under then-incoming leadership, fell to zero in the latest period. Robert Hureau, who has led the company since the third quarter of 2024, signed the release, a change from Jeff Leonard a year earlier.
Adjusted EBITDA margin held at 14.2% of net sales, up from 14.0% a year earlier but flat sequentially against the first quarter's 14.2%. Unadjusted EBITDA margin compressed to 13.2% from 13.8%, underscoring how much of the quarter's profitability improvement depended on adding back one-time items rather than underlying operating leverage.
The Industrial Equipment Division carried the growth, with net sales rising 12.8% to $271.6 million, an acceleration from 6.5% growth in the first quarter, driven by both organic demand and the contribution from the Petersen Industries acquisition. Division profitability moved the other way: adjusted EBITDA margin slipped to 16.7% from 16.8% a year earlier and down further from 17.7% in the fourth quarter of 2024, showing margin erosion even as the top line accelerated. The Vegetation Management Division, by contrast, saw growth decelerate to just 0.4% from 7.0% in the prior quarter, though its adjusted EBITDA margin held flat year-over-year at 10.4% after a severe compression to 2.3% in the fourth quarter of 2024.
Alamo Group closed the Petersen acquisition in January 2025 for $162.9 million net of cash acquired, compared with just $17.6 million of acquisition spending in the first half of 2024, pushing goodwill to $271.3 million and intangible assets to $213.0 million from $221.6 million and $145.0 million a year earlier. The deal was funded with debt: total borrowings climbed to $262.7 million at quarter-end from $213.1 million a year earlier, and net debt swelled to $67.7 million from $11.3 million in the second quarter of 2024, though it narrowed from $95.2 million at the end of the first quarter as the company paid down borrowings.
Operating cash flow for the first half fell 39% to $22.7 million from $36.9 million a year earlier, weighed down by a $62.9 million build in accounts receivable and a $31.3 million increase in inventories even as sales rose. The Industrial Equipment Division's backlog fell 28% to $365.3 million from $509.6 million a year earlier despite the division's accelerating sales, a pattern the company attributed to backlog normalization rather than softening demand. The effective tax rate ticked up to 25.6% from 24.9%, adding a modest additional drag on net income growth.
In May, Alamo Group renewed its credit facility with $602.5 million of committed capacity, split between a $400.0 million revolver and a $202.5 million term loan, on improved terms. The company returned $19.0 million to stockholders in the first half, including $10.8 million of share buybacks and $8.2 million of dividends, up from $8.8 million a year earlier when buybacks totaled just $1.6 million.