Alamo Group Inc. (ALG) Q4 2022 Earnings Call Transcript

Alamo Group Inc. (NYSE:ALG) Q4 2022 Earnings Conference Call February 24, 2023 10:00 AM ET

Company Participants

Edward Rizzuti - Executive Vice President, General Counsel and Secretary

Jeffery Leonard - Chief Executive Officer and President

Richard Wehrle - Executive Vice President, Chief Financial Officer and Treasurer

Conference Call Participants

Chris Moore - CJS Securities

Gregory Burns - Sidoti & Company

Tim Moore - EF Hutton

David Johnson - D.A. Davidson

Operator

Greetings and invited to nan Alamo Group's Fourth Quarter 2022 Conference Call. At this time, each participants are successful a perceive only mode. [Operator Instructions] As a reminder, this convention is being recorded.

It is now my pleasance to present your big Ed Rizzuti, Executive Vice President, General Counsel and Secretary. Please spell ahead.

Edward Rizzuti

Thank you. By now you should person each received a transcript of nan property release. However, anyone is missing a copy, but would for illustration to person 1 please interaction america astatine 2128273746, we will nonstop you a merchandise and make judge you're connected nan company's distribution list. There will beryllium a replay of nan call, which will statesman 1 hr aft nan telephone and tally for 1 week. The replay tin beryllium accessed by dialing 8445122921 pinch nan passcode 1 13734940. Additionally, nan telephone is being webcast connected nan company's website astatine www.alamo-group.com, and a replay will beryllium disposable for 60 days.

On nan statement pinch maine coming are Jeff Leonard, President and Chief Executive Officer; Richard Wehrle, Executive Vice President, Chief Financial Officer, and Treasurer; and Dan Malone, Executive Vice President and Chief Sustainability Officer. Management will make immoderate opening remarks, and past we'll unfastened up nan statement for your questions.

During nan telephone coming guidance whitethorn reference definite non-GAAP numbers successful their remarks. Reconciliations of non-GAAP results to applicable GAAP numbers are included successful nan attachments to our net release.

Before turning nan telephone complete to Jeff, I'd for illustration to make a fewer comments astir forward-looking statements. We will beryllium making forward-looking statements coming that are made pursuant to nan safe harbor provisions of nan backstage Securities Litigation Reform Act of 1995. Forward-looking statements impact known and chartless risks and uncertainties, which whitethorn origin nan company's existent results successful early periods to disagree materially from forecasted results. Among those factors which could origin existent results to disagree materially are nan following: Market demand, COVID-19 impacts, including operational proviso concatenation disruptions, competition, weather, seasonality, rate related issues, geopolitical issues and different consequence factors listed from clip to clip successful nan company's SEC reports. The institution does not undertake immoderate responsibility to update nan accusation contained herein, which speaks only arsenic of this date.

I would now for illustration to present Jeff Leonard. Jeff, please spell ahead.

Jeffery Leonard

Thank you Ed. We want to convey each of you for joining america today. Richard will statesman our telephone pinch a reappraisal of our financial results for nan 4th fourth and year-end 2022, I will past supply further comments connected nan results. Following our general remarks, we will look guardant to taking your questions.

So Richard, please spell ahead.

Richard Wehrle

Thanks Jeff and bully morning, everyone. Alamo group's 4th fourth 2022 closed pinch a coagulated capacity that produced grounds nett income and nett income driven by beardown request for our products, contempt persistent proviso concatenation and labour shortage headwinds.

Fourth 4th consolidated nett income for 2022 were $386.6 million, an summation of 15% compared to $337.2 cardinal successful nan 4th fourth of past year. Fourth 4th nett income were negatively impacted conscionable complete 3% by rate translator compared to nan 4th fourth of 2021 arsenic nan U.S. dollar continued to strengthen.

Gross separator dollars successful nan 4th improves compared to nan 4th fourth of 2021 by $14.1 million, arsenic did gross separator percent, which was up 50 ground points owed to some value initiatives, return it earlier successful nan year, arsenic good arsenic improved manufacturing efficiencies. Both separator dollars and percent were negatively impacted by proviso concatenation issues, labour shortages, and freight costs connected inbound inventory arsenic surcharges proceed to beryllium added to already importantly higher freight invoices.

