All right, let's get started. I just would like to welcome everyone to the Sidoti March Small Cap Conference. Thanks for joining us here for the Alamo Group presentation. From the company, we have Jeffery Leonard, the company's CEO; Agnes Kamps, the company's CFO; and Ed Rizzuti, who heads up their corporate development and IR programs. They're going to run through a quick presentation. We're going to get to some Q&A at the end. If you do have a question, please enter it through the Q&A function in Zoom, and we'll get to as many of those as we can. With that, I'll now hand it over to Jeff to run through the presentation.
Thank you, Greg. I appreciate it very much. Good morning, everybody. Where are we? Happen to be dialing in from? I would like to say a word of welcome to all the people that are on the webcast as well. I'm here to present on behalf of Alamo Group. We are traded on the New York Exchange under the ticker ALG. We will be making some forward-looking statements today within the meaning of the Private Securities Litigation Reform Act of 1995. I won't dwell on that, but I do have to say that as a matter of principle here. If you look at our company, we are the parent company of over 40 global brands, and we operate through two divisions: our industrial equipment division and our vegetation management division. We specialize in manufacturing equipment that's vital for maintenance.
When you think about our company, we are typically not providing products for new construction. It's mostly related to infrastructure maintenance. We're not subject to, for example, federal investment. That doesn't drive our business really at all. We try to deliver innovative products to our customers. We have long-term relationships with many of our customers. You can see the company was founded in 1969. It's headquartered in Seguin, Texas, which is a bedroom community of both San Antonio and Austin, kind of in the quarter between the two. We currently have 3,750 employees. We operate through 27 manufacturing locations scattered across North and South America, Europe, and a small footprint in Asia, out in Australia. That's the high-level view of the company. If you take a little bit deeper view of our division, our industrial equipment division is currently the larger of the two.
It sells and services unique types of mobile equipment, most of it truck-mounted, used for the maintenance of public and private infrastructure and other types of hardscapes out of the time of year. We coined a tagline a few years ago called "The Company for All Seasons." All that really meant is we try to offer products that are used for infrastructure maintenance no matter the season of the year. We are a primary supplier of snow removal equipment, as you see on the sort of the center right hand of the slide, used in the wintertime. We are a very large player in that space. We produce products for picking up the cinders in the springtime off the roads. That is a street sweeper just to the left of that plow truck.
We produce leaf vacuums in the upper left corner to pick up the leaves in the fall. We produce very specialized types of equipment like these Great Ole excavators that you see here that are used for maintenance of rail equipment and other applications. They are used for storm cleanup following hurricanes as a case in point, and so on. That is our industrial division. Our vegetation management division produces products to maintain organic infrastructure. It can be used on farms and fields in the inner green spaces on airports, for example, these large mowers, as you see in the upper right-hand corner, as well as for wood recycling and so on. It is all organic material, but again, mostly maintenance related. You can see that in 2024, the industrial division was 52% of our consolidated net sales, with EBITDA of 16%.
In 2024, the vegetation management division produced 48% of net sales, with EBITDA of 11%. I'm not going to spend much time here, but you can see our footprint scattered across North America, Europe, and one plant out in Australia. We've gradually been going global through M&A, and that's still a significant opportunity for the company in the future. We always look for companies that have good brands on our M&A targets. We also develop very nice organic brands ourselves. Some of the brands you might know, for example, starting from the bottom, a Great Ole excavator, Great Ole has been around a very long time. These are ubiquitous products. Virtually every state maintenance yard has several of them in it. They're used for maintenance of roadways, but also for profiling drainage excess waves alongside the highways for clearing drainage ditches and storm cleanup and so on.
It's a Swiss Army knife. Virtually every state has several of them. Above that is a Schwarze street sweeper. Schwarze is based down in Huntsville, Alabama. They're the number two supplier of road mobile sweepers that are used across the highways in North America. Above that is a Rayco tool carrier with a mulching head attached. This is used for clearing landscapes, used for further development. That plant is based in Wooster, Ohio, just been relocated up to Michigan. On the top is one of our larger mowers offered by our Schulte company out of Canada. They produce mowers all the way to 40 feet in width that are used on, again, the airport green spaces between the runways, also for the large farms out in northwestern Canada.
You can see the list of kinds of things we do: forestry, tree care, and recycling, biomass production, agricultural, land maintenance, landscape, and turf. I won't read them all to you. On the industrial side, metal mine and metal mill and mine maintenance. That's the scalers in the Great Ole product line, street sweeping, highway safety. We produce the attenuator trucks that are used on most of the construction sites you see out on the highway. We have a very, very broad product line that serves our customers' needs around the country. We're also working on sort of the future state of all of these same products. This is a scattering of some of the electrified and hybrid products that we produce. Starting in the upper left is one of our Rivard/ Mistral electric sewer cleaning trucks. This is an all-electric truck.
