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Gorman-Rupp Reports Third Quarter 2017 Financial Results

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The Gorman-Rupp Company (NYSE:GRC) reports financial results for the
third quarter and nine months ended September 30, 2017.

Third Quarter 2017 Highlights

  • Current quarter earnings per share were $0.22 compared to $0.27 per
    share for the third quarter of last year
    • Third quarter of 2017 included non-cash impairment charges of
      $0.10 per share and a non-cash pension settlement charge of $0.01
      per share
    • Third quarter of 2016 included a gain on the sale of property,
      plant and equipment of $0.03 per share
  • Net sales increased 2.9% or $2.6 million. Excluding the PCCP project,
    net sales increased 4.4% or $4.0 million.
  • Incoming orders increased 17% compared to the third quarter of 2016

Net sales during the third quarter of 2017 were $94.0 million compared
to $91.3 million during the third quarter of 2016, an increase of 2.9%
or $2.6 million. Excluding sales from the New Orleans Permanent Canal
Closures & Pumps ("PCCP") project of $0.3 million in the third quarter
of 2017 and $1.6 million for the same period in 2016, net sales
increased 4.4% or $4.0 million. Domestic sales, excluding PCCP,
increased 3.5% or $2.0 million while international sales increased 6.0%
or $2.0 million compared to the same period in 2016.

Sales in our larger water markets, excluding PCCP, decreased 2.2% or
$1.4 million in the third quarter of 2017 compared to the third quarter
of 2016. Sales in the construction market increased $2.6 million due
primarily to sales to rental market customers related to increased oil
and gas drilling activity. This increase was offset by decreased sales
in the municipal market of $2.2 million primarily driven by decreased
shipments attributable to flood control projects, clean water and
wastewater applications. In addition, sales in the fire protection
market decreased $1.8 million due principally to market softness in the
Middle East.

Sales increased 21.7% or $5.4 million in non-water markets during the
third quarter of 2017 compared to the third quarter of 2016. Sales in
the industrial and petroleum markets increased a combined $3.2 million
principally attributable to increased capital spending related to oil
and gas drilling activity. Sales in the OEM market increased $2.2
million primarily related to power generation equipment and services.

Gross profit was $26.2 million for the third quarter of 2017, resulting
in gross margin of 27.9%, compared to gross profit of $22.7 million and
gross margin of 24.8% for the same period in 2016. Gross margin included
a non-cash pension settlement charge of $0.3 million or 30 basis points
in the third quarter of 2017 which did not occur in the third quarter of
2016. Excluding the non-cash pension settlement charge, the 340 basis
point increase in gross margin was largely driven by favorable sales mix
and lower manufacturing overhead expenses.

Selling, general and administrative expense ("SG&A") was $14.2 million
and 15.2% of net sales for the third quarter of 2017 compared to $12.8
million and 14.0% of net sales for the same period in 2016. SG&A
included a non-cash pension settlement charge of $0.1 million or 20
basis points in the third quarter of 2017. SG&A included a gain on the
sale of property, plant and equipment of $1.0 million or 110 basis
points in the third quarter of 2016. Excluding these items, SG&A as a
percentage of sales improved 10 basis points due principally to higher
sales volume.

Operating income was $7.9 million, resulting in operating margin of 8.4%
for the third quarter of 2017, compared to operating income of $9.9
million and operating margin of 10.8% for the same period in 2016. In
the third quarter of 2017, due to decreasing demand for barge pumps for
the marine transportation market, driven by low oil prices and
overcapacity of inland barges, the Company recorded non-cash impairment
charges of $4.1 million or 440 basis points related to its Bayou City
Pump Company reporting unit. These charges represented the full
remaining amounts of the reporting unit's goodwill and customer
relationship intangible assets. The third quarter of 2017 also included
a non-cash pension settlement charge of $0.4 million or 50 basis points
which did not occur in the same period last year. In the third quarter
of 2016, operating margin included a gain on the sale of property, plant
and equipment of $1.0 million or 110 basis points. Excluding these
items, operating margin improved 360 basis points due principally to
increased sales, favorable sales mix and lower manufacturing overhead
expenses.

Net income was $5.7 million during the third quarter of 2017 compared to
$6.9 million in the third quarter of 2016, and earnings per share were
$0.22 and $0.27 for the respective periods. Earnings per share for the
third quarter of 2017 included non-cash impairment charges of $0.10 per
share and a non-cash pension settlement charge of $0.01 per share.
Conversely, the third quarter of 2016 included a gain on the sale of
property, plant and equipment of $0.03 per share.

