Alamo Group Inc. Q2 FY2026 earnings call

Overall Financial Performance

• Consolidated net sales for Q2 2026 were $450.7 million, with a gross margin of 24.6%, down 120 basis points year-over-year, driven by sales mix and long-term growth investments, partially offset by favorable pricing and procurement savings.
• Adjusted EBITDA was $63.9 million (14.2% of net sales), up from $58.8 million (14% of net sales) in Q2 2025. Adjusted fully diluted EPS was $2.82, up 7.2% year-over-year.
• Free cash flow over the 12 months ending June 30, 2026 was $135.3 million (134% of net income), exceeding the long-term 100% target.

Strategic Pillars

• People and Culture: Focus on building aligned, high-performance teams to drive execution of all priorities.
• Commercial Excellence: Pursue market share gains across segments, invest in dealer network expansion, and explore new growth channels and product adjacent categories beyond core end market movements.
• Operational Excellence: Centralized procurement to capture cost savings, streamline manufacturing facilities, consolidate product lines to improve throughput and efficiency, and deploy AI across the organization to lower SG&A as a percentage of sales over time.
• Capital Deployment: Maintain a disciplined, balanced approach:
  • Average capital expenditures of ~2% of net sales to invest in products, facilities and technology.
  • Target maximum net leverage of 2.5x to preserve financial flexibility.
  • Prioritize tuck-in acquisitions aligned with core businesses, targeting 1-2 transactions per year.
  • Return capital to shareholders via dividends (target 15% payout ratio) and opportunistic share repurchases.

Operational Updates

• Integration of the Peterson acquisition is progressing on track, with EBITDA margins meeting expectations and early synergies being captured.
• The company announced an exit of a small Dutch waterway vegetation management business, expected to complete by end-2026, with additional small portfolio restructuring decisions planned for H2 2026.
• Facility consolidation within the Vegetation Management Division (completed in H2 2025) has now stabilized, with manufacturing throughput and margins returning to pre-consolidation levels in Q2 2026.
• The company renewed its credit facility in May 2026, extending maturity to 2031 with $602.5 million in committed capacity, ending Q2 with net leverage below 1x and strong liquidity.

1. Industry Equipment Division: Q2 2026 net sales of $271.6 million, a 12.8% increase from $240.7 million in Q2 2025. 2.6% organic sales growth, with growth driven by the acquired Peterson and Ringomatic businesses, as well as share gains in excavator and vacuum truck businesses. This division contributes 59% of total company net sales. Adjusted EBITDA was $45.3 million (16.7% of net sales) in Q2 2026, compared to $40.3 million (16.8% of net sales) in the prior-year quarter. Q2 2026 book-to-bill was 0.85x, with net orders down 2% year-over-year.
2. Vegetation Management Division: Q2 2026 net sales of $179.1 million, a 0.4% increase from $178.4 million in Q2 2025. This division contributes 41% of total company net sales. Adjusted EBITDA was $18.6 million (10.4% of net sales) in Q2 2026, flat compared to $18.5 million (10.4% of net sales) in the prior-year quarter. Q2 2026 book-to-bill was 0.9x, with net orders down 1% year-over-year.

• End Market Outlook: The Vegetation Management end market is expected to be flattish to down mid-single digits in H2 2026, after stabilizing in 2026 following multi years of declines from 2021-2023 peak levels. Sequentially, sales and earnings are expected to decline slightly from Q2 to Q3 to Q4 in line with historical seasonality, and year-over-year comparisons will improve in Q4 2026 due to the low 2025 comp.
• Industrial End Markets: Organic sales for the Industrial Equipment division are expected to be flattish in H2 2026, consistent with moderating construction growth after multiple years of double-digit expansion. Management remains bullish on the long-term outlook driven by ongoing infrastructure investment needs.
• Long-Term Margin Targets: Management reaffirmed the long-term through-cycle target of 18% adjusted EBITDA margin. Approximately 300 basis points of the 400 basis points needed to reach the target are within management control (via procurement savings, operational efficiency, and portfolio optimization), with the remaining 100 basis points expected to come from volume leverage as end markets recover over the next 3-4 years. Acquisitions of high-margin targets like Peterson will also help accelerate margin expansion.

• Adverse macroeconomic conditions can reduce overall market demand for the company's equipment.
• Ongoing supply chain disruptions and labor constraints remain operational risks.
• Persistent inflation can increase input costs (including steel and freight, which were cited as current headwinds) and pressure margins.
• Large excavator and vacuum truck orders are inherently lumpy, leading to quarter-over-quarter order volatility that can impact near-term revenue.
• Vegetation Management end markets remain pressured by lower farm income, elevated borrowing costs, and tariff-related cost uncertainty, with no expectation of a rapid broad recovery in 2026.
• M&A transactions carry integration risk, and there is no guarantee that targeted transactions will close on expected timelines or at expected valuations.

Q: How should investors think about current backlog levels, the share of revenue dependent on backlog, and backlog turnover for each segment? / A: Management highlighted that positive order momentum in municipal-focused subsegments (municipal mowing in Vegetation, sweepers in Industrial) is a key positive signal, following the start of new state and municipal budget years. Overall, the company holds 4-5 months of revenue in backlog in aggregate, consistent with pre-boom historical levels after the elevated backlog of 2023-2024. Lead times are currently at competitive levels that satisfy customers, and many of the company's brands are continuing to gain market share across both divisions, supporting the health of the current order and backlog position.

Q: What is the margin runway for the Vegetation Management division from current ~10-11% levels, and how much improvement can be achieved without end market volume recovery? / A: Management confirmed the long-term 18% consolidated adjusted EBITDA margin target, and noted ~300 basis points of total improvement toward the target is within the company's control regardless of volume, split across both divisions. For Vegetation, this means current 10-10.5% margins can expand to 13-14% via procurement savings, manufacturing efficiency gains, and small portfolio optimization, without requiring end market recovery. Volume leverage from future end market recovery will add additional margin gains, and high-margin tuck-in acquisitions like Peterson will also accelerate overall margin expansion.

Q: What is the update on the company's M&A pipeline and strategy, and is there appetite for larger transformational deals? / A: Management stated M&A remains the top capital allocation priority, and the current pipeline is strong, with a full-time corporate development team focused on pursuing opportunities. The primary focus remains tuck-in acquisitions aligned with the company's core industrial business (the company is pausing major Vegetation acquisitions to allow the team to complete ongoing operational improvements), with a sweet spot of $15-30 million in EBITDA. Larger deals up to $40-50 million EBITDA are possible if they offer strong strategic fit and synergies, but transformational larger deals are unlikely at this time. Management feels confident about the possibility of closing at least one deal in 2026, though no deal is guaranteed.

Q: What is the status of facility consolidation in the Vegetation Management division, and how will it impact H2 2026 results? / A: Management noted that significant progress has been made since the facility consolidations completed in H2 2025. Production disruption from the consolidations has been resolved, and throughput has recovered enough to drive sales growth in the tree care and U.S. agriculture segments in Q2 2026. Margins in the division are now back to pre-consolidation levels. Additional incremental efficiency gains remain to be captured, but the business is now stable heading into H2 2026.