There are no engines on it at all. In the upper right is our Schwarz EM6. We call it the Avalanche. That's also an all-electric sweeper. Both the chassis and the sweeper body are fully electric. Down in the middle on the left is our Great Ole all-electric excavator. This is more of a technology demonstrator at the moment, but will be coming commercially soon. Next to that is a Timberwolf hybrid wood chipper. On this type of product, we've replaced a larger diesel engine, 68 horsepower engine, with a 28 horsepower engine that feeds into a bank of capacitors that store the electrical energy that's generated to be used to feed the surge when you're feeding wood into the chipper. It is a much more efficient type of product that will do the same performance as its larger conventionally powered cousins.
In the bottom center is one of our electric Dixie Chopper zero-turn mowers. This is the future of our company. We've seen a bit of a step back at the moment, but I believe that's a temporary timeout. This technology is bound to come to the market, in my personal opinion. A little bit about our customer groups. Starting again from the upper left, the agricultural market represents about 15%-20% of our annual revenue. It varies by year. This is the original mother business of the company, most of it in mowers. Next to that is our governmental piece, which is 40%-50% of net sales on an annual basis, with the remaining 35%-40% being industrial contractors. It's a fairly diverse set of customers. The cycles are different. Governmentals tend to be sort of steady growth with GDP.
Industrial contractors tend to follow a general economy up and down. The ag sector has its own very unique cycles following commodity prices fundamentally. Within our two divisions, the industrial equipment division serves primarily state, county, and municipal governmental agencies, specialist environmental cleaning contractors and rental fleet operators, highway maintenance contractors, airport fixed base operators, as I've mentioned several times, and specialist snow removal contractors. On the vegetation management side, there are large national tree care contractors. Aspen Tree comes to mind, Lewis Tree, Davey Tree. These are names you probably know from driving around the freeways in this country. Specialist recycling contractors that are producing wood pellets for export to Europe, land clearing contractors, farmers, and state, county, and municipal government agencies who buy our products to mow along the highways and byways of this country. A little bit about our sales and earnings.
This is the history from 2022. You could see our revenue had peaked in 2023 at just under $1.7 billion. It stepped back a little bit in 2024 as interest rates rose and the vegetation management markets, in particular, slowed. At the same time, our industrial markets continued to accelerate in 2024. That is when our two divisions changed in size and scope a little bit. You can see that on the right-hand side. In the dark green is our industrial division, which was in 2022 about $600 million in sales, now approaching $850 million in 2024. Conversely, our vegetation management division, which had started the period at $937 million, went to $979 million, and then stepped all the way back to $785 million as a result of interest rate changes in the marketplace. Primarily, there were other factors, but that was the primary.
Here is a look at shareholder value over time. We have tended to outpace the small cap 600 fairly consistently, pacing reasonably well with the Standard and Poor's 500 industrials over time. You can see again the step back in 2023. I believe that will normalize now as we head into 2025. 2023 was a good year. We saw the step back in 2024 when vegetation management slowed down. In terms of our corporate targets, we target 5-10% organic revenue growth complemented by inorganic growth, operating margins of about 12%. Our long-term target is 15% and at least 14% return on invested capital. A few highlights now for the full year 2024. Net sales were $1.6 billion, a 3.6% decrease compared to the full year of 2023. Industrial equipment net sales were up 19%, and vegetation management division net sales declined 20%.
This is that dichotomy that I've referred to a couple of times already this morning. Our operating margin for the year was 10.1%, which softened by 160 basis points. Industrial equipment division expanded its margins, and vegetation management contracted alongside its market. Long-term strategic actions included the consolidation of forestry factories. We have two large forestry factories in the U.S., one in Worcester, Ohio, and the other in Winn, Michigan. We've consolidated all of that production to Winn, Michigan. We've since reconfigured that Worcester plant to produce snow removal equipment, which should pay dividends for us if these tariffs stay in place for a longer period of time. We hope they won't, but at least we can produce it on both sides of the U.S. and Canada border to minimize the tariff impact. We've also adjusted our workforce very significantly.