Consolidated nett income for nan 4th fourth of 2022 was $29.2 cardinal for $2.44 per diluted share, an summation of 52% versus nett income of $19.2 cardinal for 1 constituent -- aliases $1.62 per diluted stock for nan 4th fourth of 2021. Our continued efforts to power some costs and expenses thief support nan summation successful nan profitability.

Vegetation Management section delivered a coagulated 4th fourth for 2022 arsenic markets stay strong. Fourth 4th 2022 nett income were $232.5 million, an summation of 14% compared to $204.3 cardinal for nan 4th fourth of 2021. Strong request for forestry character attraction and cultivation and governmental mowing products successful some North America and Europe led nan measurement for this division. Despite labour shortages and proviso concatenation disruptions, margins improved chiefly owed to summation successful nett value realization and improved operating efficiency. Operating income for nan 4th fourth of 2022 was $30.2 million, up 67% versus $18.1 cardinal for nan aforesaid play successful 2021.

Industrial Equipment section nett income successful nan 4th fourth of 2022 were $154.1 million, up 16% compared to $132.8 cardinal for nan 4th fourth of 2021. This is owed to a coagulated capacity of snowfall removal products and to a lesser grade improved nett income successful nan division's excavator and vacuum motortruck and sweeper merchandise lines. While motortruck chassis transportation showed betterment this quarter, different constituent parts shortages continued to effect this division's operations, which successful move drove unfavorable manufacturing efficiencies, though not arsenic important arsenic successful erstwhile quarters.

Operating income successful nan 4th fourth of 2022 was $12.5 cardinal compared to $8.7 cardinal for nan 4th fourth of 2021, an summation of 28%. Consolidated indebtedness income were a grounds for nan afloat twelvemonth 2022 coming successful astatine $1.5 billion, up 13% compared to $1.3 cardinal for nan afloat twelvemonth of 2021. A beardown request for our products successful some company's divisions on pinch affirmative impact, nan value initiatives were nan main drivers of nan increase.

Full twelvemonth gross separator for 2022 was up complete $42 cardinal versus nan afloat twelvemonth of 2021. Margin percent was down astir 20 ground points arsenic we knowledgeable ostentation and worldly costs, acquisition components, and higher inbound freight costs, each of which resulted successful higher absorption costs. Net income for nan afloat twelvemonth of 2022 was $101.9 cardinal aliases $8.54 per diluted share, besides a grounds versus nett income of $80.2 cardinal aliases $6.75 per diluted stock for nan afloat twelvemonth of 2021, an summation of 27%.

Full twelvemonth 2022 nett income for nan Vegetation Management section were $937.1 cardinal compared to $812.7 cardinal for 2021, up 15%. The section knowledgeable robust request successful each merchandise categories, peculiarly successful forestry, character attraction and successful some North American and European cultivation and governmental mowing. Full twelvemonth 2022, operating income was $108.5 million, up 37% versus $78.9 cardinal for nan anterior year.

For nan afloat twelvemonth 2022 nett income for nan Industrial Equipment section were $576.6 cardinal compared to $521.5 cardinal for 2021, an 11% increase. Sales of excavators and vacuum trucks led nan way, but each merchandise lines contributed successful 2022.

Full twelvemonth 2022 operating income was $40.1 cardinal versus $38 cardinal for nan afloat twelvemonth of 2021, an summation of 5%. This division's results were negatively impacted by constrained chassis deliveries, proviso concatenation disruptions, manufacturing inefficiencies, and higher input costs successful some worldly and inbound freight costs.

The company's backlog astatine nan extremity of 2022 came successful conscionable complete $1 billion. This was an summation of 26% compared to backlog for nan afloat twelvemonth of 2021. This positions nan institution up for an fantabulous commencement for 2023.

Turning to a fewer further financial items for nan year-end 2022. Our equilibrium expanse continues to stay strong. Working superior accrued $117 cardinal to $537 cardinal from $420 cardinal astatine nan extremity of 2021. The summation successful moving superior results from higher accounts receivable and inventory. Accounts receivable were up $318 million, up 33% from a twelvemonth agone and coagulated income volume. We continued to beryllium really pleased pinch receivables and nary awesome issues connected collections and incoming rate remains very steady.

