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Alamo Group Inc  (NYSE:ALG)
Q1 2019 Earnings Call
May. 02, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Alamo Group First Quarter 2019 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday, May 2, 2019. I will now turn the conference over to Mr. Ed Rizzuti, VP, General Counsel and Secretary of Alamo Group. Sir, please go ahead.

Edward T. Rizzuti -- Vice President, General Counsel and Secretary

Thank you. By now, you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one, please contact us at 212-827-3773, and we will send you a release and make sure you are on the Company's distribution list. There will be a replay of the call, which will begin one hour after the call and run for one week. The replay can be accessed by dialing 1-888-203-1112, with the passcode 7689407. Additionally, the call is being webcast on the Company's website at www.alamo-group.com, and a replay will be available for 60 days.

On the line with me today are Ron Robinson, President and Chief Executive Officer; Dan Malone, Executive Vice President and Chief Financial Officer; and Richard Wehrle, Vice President, Treasurer and Corporate Controller. Management will make some opening remarks and then we'll open up the line for your questions.

During the call today, management may reference certain non-GAAP numbers in their remarks. Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachments to your earnings release.

Before turning the call over to Ron, I'd like to make a few comments about forward-looking statements. We will be making forward-looking statements today that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve known and unknown risks and uncertainties, which may cause the Company's actual results in future periods to differ materially from forecasted results. Among those factors which could cause actual results to differ materially are the following market demand, competition, weather, seasonality, currency-related issues, geopolitical issues and other risk factors listed from time to time in the Company's SEC reports. The Company does not undertake any obligation to update the information contained herein, which speaks only as of this date.

I would now like to introduce Ron. Ron, please go ahead.

Ronald A. Robinson -- Chief Executive Officer and President and Director

Thank you. And we want to thank all of you for joining us today. Dan Malone, our CFO, will begin our call with the review of our financial results for the first quarter. I will then provide a few comments -- few more comments on the results and the following that we'll look forward to taking your questions. So, Dan, please go ahead.

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Thank you, Ron. Record first quarter 2019 sales of $261.9 million beat the prior year quarter by 10%. Organic sales growth was 8.4% without the impact of the Dutch Power acquisition, which we completed in March. Industrial Division first quarter 2019 sales of $158.4 million represented a nearly 20% increase over the prior-year quarter. All product groups contributed to this division's continued strong organic sales growth. Agricultural Division for the first quarter of -- 2019 sales were $53.2 million, down 9.3% from the prior-year quarter. High crop yields and US trade disputes continue to negatively affect crop prices, farm income and demand for new equipment. We estimate retail sales of rotary cutters, the primary product in this division, are down 5% to 10% industry wide compared to the prior-year quarter. Recent adverse weather conditions have also reduced equipment usage, negatively affecting agricultural part sales. Furthermore, this division sales were affected by the installation of a paint system upgrade, which shut down production in its largest manufacturing facility for several days in January.

European Division first quarter 2019 sales were $50.3 million, up 6.5% over the prior-year quarter, but down 1.2% without the effect of the Dutch Power acquisition. Excluding an unfavorable currency translation effect of $3.5 million, this division's local currency organic sales growth was 6.3% above the prior-year quarter.

First quarter 2019 gross margin of $63.3 million grew 5% over the prior-year first quarter. Our first quarter gross margin was 24.2% of sales, which compares to 25.3% of sales for the prior-year quarter. The compression of percentage gross margin was due to several factors. First, the carryover impact of material cost increases had yet to be fully offset by mitigating pricing actions. By the end of the quarter, we began to see this effect easing due to reduced steel costs and a lower mix of free-price increased shipments. Percentage gross margins were also affected by an unfavorable mix of high-margin aftermarket parts sales to total sales. While parts sales grew 3.9% over prior year, they totaled 18.4% of first quarter 2019 sales compared to 19.5% in the prior-year quarter, with the difference mainly due to higher growth of Industrial Division whole goods sales year-over-year.

First quarter 2019 operating income of $22.6 million was 5.8% percent higher than the prior-year quarter, primarily due to Industrial Division organic sales growth and partially offset by the factors constraining gross margins already discussed. First quarter 2019 operating income was 8.6% of sales compared to 9% of sales for the prior year quarter.

Net income for the first quarter was at a record $15.3 million or $1.30 per diluted share compared to prior-year quarter net income of $14.6 million or $1.24 per diluted share. Record first quarter 2019 EBITDA was $28.9 million, which was up 7.7% over the prior-year quarter. Trailing 12-month EBITDA of $126.5 million was up 13.3% over the prior-year trailing 12-month result.

Net cash used by operating activities in the first quarter of 2019 totaled $32.4 million, which compares to $28.1 million net cash used in the prior-year quarter. The year-to-year difference of $4.3 million was mostly due to the EBITDA growth being more than offset by higher receivables and inventories. While most of this working capital investment is driven higher -- by higher whole goods demand in the Industrial Division, slowing agricultural equipment retail sales also had a negative impact. This is because first quarter retail sale usually generates a replacement order and the related receivable from the dealer becomes immediately due and payable prior to its invoice term.

Also impacting operating cash flow was continued growth and demand for vacuum trucks. This resulted in a $7.5 million increase in our rental fleet investment compared to a $5.7 million increase in the prior-year quarter. Investing cash flows were primarily the use of $50.5 million to fund the Dutch power acquisition.