We reduced our workforce by about 14%, our global workforce by about 14% in 2023 and 2024. These are expected to drive annual savings of $25 million-$30 million. All of that work is done, and we've started to see some of those savings flow through already in the latter quarters of 2024, and we should see the full benefit starting from the end of the second quarter in 2025. That's kind of the way the business has developed. Our outlook for the coming year. Let's start with vegetation management. These markets, again, forestry and tree care, then down to sort of ag and then governmental mowing. Those are the major pieces of it. The governmental side of that has held up very well. In fact, it's running essentially flat out at the moment, booked for most of 2025 already. No concerns there. Very healthy backlog.
Tree care got hit very, very hard when interest rates rose, starting in about July of 2023, when there was a 75 basis point rise in the U.S. prime rate. That really took the wind out of the sales of that market. It is recovering. The channel inventory, which was very high at the time the market slowed, is now down and mostly normalized. We are in a much better position there. At the high end of the market on the forestry end of that, it is interest rate sensitive, and most of these machines are used for wood recycling, and the primary driver is the production of wood pellets that are exported to Europe. We have seen a positive improvement in all of those segments. The bookings have been increasing sequentially for the last several quarters, not by a lot.
What I would say is we're off the bottom and going in the right direction. I think we'll see a full recovery in those markets in the latter months of 2025. That's my expectation. That's it. That's the high-level summary of the company. These are the leaders of the company, and I'll stop there. Greg, I'll turn it back over to you now for the Q&A.
All right. Great. Thanks for that. We have a couple of questions from the audience, so we'll start with those. Can you speak to customer demand trends and the level of long-term visibility you have across your business segments?
Sure. That's a great question. Let's start with industrial. The industrial backlog is still quite high. As I said, several of our businesses are booked throughout 2025 already. We have great visibility there. The margins are holding up well. There are some risks to the business in the form of the tariffs because tariffs are going to make truck chassis go up in price by several thousand dollars starting in the summer of this year. What that will do to demand, I do not think any of us can reliably predict yet. Since a good portion of that is governmental and governmentals understand the impact of tariffs, I do not think the impact on industrial will be terribly significant. Very good visibility, very solid outlook for the remainder of 2025.
We expect that division to have another year of very nice organic growth in 2025 and continue to expand its margins along the way. In the vegetation management side, it's a little bit more murky. As I mentioned, the segments are performing differently within that division. The governmental mowing part of that, which is the smallest piece representing approximately $150 million in annual revenue, is very busy. The backlog is very strong and very high demand. No concerns there whatsoever. Next up would be the tree care piece of this where you're serving, as I said, the large tree care contractors, Davey Tree, Lewis Tree, Aspen, and so on. They've been cautious for the past six months or so, but are beginning to reinvest in fleet.
We've seen a nice uptick in orders in that space in the back end of the fourth quarter and in the early weeks of 2025. Finally, at the high end, the forestry equipment market, that one is also recovering at a slow pace. I think the visibility is decent. It's not as good as we'd like. We have roughly three to four months of sales in backlog at the moment. We are up off the bottom, and I see a slow but steady recovery in that part of our business throughout 2025, and notably, particularly in the latter two quarters of the year. I think forestry will recover a little bit faster than the ag business will, and I think and will be more of a fourth quarter event than a third. That's my current outlook.
Can you just give us maybe a little bit more color on the dynamics in the and market right now, where inventory stands and kind of how you feel about this stabilization maybe you're seeing there or not seeing there?
Sure, Greg. Happy to do that. Our company doesn't really have a channel inventory problem. We have the opposite. We have a shelf space problem with our dealerships. We go to market fundamentally through and dealers, John Deere's network and CNH's network, Kubota's network, and so on. The inventories rose very quickly when the market slowed down, as did ours. We've cleared most of our field inventory, and our own inventory out in the field is significantly lower now than it was even in 2019. We actually have the opposite problem. We are sort of inventory constricted at the moment. Our dealers simply just don't have room on the balance sheet to buy more equipment at the moment.
They don't have room on their floor plans because their principal OEMs, the John Deere's and CNH's and Kubota's of the world, still have significant amounts of inventory to push into the channel. That's the situation that we're facing. We've kept our own inventories a little bit elevated so we can meet those demands when they come. Our dealers are to some degree balance sheet in the short run. It is clearing, and I looked at the AEM tractor data for January and February just yesterday. In fact, the under 40 horsepower tractors, which were around 94,000 units in December 2019, are now circa roughly 70,000 units. It's a good sign. The market is definitely tightening up from an inventory point of view, Greg, and I think we'll start to see some of that flow through to our order bookings progressively throughout 2025.