Inventory is up almost $32 cardinal compared to nan extremity of 2021. This is simply a reflection from higher activity successful process, though down from nan past 2 quarters, worldly costs inflation, arsenic good arsenic our efforts to support increasing request for our products by purchasing higher levels of cardinal components and work parts for our customers during this clip of constraint supplies. The summation has besides reflected our modestly higher indebtedness levels. And finally, nan company's trailing 12-month EBITDA is simply a grounds $196 million, that's up 21% compared to 2021.

For 2023, incoming rate travel should stay beardown arsenic our attraction connected nan equilibrium expanse will beryllium to trim some inventory and indebtedness levels. Increasing consolidated profits for 2023 will beryllium highly important arsenic we will proceed to beryllium disciplined successful controlling costs and expenses, arsenic ostentation is expected to proceed to put unit connected our margins. We will besides set prices arsenic needed based connected changes successful worldly and proscription costs successful bid to support our target margins.

We're besides focusing connected early -- connected further improvements proviso concatenation capacity to thief trim nan magnitude of inventory we clasp successful activity successful process. Our biggest situation will beryllium successful needing nan heightened request for our products passim nan company, fixed existent proviso concatenation constraints and labour shortages.

We're pleased that our Board precocious approved a 22% summation successful our regular 4th dividend of $0.22 per stock for nan first 4th of 2023.

With that I will move nan telephone backmost complete to Jeff.

Jeffery Leonard

Thank you, Richard. I'd besides for illustration to, again, convey everyone who's joined our convention telephone today. We were very pleased that nan institution was capable to leverage affirmative and sustained marketplace momentum to group caller records for income and net for our 4th fourth and nan headdress disconnected 2022 pinch nan champion afloat twelvemonth financial results successful institution history.

Sales successful some of our operating divisions were up by double-digits arsenic our markets continued to show nan important spot that we knowledgeable passim 2022. Net income accrued by 15% compared to nan 4th fourth of 2021, contempt rate translator effects nan reduced income by much than 3% aliases $10.5 cardinal during nan period. For nan afloat twelvemonth 2022, income much than 13% pinch a rate translator having a antagonistic effect of 2.4% aliases $32 million.

The Vegetation Management section nett income successful nan 4th fourth roseate 14%, led by a astir 20% summation successful income of forestry and character attraction instrumentality and a much than 20% summation successful income of governmental mowing instrumentality successful North America. Sales of this division's products successful South America besides much than 20%, while income to nan Agricultural conception and European income of governmental mowers were seasonally softer, but still showed bully growth.

Industrial Equipment division's 4th fourth nett income were up 16%, led by a 26% summation successful income of thoroughfare sweepers into pre-collection equipment, while income of its excavators and vacuum trucks were up by astir 15%. The acold upwind knowledgeable successful galore parts of North America during nan 4th besides drove income of nan section snowfall removal instrumentality and related spare parts up by 12%.

Supply concatenation capacity besides continued to amended successful nan 4th quarter. Compared to nan anterior year, Class 8 motortruck chassis receipts were astir 40% higher successful nan 4th fourth of 2022, while receipts of Class 6 and 7 chassis declined modestly during nan aforesaid period. Although, we stay constrained by chassis capacity allocations from nan awesome manufacturers, this betterment successful Class 8 chassis receipts supported nicely improved income of our larger vocational trucks wrong nan Industrial Equipment division. Supplies of different captious business components, specified arsenic hydraulics and wiring harnesses, automation instrumentality remained successful shortage and continued to impair our operating efficiencies and constrained further income growth. Manpower readiness remained concerning to us, and we ended nan 4th pinch much occupation openings than we anticipated.

As we've reported passim nan year, nan separator successful our backlog remains excellent, and this was evident successful our results for nan quarter. Fourth 4th gross separator of 25.3% was nan highest of nan year. Our teams besides did an fantabulous occupation of managing controllable costs. Fourth 4th operating expenses were almost 2% little than nan anterior year, reflecting our attraction connected streamlining our costs building and expanding operating flexibility. We besides ceased operations astatine 1 of our U.S. snowfall removal manufacturing accommodation and consolidated these activities into 1 of our larger plants during nan 4th quarter. Higher apical statement income [technical difficulty] expenses drove our 4th fourth operating income to 11%, a level past achieved successful nan 3rd 4th of 2018.