Net sales for the nine months ended September 30, 2017 were $284.5
million compared to $287.9 million during the same period in 2016, a
decrease of 1.2% or $3.4 million. Excluding sales from the PCCP project
of $0.8 million in the first nine months of 2017 and $9.5 million for
the same period in 2016, net sales for the first nine months of 2017
increased 1.9% or $5.3 million. Domestic sales, excluding PCCP,
increased by 0.1% or $0.2 million while international sales increased
5.2% or $5.1 million compared to the same period in 2016.

Sales in the first nine months of 2017 in our larger water markets,
excluding PCCP, decreased 0.3% or $0.7 million compared to the first
nine months of 2016. Sales in the construction market increased $7.2
million due primarily to sales to rental market customers, and sales of
repair parts increased $1.8 million. Sales in the fire protection market
decreased $5.1 million principally due to market softness domestically
and in the Middle East, and sales in the agriculture market decreased
$1.6 million principally due to low farm income and competitive pricing
pressure. Sales in the municipal market decreased $3.0 million
principally driven by decreased shipments attributable to flood control
projects.

Sales in the first nine months of 2017 in our non-water markets
increased 7.2% or $6.0 million compared to the first nine months of
2016. Sales increased $5.4 million in the industrial market driven by an
increase in oil and gas drilling activity. Sales in the OEM market
increased $2.6 million primarily related to power generation equipment
and services and infrastructure spending driven by gas production. These
increases were partially offset by decreased shipments of $2.0 million
in the petroleum market driven by challenging market conditions.

Gross profit was $73.5 million for the first nine months of 2017,
resulting in gross margin of 25.9%, compared to gross profit of $68.8
million and gross margin of 23.9% for the same period in 2016. Gross
margin included a non-cash pension settlement charge of $2.5 million or
90 basis points in the first nine months of 2017 which did not occur in
the first nine months of 2016. Excluding the non-cash pension settlement
charge, gross margin increased by 290 basis points due principally to
favorable sales mix, labor efficiency and lower warranty expense.

SG&A was $43.1 million and 15.2% of net sales for the first nine months
of 2017 compared to $40.2 million and 14.0% of net sales for the same
period in 2016. SG&A included a non-cash pension settlement charge of
$1.3 million or 50 basis points in the first nine months of 2017 which
did not occur in the same period last year. SG&A included a gain on the
sale of property, plant and equipment of $1.0 million or 40 basis points
in the first nine months of 2016. Excluding these items, SG&A as a
percentage of sales increased 30 basis points due principally to lower
sales volume.

Operating income was $26.3 million, resulting in operating margin of
9.3% for the first nine months of 2017, compared to operating income of
$28.6 million and operating margin of 9.9% for the same period in 2016.
In the first nine months of 2017, operating margin included non-cash
impairment charges of $4.1 million or 140 basis points and a non-cash
pension settlement charge of $3.8 million or 140 basis points. In the
first nine months of 2016, operating margin included a gain on the sale
of property, plant and equipment of $1.0 million or 30 basis points.
Excluding these items, operating margin improved 250 basis points due
principally to favorable sales mix, and lower labor and manufacturing
overhead costs.

Net income was $18.6 million during the first nine months of 2017
compared to $19.8 million in the first nine months of 2016, and earnings
per share were $0.71 and $0.76 for the respective periods. Earnings per
share for the first nine months of 2017 included non-cash impairment
charges of $0.10 per share and a non-cash pension settlement charge of
$0.10 per share. Conversely, the first nine months of 2016 included a
gain on the sale of property, plant and equipment of $0.03 per share.

The Company's backlog of orders was $111.4 million at September 30, 2017
compared to $102.8 million at September 30, 2016 and $98.8 million at
December 31, 2016. Excluding the PCCP project in 2016, the backlog at
September 30, 2017 increased 9.6% as compared to September 30, 2016.

Capital expenditures for the first nine months of 2017 of $4.8 million
consisted primarily of machinery and equipment. Capital expenditures for
the full-year 2017 are presently planned to be in the range of $6 to $8
million and are expected to be financed through internally-generated
funds.