Okay. Great. Maybe could you talk about maybe some of the restructuring initiatives you've taken on the vegetation management side of the business to kind of maintain the profitability there? I know with some of the factory consolidations, that is still in the process of being completed, and the benefits there haven't been kind of realized. Maybe you could just talk about what you've done so far and maybe what is finishing up and how that might impact the margins on that side of the business.
We acquired the forestry and tree care segment of our business under the name Morbark in October of 2019. It had been in private equity hands for a few years, and the private equity owner had acquired several complementary businesses. One was a business called Reko, which produces these tool carriers you saw in one of the slides I presented. They also produce stump grinders and chippers and so on. The third one is a Quebec-based company called Denis Cimaf, and they were operating out of two facilities in Roxton Falls, Quebec. We have now consolidated all of that business into our plant in Wynne, Michigan. We have gone from this sort of four-plant spread to one plant over the course of the last three years. Last year, we did the largest consolidation, which was the Reko production was moved from Ohio up into the Wynne, Michigan facility.
The good news about that is we've retooled that Ohio plant to produce snow removal products, so we don't have to import all of our snow removal products from Canada any longer, which gives us a bit of a hedge against the tariffs that are currently coming. That has been a bright spot for us. It was a very big consolidation. We were running a couple of million dollars every month, even through the pandemic and under absorption in that part of our business, Greg, and this should eliminate that permanently. That was the $25 million-$30 million of savings that Agnes and I signaled to the market. It hasn't quite all flowed through yet, but it'll be largely done by the end of the second quarter. We still have some further CapEx to make in our plant down in Selma, Alabama.
That was the second large consolidation. In the agricultural equipment space, our two large brands of mowers, we had a plant in Gibson City, Illinois, that produced our Rhino branded products, and a plant down in Selma, Alabama, that produced our Bush Hog branded products. We have consolidated all of that production to the Selma plant. We have had to invest in a little bit larger paint line and a few other things to accommodate that. It is ramping up now, and as Agnes and I have said previously, we will get the full benefit of that toward the end of the second quarter, but it is going very well. We are very pleased with the progress. Those are very, very big moves. Those consolidations are big moves that have taken large chunks of cost out of the business.
Finally, as we talked earlier, we've taken our corporate headcount globally down by about 14%. All of that was within our vegetation management division. That division takes close on a 30% reduction in its headcount over the last year or so. We've taken large chunks of cost down to the business. We have some further moves to make. We have some further consolidations, one in vegetation and one in industrial, to conduct this year that goes beyond the previously signaled savings of $25 million-$30 million annually.
Okay. Great. Maybe how might that, do you see that translating into margin improvements for the, maybe for the vegetation management business or the business as a whole? I think you're at 10.1% OM this past year. Do you think that you could widen that further this year, or is that going to be volume dependent?
I think it's to some degree volume dependent, Greg, but certainly we've got room to expand the margins further in industrial, and I expect that to happen. It won't be as dramatic as it was over the last two years, but there's further opportunity there. For vegetation management, eliminating so much of that under absorption is very significant to the business. I am hopeful that we can get vegetation management approaching double-digit operating margins again by the end of this year. Certainly by 2026, we want to be back in that 12% operating margin range that we were approaching in 2023. My expectation is we will get there and maybe a bit more.
All right. Great. There's a question here about M&A. Obviously, your balance sheet's in great shape. I know you did a you kind of expanded into a new market with the Royal Highway Safety kind of equipment acquisition. Maybe you could just talk about your outlook on M&A, what the market looks like, what you're seeing in terms of valuations, and maybe if there's any would you be more focused on maybe gaining scale in existing markets or expanding into new verticals?
Let's take the last part of your question first, Greg. We're primarily focused on expanding within the verticals we're in. We took a new vertical on with forestry and tree care in 2019. We don't feel an urgent need to add another vertical to the company at this point. We are seeing the most active M&A market I've seen probably since 2016 or 2017, something like that. Lots of opportunities coming, most of them in our industrial space, but a few, particularly in Europe in the vegetation management space. We are encouraged about that. I think that it's a tale of two sort of markets when you think about valuations. In the sort of tuck-in acquisitions, which we've made a diet of over the years, done very well at, those multiples are still sort of in mid to upper single digits.
You can still find acquisitions in the six to seven multiple range there. We expect that we'll be able to complete a couple of deals like that in the next year or so. Then you have larger deals that have been in the hands of private equity owners that were already leveraged who are trying to get out from under them at the moment. There, the multiples are higher. You're still seeing multiples of 10, 11 plus. I think the most recent benchmark was the acquisition of the Heil Environmental business by Terex, which was at a very high multiple from a gross point of view. Not so bad on an after-tax basis for Terex, though. I think they structured the deal well, and I think that'll be a good transaction for them over time. Very mixed.