Our markets proceed to show spot and provided america pinch fantabulous opportunities during nan last months of nan year. Order bookings of astir $474 cardinal successful nan 4th fourth were down little than 2% from nan grounds established successful nan 4th fourth of 2021. Despite this humble decline, year-end bid backlog of level to much than $1 cardinal was astir 26% higher than anterior twelvemonth and almost 11% higher than astatine nan extremity of nan 3rd quarter.

The rebound successful our Industrial Equipment section was noteworthy arsenic bid bookings were 20% higher than nan 4th fourth of 2021. Orders successful nan Vegetation Management section declined 15% comparative to nan anterior twelvemonth 4th quarter. This was partially owed to our determination to behaviour only a constricted preseason programme successful nan North American cultivation mowing businesses, fixed nan very precocious bid backlog successful this segment.

Activity successful our governmental markets astatine nan state, region and municipal levels remained robust during nan 4th quarter. According to nan National Association of State Budget Officers, authorities agencies recorded spending maturation of much than 18% during 2022, nan highest summation successful spending since nan relation again keeping records successful 1979. In aggregate, states wide money gross grew 14.5% year-over-year to full $1.17 trillion successful fiscal 2022, pursuing a 16.6% summation successful fiscal 2021. Most region and municipal governments besides reported higher receipts and accrued spending during 2022.

Our business customers besides proceed to put successful upgraded instrumentality for accommodation and right-of-way attraction astatine a very patient pace. Activity successful our forestry and character attraction conception remained strong. And request from nan cultivation assemblage was very good, particularly for 4th quarter.

As we look ahead, we proceed to beryllium encouraged by nan affirmative trends visible successful our markets, and we stay optimistic astir nan company's outlook for nan coming months. While we stay vigilant for signs of a imaginable recession, we've not yet witnessed immoderate trends that are a origin for interest for astatine slightest nan first half of 2023. Our ample and patient backlog provides respective quarters of fantabulous guardant visibility. Our attraction for nan adjacent respective quarters therefore, remains connected achieving further improvements successful nan capacity of our proviso chain, driving our soul efficiencies higher, still accelerated recruitment of skilled labor and continuing to optimize our manufacturing capabilities and footprint. We're besides excited to present respective hybrid and afloat electrical versions of our halfway products astatine nan upcoming CONEXPO show adjacent period successful Las Vegas.

This concludes our prepared remarks. We're now fresh to return your questions. So, operator, please spell ahead.

Question-and-Answer Session

Operator

Thank you. We will now beryllium conducting a question-and-answer session. [Operator Instructions]

Your first mobility comes from Chris Moore pinch CJS Securities. Please spell ahead.

Chris Moore

Hey, bully greeting guys. Congrats connected a terrific quarter.

Jeffery Leonard

Thank you.

Chris Moore

Right. So, gross maturation for nan twelvemonth was 13%. Consensus for 2023 earlier Q4 was a small spot northbound of 5%. And knowing you guys don't guide, but what would beryllium nan puts and takes for Alamo to travel successful importantly supra aliases beneath nan 5% level successful 2023?

Jeffery Leonard

Okay. Chris, awesome question. For nan past mates of quarters connected these calls, I made a reasonably accordant remark that conscionable a small spot of proviso concatenation betterment would quickly lever itself successful position of our income and profitability. And I deliberation we saw that commencement to hap now successful Q4. I mentioned nan large summation successful receipts of Class 8 trucks. We still request more. The bookings are increasing faster than nan summation successful nan receipts of nan chassis, but that's a very, very bully position to beryllium in.

So, nan only point it would really return to reply your mobility is for that inclination to continue, for nan proviso concatenation to proceed to amended its performance, for supplies to beryllium a small spot much readily disposable and for america to proceed doing what we're doing, which is to get our group and thrust our capacity is higher arsenic well. I wish I could show you location was immoderate magic successful nan formula, but location really isn't. It's conscionable doing nan basics and doing them well.

Chris Moore

And that visibility from wherever you beryllium now successful precocious February versus precocious -- aliases mid-November. Has it changed much? I mean, were you amazed astatine nan level of chassis readiness successful Q4? Or you could spot that successful November?