Jeffrey S. Gorman, President and CEO commented, "Our third quarter
results reflect continued solid operating performance with increased
sales in most of our markets as compared to last year and strong gross
and operating margins. Overall business conditions have continued to
improve and we are optimistic about our incoming order rate. As we
approach next year, our management team remains focused on long-term
growth opportunities and strategic initiatives supported by our very
strong balance sheet."

About The Gorman-Rupp Company

Founded in 1933, The Gorman-Rupp Company is a leading designer,
manufacturer and international marketer of pumps and pump systems for
use in diverse water, wastewater, construction, dewatering, industrial,
petroleum, original equipment, agriculture, fire protection, heating,
ventilating and air conditioning (HVAC), military and other
liquid-handling applications.

Safe Harbor Statement

In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, The Gorman-Rupp Company
provides the following cautionary statement: This news release contains
various forward-looking statements based on assumptions concerning The
Gorman-Rupp Company's operations, future results and prospects. These
forward-looking statements are based on current expectations about
important economic, political, and technological factors, among others,
and are subject to risks and uncertainties, which could cause the actual
results or events to differ materially from those set forth in or
implied by the forward-looking statements and related assumptions. Such
factors include, but are not limited to: (1) continuation of the current
and projected future business environment; (2) highly competitive
markets; (3) availability of raw materials; (4) loss of key management;
(5) cyber security threats; (6) acquisition performance and integration;
(7) compliance with, and costs related to, a variety of import and
export laws and regulations; (8) environmental compliance costs and
liabilities; (9) exposure to fluctuations in foreign currency exchange
rates; (10) conditions in foreign countries in which The Gorman-Rupp
Company conducts business; (11) impairment in the value of intangible
assets, including goodwill; (12) defined benefit pension plan settlement
expense; (13) family ownership of common equity; and (14) risks
described from time to time in our reports filed with the Securities and
Exchange Commission. Except to the extent required by law, we do not
undertake and specifically decline any obligation to review or update
any forward-looking statements or to publicly announce the results of
any revisions to any of such statements to reflect future events or
developments or otherwise.

Brigette A. Burnell
Corporate Secretary
The Gorman-Rupp Company
Telephone
(419) 755-1246
NYSE: GRC

For additional information, contact James C. Kerr, Chief Financial
Officer, Telephone (419) 755-1548.

     
The Gorman-Rupp Company
Condensed Consolidated Statements of Income (Unaudited)
(thousands of dollars, except per share data)
 
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
 
 
Net sales $ 93,976 $ 91,346 $ 284,451 $ 287,868
Cost of products sold   67,777   68,676   210,912   219,061
 
Gross profit 26,199 22,670 73,539 68,807
 

Selling, general and administrative expenses

14,242 12,819 43,107 40,190
 

Impairment of goodwill and other intangible assets

  4,098   -   4,098   -
 
Operating income 7,859 9,851 26,334 28,617
 
Other income, net   98   551   750   676
 
Income before income taxes 7,957 10,402 27,084 29,293
Income taxes   2,255   3,475   8,469   9,464
 
Net income $ 5,702 $ 6,927 $ 18,615 $ 19,829
 
Earnings per share $ 0.22 $ 0.27 $ 0.71 $ 0.76
 

 
The Gorman-Rupp Company
Condensed Consolidated Balance Sheets (Unaudited)
(thousands of dollars)
         
September 30, December 31,
2017 2016

Assets

Cash and cash equivalents $ 75,958 $ 57,604
Accounts receivable, net 67,964 71,424
Inventories, net 73,803 69,049
Prepaid and other   7,398   5,823
 
Total current assets 225,123 203,900
 
Property, plant and equipment, net 117,471 122,067
 
Other assets 8,451 7,769
 
Prepaid pension benefits 7,740 6,211
 
Goodwill and other intangible assets, net   37,879   42,871
 
Total assets $ 396,664 $ 382,818
 

Liabilities and shareholders' equity

Accounts payable $ 16,624 $ 16,306
Accrued liabilities and expenses   30,656   33,046
 
Total current liabilities 47,280 49,352
 
Postretirement benefits 21,238 20,709
 
Other long-term liabilities   9,137   9,869
 
Total liabilities 77,655 79,930
 
Shareholders' equity   319,009   302,888
 
Total liabilities and shareholders' equity $ 396,664 $ 382,818
 
Shares outstanding 26,106,623 26,093,123
 

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