The private equity owners are still trying to drive high valuations. It remains to be seen how many of those they'll actually realize. The pipeline is quite full, both in North America and in Europe, and we're very excited about that right now.
There's a question here around consensus estimates, I guess. The question is that it doesn't look like consensus estimates are factoring in the $50 million of cost savings that you've discussed. Maybe, are there offsetting kind of investments back into the business? Can you maybe help clarify that?
Yeah. Agnes, look like you wanted to say something. Did you want to jump in?
Yeah. We have announced $25 million-$30 million on a 12-month basis, annual basis. Those savings began already in third quarter of 2024 and will continue into 2025. It is not $50 million, respectfully correcting here, about $25 million-$30 million. There are always year-on-year increases, whether it is wage or merit increase or things like that. The savings that we have generated will produce, as Jeff was discussing earlier, an improvement in operating margin in vegetation division and for Alamo Group as a total as well.
Okay.
Greg, a couple of color comments for me just to add to that very quickly. We are making a very significant capital investment in a vacuum truck facility in France at the moment. It is an older facility that operates through several buildings on the campus. We are now rebuilding that in the model of our US plant in Mukwonago, Wisconsin, a single building, highly automated, efficient plant. That is a bit of an offset there. I think what you are seeing from the analyst side is still concern about the ag market and whether ag is truly at the bottom or not. Again, as I said earlier, I think the ag market as a whole may not be off the bottom, but ours certainly is because we are low-ticket items. Our channel inventory is very, very low, so there is no elasticity left there.
I think that's what you're seeing coming through from the consensus from my point of view.
All right. Great. Thanks. Maybe on the infrastructure side of the business, a lot of public funding sources supporting that business. You could talk about the cyclicality of that business, maybe the economic stability. There might be more stability in that business in an economic downturn than maybe is appreciated. Could you just talk about maybe the dynamics there and what's driving growth?
Yeah. That's a really good topic, Greg. Thanks for bringing it up. Yeah. If you look at the governmental piece of our business, the first thing that I would say about it is we don't receive a lot of largess from federal spending. The Infrastructure and Jobs Act, I've been asked repeatedly for months and months and months, isn't that going to drive your business? It's a very, very minor tailwind because most of our products are used for maintenance of infrastructure, not construction of infrastructure. That's the first point I wanted to make. Secondly, virtually all of our business is with state, county, and municipal buyers. We don't do much transaction at all with the federal government. In fact, to my knowledge, almost zero today with the feds directly. If you think about where do states get their revenue from?
The states get their revenue from income taxes, state income taxes. What can cause that to cycle down? A general recession would drive that down. When lots of people are losing jobs and wages fall, that can cause it to cycle down. There does not seem to be a terribly high probability of that at the moment, but certainly that is always a risk. On the municipal side, they get most of their revenue streams from property taxes. It is related to the housing market. Although housing is not in a great place in terms of new construction right now, as I commented on our vegetation management side, property values have held up very well. Property tax revenues are at a very healthy point for the municipalities. The final point, if you think about it, what happens when a general recession comes?
Governmental spend money at all levels. All levels of government spend money in a recession to try to hold up jobs. We tend to be countercyclical in that case. The governmental piece of our business tends to be very durable in a general recession. We have tended to be a safe harbor stock in troubled times. I think we're seeing a little bit of that right now, in fact, for what that's worth. That part of our business is very durable in troubled times.
All right. No, that sounds good. I think we're kind of close to the end of our allotted time here for the presentation. I mean, I'll leave it to you for maybe some final thoughts or comments, and then we could wrap it up.
Yeah. Okay. Thanks, Greg. Takeaways. Industrial business is running well. We'll continue to run well through 2025, at least, probably longer than that. Waters are still flowing in. The run rate looks good, so a very positive outlook. Vegetation was very challenged in the back half of 2024, but slowly rising off the bottom. I think we'll see that continue to accelerate and improve throughout 2025, notably in Q3 and Q4, with a little bit different timing. Forestry probably more toward the back half of Q3 and ag in Q4, and a very active M&A market with a sparkling balance sheet. Those are the high-level takeaways I would share with the investors on the call.
All right. Great. Thanks. Thanks very much, Jeff, Ed, and Agnes for presenting here. Thanks to everyone else for listening in. With that, we'll wrap it up.
Thank you, Greg. Appreciate it very much. Thank you.
Thanks, everybody.