Jeffery Leonard

Chris, you sewage to spell backmost really to Q3. If you recall, we had a reasonably mediocre Q3 because immoderate of nan chassis we expected that 4th will push backmost into Q4. So, we sewage a boost. That's portion of it. But besides nan agelong haul over-the-road truckers that run ample fleets are slowing their walk connected trucks now. So, there's a fewer much plants safe chassis coming disposable from our accepted suppliers, which is starting to amended our position. I deliberation that's going to proceed for a spot from what we're hearing. We're caller disconnected meetings pinch each nan awesome motortruck OEMs and nan image is sounding overmuch amended than it was a fewer months back.

Chris Moore

Got it. That's very helpful. 12% operating separator mean word goal. We've talked astir that a fewer times. Now that Q4 is done. You had a grounds 11% connected almost 2 months in. Any updated thoughts successful position of that 12% visibility? Is that conscionable a axenic proviso concatenation speech also? Or thing other we should beryllium reasoning about?

Jeffery Leonard

No, I deliberation it's conscionable much of america doing what we do, Chris. Supply chain, for sure. I've said that respective quarters successful a row. Now that's nan biggest driver. But continuing to consolidate our operations and really doing a bully occupation executing this make and marketplace strategy that we've talked astir a fewer times, producing products person to nan constituent of consumption, truthful that we don't person inventory and clip lags associated pinch shipping products crossed nan Atlantic Ocean chiefly is simply a truth and successful continuing nan consolidation of our footprint.

At nan aforesaid time, we're accelerating our investments successful our manufacturing capability, buying caller instrumentality tools, getting much automation and much robotics because we admit we're going to beryllium successful this labour constraint for immoderate clip to come. In fact, nary of america tin really yet spot an reply to that, to beryllium candid.

Chris Moore

Got it. That's helpful. And conscionable past 1 for maine connected immoderate of Richard's comments connected rate flow. So, obviously, you had a bully Q4 aft you had a batch of moving superior build successful nan first 9 months. You still -- AR is still up rather a bit. So, conscionable successful position of 2023 thoughts, it should beryllium beautiful strong, surely nan opening of nan year, is that benignant of what I heard?

Richard Wehrle

Yeah. Chris, I don't deliberation that's going to alteration astatine all. I deliberation our accounts receivable going to beryllium very strong. If we proceed to do nan income levels that we're expecting to do here, it's going to enactment up. Our DSOs are successful fantabulous shape. So, I don't -- I'm not worried astir a postulation rumor here. So, I deliberation incoming rate is going to stay beardown first, 2nd and 3rd 4th from keeps we're doing correct now.

Chris Moore

Perfect. I will time off it there. Thanks guys.

Jeffery Leonard

Thanks Chris.

Operator

Next question, Greg Burns pinch Sidoti & Company. Please spell ahead.

Gregory Burns

Morning. What is nan outlook -- your outlook present for nan ag business? Have you seen immoderate alteration successful nan request trends there? I cognize successful nan past, you've talked astir trader inventories arsenic a possibly thing you look at, but has location been immoderate alteration successful that marketplace astatine all?

Jeffery Leonard

Dealer inventories are rising slightly, but I deliberation astir of america that service nan manufacture deliberation that's a beautiful bully thing, not a bad point astatine nan moment. I mean, wherever it sits correct now, it's a bully thing.

The inclination successful ag has been amazingly beardown to beryllium candid pinch you. I deliberation that we were seeing immoderate signs of weakness backmost successful nan first 4th of past year. But it's been a bully pay. The bookings person remained good. And honestly, nan activity level seems conscionable good correct now. It's surprising. It's -- I'm amazed that nan rhythm has lasted arsenic agelong arsenic it has to beryllium candid pinch you, but it still shows fantabulous legs for nan foreseeable future.

Gregory Burns

Okay. Great. And then, connected nan business side, nan beardown bid maturation that you saw this quarter, was that immoderate merchandise statement successful particular? Or is it much crossed nan board? Any colour there.

Jeffery Leonard

I deliberation it's been beautiful overmuch crossed nan board. We had changed our strategy astatine snowfall removal a mates of quarters ago. We person traditionally been a supplier of attachments for snowplow trucks and nan like. So, we made nan plows. We made nan brackish spreaders, but we didn't build nan trucks themselves. And we shifted our strategy to nutrient nan complete merchandise and present a complete merchandise onto nan state, region and municipal operators, ample contractors and nan like. That accrued our request for chassis. That's portion of what you saw and what we're referring to this persistent constraint connected nan chassis supply. So that portion of nan business has picked up very nicely. That strategy has been very appreciated by nan ample operators of snowplow equipment.

On nan equilibrium of nan Industrial division, thoroughfare sweepers person been rebounding very nicely, person been strong, and our vacuum motortruck business has remained beardown each nan measurement through. It's been robust. Our rental fleet utilization is entity high. I don't want to mention a number for evident reasons, but it's astatine a very, very precocious level. In fact, I'd for illustration to get immoderate much trucks into that rental fleet beautiful soon. So, no, it's beautiful overmuch crossed nan board. Everything was bully successful industrial. They've conscionable been waiting for chassis and those chassis are opening to yet travel done now.

Gregory Burns

Okay. And then, lastly, wherever are you successful position of value cost? Have you been capable to wholly offset ostentation astatine this point? Do you consciousness for illustration nan pricing you person successful nan marketplace now is, I guess, capable to execute that?

Jeffery Leonard

Yeah. We have. I mean, we raised prices each twelvemonth astatine nan commencement of nan year. We person successful 2023 arsenic well. That's conscionable portion of our subject arsenic a company. I do deliberation we're successful beforehand of it, Greg. Our margins person been expanding only offset by our operating efficiencies arsenic we've commented nan past mates of quarters, but operating ratio did amended successful Q4 arsenic nan proviso concatenation began to stabilize.

So, yes, I springiness you a clear answer. I deliberation we are retired successful beforehand of it. And I deliberation we're successful a very bully position. We really moved retired immoderate of nan weaker backlog we had successful Q4. So, we're successful a very bully position now arsenic we caput into nan early months of this year.

Gregory Burns

Great. Thank you.

Jeffery Leonard

Thanks Greg. Appreciate it.

Operator

Next question, Tim Moore pinch EF Hutton. Please spell ahead.

Tim Moore

Thanks and congratulations connected nan beardown income maturation and awesome caller orders increased. If I'm looking astatine your backlog, which is simply a grounds number, I'm conscionable trying to get a consciousness of really overmuch higher possibly that gross separator could beryllium compared to a twelvemonth ago. I deliberation 1 quality mightiness beryllium afloat nett value realization this clip astir compared to orders much than a twelvemonth ago. And I'm conscionable trying to think, if you don't do different preseason programme and you don't person to backmost retired possibly immoderate of nan freight surcharges by nan summer, mean could nan gross separator connected your backlog beryllium astir 100 ground points amended than a twelvemonth ago?

Richard Wehrle

It's difficult to say. I would opportunity it would beryllium better. I mean, our backlog correct now has sewage each that pricing successful location that we've been doing for each of 2022. So, we consciousness very comfortable pinch that. And I deliberation arsenic Jeff had mentioned, nan cardinal present is to person a accordant travel done nan manufacturing plants. We do that. We're going to really person nan margins precisely wherever we want them to be.

Jeffery Leonard

And Tim, this is Jeff. One different point I would opportunity to you astir that is that connected nan governmental broadside of our business, it's much difficult to reprice backlog. We had immoderate success, but not astir arsenic overmuch arsenic we've had pinch our Vegetation Management division. So, immoderate of those older contracts that were taken astatine nan commencement of nan proviso concatenation crunch moved retired successful Q4, and those were nan little separator ones. So, we really had amended pricing floor plan and backlog now than we've had nan past mates of quarters.

Tim Moore

That's great. That's bully to perceive that that's rolled disconnected recently. No, that makes sense. And conscionable related to immoderate comments you made earlier and thing that's been going connected for mostly nan past year. You've had an absorption headwind erstwhile you spell backmost to nan unfinished last assembly shape aft incurring an other disbursal to reset that for a mates of parts that get a fewer months later. How overmuch amended is that improved successful nan past fewer months? Or is it astir nan aforesaid arsenic it mightiness person been past summertime and fall?

Richard Wehrle

The past mates of quarters, Tim, we were astir apt $30 cardinal aliases so, possibly moreover a small spot much successful our activity successful process and we ended nan twelvemonth astatine $22 million. So, I deliberation immoderate of that proviso concatenation move done has really pushed nan area wherever we request to spell and get that number down. We still person much room to growth, I mean, to trim that. And if we tin proceed to support nan proviso concatenation moving done nan strategy nan measurement it is, I deliberation that number is going to support coming down, which is what we want.

Jeffery Leonard

And Tim, it's Jeff. I'll adhd a small spot much colour to that for you successful nan measurement nan accommodation are operating correct now. While nan proviso concatenation is improving and much worldly is flowing through, it tends to travel done successful nan past period of nan quarter. That's conscionable nan behaviour of manufacturing, I guess. And so, we get a surge of instrumentality coming successful nan last week. So, we're still having to pain a beautiful bully spot complete clip to push products retired successful nan last weeks of nan month. We don't for illustration that. That's not our tradition, but that's benignant of wherever we are, frankly. So, there's bully room to move to get nan ratio rising higher. We've only improved them, astir one-third of wherever I deliberation they ought to go. There's still a batch of room for improvement.

Richard Wehrle

I deliberation nan different cardinal present too, Tim, is conscionable consistency from nan suppliers. We tin deed that a small spot much -- flowing a small spot much arsenic each individual period wrong nan 4th and past it would beryllium great.

Tim Moore

No, acknowledgment for nan colour and quantifying that. It's bully to perceive that it's going successful nan correct direction. Was location immoderate uptick? Or do you deliberation there'll beryllium uptick successful request for forestry and character attraction from nan caller Texas crystal storms? And connected nan flip side, is location astir apt possibly immoderate request nonaccomplishment if it's not a awesome snowy wintertime successful parts of nan U.S.?

Jeffery Leonard

Give you my first comment. On nan Texas wintertime and forestry, astir apt not overmuch because that takes nan low-end of nan merchandise scope much than nan high-end. And if you don't person that shipper connected nan shelf, you don't waste it. So, mostly it's contractors operating nan existent fleet. The marketplace doesn't respond that quickly, I conjecture is what I'm trying to say. It does thief our parts business for judge successful nan short run.

And I would show you, this wintertime has ever -- already been fantabulous for snowfall removal. The early snowfall is what really helps america erstwhile it starts to snowfall successful October and November arsenic it did this year, group commencement putting caller blades, deterioration tips connected nan plows and really working. So, our parts business picks up. We already person an all-time grounds backlog successful snow. I mean, snowfall is conscionable trading really, really nicely correct now, peculiarly since this alteration successful our strategy. And I deliberation we've sewage a estimation to beryllium a bully builder of snowfall plow trucks. We nutrient a value product, and we consciousness we've been gaining marketplace stock successful that space. So, I deliberation that we've already seen that uptick. The backlog is precocious capable now. It will beryllium difficult for you to measurement it from present to beryllium candid pinch you, because it's going to benignant of return retired nan cyclicality of nan business.

Tim Moore

Great. So, 2 much speedy questions. The first 1 is astir SG&A. It was bully to spot that arsenic a percent of sales, it declined to 14% compared to 15% to 16% nan anterior 2 years. Richard, do you deliberation that's sustainable for 2023? Or do you deliberation it will tick backmost up a spot if there's immoderate recreation costs aliases one-time costs to travel back?

Richard Wehrle

Tim, you could person immoderate activity a small spot successful there. But I deliberation overall, for afloat year, there's nary logic why that number can't enactment successful that aforesaid range. Our occupation is to make judge that we proceed to support those successful cheque and control, and we've done a awesome job. We were a small spot fierce aft nan first 4th this past twelvemonth because of nan ostentation that was going connected and nan pricing that we had to support putting successful spot for each of our products. So, I mean, if we're going to do that and we were having that dense cost, we had to do thing and controlling expenses was wherever we needed to be. We'll support that successful check. It doesn't mean we're not going to walk money connected SG&A. It conscionable intends we conscionable request to support an oculus connected it. And yeah, you could person a fewer bumps present and location conscionable depending connected really nan shipments spell out. But overall, nan numbers should enactment comparatively nan percentage-wise should enactment comparatively adjacent to nan full sales.

Jeffery Leonard

Yeah. I would stress connected nan percent broadside because we've made our first information of important investments successful electrification of our equipment. We person a 2nd information now to move from prototypes to accumulation machines that will travel done mostly successful nan backmost half of 2023. So, I deliberation it will separator up passim nan twelvemonth successful dollars, not needfully successful percentages.

Tim Moore

No, that makes sense. Good. I ever deliberation astir it successful position of percentages. And past my past mobility is related to 1 that I asked past quarter. If I recall, you were doing a study aliases a argumentation that was underway for possibly accelerating your in-country made production, Brazil, Australia, possibly U.K. and France to really prevention connected proscription costs and improving nan lead times for transportation to customers. How large of action scheme is astatine this twelvemonth and erstwhile do you deliberation you mightiness commencement seeing gross separator improvement? Is that much of a 4th fourth communicative for timing?

Jeffery Leonard

Yeah. It is. It takes a while. We person to do immoderate groundwork wrong nan ineligible building of our company. We person to move intelligence spot astir to facilitate that, past we person to alteration tooling successful immoderate of our facilities, but we're actively into that. We've already seen immoderate use from it, but we're still successful nan very early stages of that. And I deliberation you'll commencement to spot meaningful advancement connected it successful Q4 and past overmuch much truthful arsenic we caput into adjacent year.

Richard Wehrle

Add to that, 2 section heads, Rick Raborn and Mike Haberman person done an fantabulous occupation moving their groups together to activity pinch each different connected this because this is what's going to make nan quality arsenic we spell forward, arsenic we've said before, Tim, nan costs of moving things is conscionable ridiculous. Having that opportunity wherever these guys are moving pinch their groups is huge. It makes a large quality and allows america to beryllium capable to build this merchandise worldwide, which is precisely what our intent is.

Tim Moore

Great. No, that's helpful. I deliberation that's a large catalyst that you get use for starting later this year. So, acknowledgment a lot. That's it for my questions.

Richard Wehrle

You bet.

Jeffery Leonard

Okay. Thank you.

Operator

[Operator Instructions]

Your adjacent mobility comes from Mike Shlisky pinch D.A. Davidson. Please spell ahead.

David Johnson

Good morning. This is David Johnson connected for Mike.

Jeffery Leonard

Hi, bully morning.

Richard Wehrle

Good morning.

David Johnson

Hey, there. Morning. Morning. I was wondering pinch operating margins and perchance free rate travel taking a measurement up successful 2023, what's your appetite for M&A from here? Given nan maturation of nan institution and nan debased leverage connected nan equilibrium expanse astatine nan existent time, are you looking astatine larger deals that we've seen successful nan past?

Jeffery Leonard

Yes.

David Johnson

Okay. Great.

Jeffery Leonard

I don't want to springiness you examples for evident reasons. But yes, we are looking astatine larger deals, and we've said that for immoderate time. Particularly successful Europe, nan marketplace successful Europe looks bully to us, right? Now we've ever wanted to equilibrium our portfolio a small spot much betwixt North America and Europe. And to turn our forestry and character attraction business successful Europe, we've stated those things respective times. So, yes, we are very actively looking for larger deals astatine nan moment. And I deliberation that nan timing is bully for companies for illustration america correct now.

David Johnson

All right. That's awesome to hear. And lastly, you mentioned labour availability, particularly successful manufacturing. Can you return america done immoderate initiatives you're moving connected to get those positions filled?

Jeffery Leonard

Yeah. We've been expanding our apprenticeship programs, looking astatine definite operations that we tin afloat automate, not conscionable partially automated, but afloat automated and conscionable expanding outreach successful nan communities wherever we operate. And past lastly, done this manufacturing footprint reengineering, we're capable to liberate labor. So, we made group broadside up successful debased measurement accumulation successful 1 state wherever we're shipping nan merchandise to different destination, we tin get amended utilization of our bigger factories if we consolidate that person to nan point-of-sale. So that besides helps america from a manpower constituent of view. But it's going to return a batch of activity done those things. We're still down respective 100 labor from wherever we would for illustration to beryllium and that's a reliable conflict correct now.

David Johnson

Understood. Thank you for taking my questions.

Jeffery Leonard

Thank you.

Richard Wehrle

Thank you.

Operator

Thank you. I will now move nan level complete to guidance for closing remarks.

End of Q&A

Jeffery Leonard

Okay. Thank you that concludes our remarks for this convention call. We look guardant to speaking pinch you again astatine our May telephone for nan 2nd 4th of 2022 – 2023, I apologize.

Operator

This concludes today's teleconference. You whitethorn disconnect your lines astatine this time. And convey you for your participation.