Capital spending for the first quarter 2019 was $5.3 million compared to $7.6 million for the prior-year quarter. This difference is primarily due to the timing of projects as we expect capital spending for the year to be above prior-year levels. Due to the Dutch Power acquisition and to a lesser extent high levels of investment and working capital, rental fleet and capital assets, debt net of cash increased $69.9 million over the prior-year first quarter.

Our order backlog remains at a very healthy level ending the first quarter at $258 million, including the Dutch Power acquisition, which is about 8.4% higher than the prior-year first quarter. Without the acquisition, backlog increased 2.6% year-over-year.

In summary, our first quarter 2019 results were highlighted by record first quarter sales up 10%, record first quarter net income up almost 5%, record first quarter EBITDA of nearly $29 million, completion of the Dutch Power acquisition, and a strong quarter-end backlog of $258 million.

I'd now like to turn the call back over to Ron.

Ronald A. Robinson -- Chief Executive Officer and President and Director

Okay. Thank you, Dan. We're pleased to once again start off another fiscal year in a positive fashion with record sales and earnings. As usual, there were some pluses and minuses in the quarter, and certainly, our Industrial Division was one of the big pluses as they had another strong quarter with good sales in earnings growth and we believe they are poised due to their backlog and the market outlook to continue to move forward in 2019 at a very healthy pace.

On the other hand our Ag Division had a weaker start to the year and we were constrained by the continuing soft agricultural market conditions, which was further limited in the first quarter by some adverse weather conditions and we were also a little disappointed by our margins, which were a little weaker than they should have been. There were several factors contributing to this including a little higher level of shipments, particularly at the start of the year in January that were booked prior to price increases we had implemented late last year in response to input cost inflation in the second half of 2018. So, we also have the cost and associated disruption in January due to a major system upgrade at our biggest agricultural plant. Both of these situations are now behind us and while the soft agricultural market and lower farm incomes are continuing to constrain sales, we feel our margins should -- started to improve in the second half of the first quarter and should continue to improve as we move forward.

So despite some of the pressure in the first quarter, we feel that the pace of input cost increases have actually softened somewhat compared to last year and in some areas such as steel have actually come down a little not only in Ag but across all of our business areas.

Our European operations actually did well, particularly given the somewhat overall softer economic conditions in continental Europe, but due to currency changes in the first quarter of 2019 compared to the previous year, what was increased sales before acquisitions in local currency ended up as a decrease when translated to US dollars, as Dan pointed out. And while we cannot control exchange rates, we actually feel the outlook for our European operations remains positive on a local basis and this will certainly be helped by the acquisition in March of Dutch Power Company. The Dutch Power is a very nice fit with our overall strategy. They provide some very nice complementary products to add to our existing range and they're just a good well-run company and good addition; we're glad to have as part of Alamo Group.

We're also pleased and I know commented in the last couple of years about we're looking at a lot of acquisition opportunities, but valuations have been a bit of a challenge. We're pleased that this year already we're looking at -- we've not completed one, we're looking at others, the pipeline remains very buoyant and I think valuations are a little bit more in actionable ranges for us. So acquisition activity is not the only things that we're actively keeping busy, we actually have a lot of initiatives we're pursuing right now. This includes a higher level of capital spending aimed at improving our manufacturing technology and making us more efficient. Some of this we've even discussed previously, like the new plant we're building in Wisconsin, which will allow us to combine the three super products vacuum truck facilities in that area into one much more efficient plant. And -- but there's a lot of other initiatives on technology. They're not as big, but they should individually provide very nice returns on the incremental investments we're making in that area.

We're also very pleased that our ongoing development efforts are resulting in a steady stream of new and innovative products that we can add to our range. So very recent examples of that are our McConnel robo cut motors in Europe and our Alamo Industrial Mantis power units that has recently been introduced to the markets here in North America. So we continue to believe that product development will be a big driver of our ongoing organic growth.

We also have some other internal developments, which I think will benefit our Company moving forward that I think are worth commenting on. The first is that, I know in December, we announced that we were going to implement a share repurchase program aimed at sort of limiting any creep in our stock and, let's say, we've already begun to implement that program and that is under way. And the second, we just announced in this -- in yesterday's press release that there is going to be a change in our reporting that we will implement later this year. For years, we have been reporting partly according to product lines and partly by geography, whereas this will change and we'll put all of our reporting along product lines, which we will believe will make us a little more transparent, as well as help us operate more efficiently internally because putting all product groups together, so we'll change from going from three reporting divisions to two, just the Industrial and Ag since our European Division has always been a mix of the same two divisions.

So as you can see, we have a lot going on at Alamo Group. And while there are certainly some challenges along the way, we feel the stability and strength of our markets in general and our ongoing improvement initiatives combined with some acquisitions and new product introductions will continue to lead us very positively throughout this current 2019. And as usual, we thank you for your support in this journey.

And with that, I would like to open the floor to any questions you might have.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question will come from Joe Mondillo with Sidoti & Company.

Joe Mondillo -- Sidoti & Company -- Analyst

Hi, guys. Good morning.

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Good morning, Joe.

Ronald A. Robinson -- Chief Executive Officer and President and Director

Good morning, Joe.

Joe Mondillo -- Sidoti & Company -- Analyst

Wanted to ask on the Agriculture sector, so I wondering -- you talked about how, I think at least in the press release, if not also in your commentary there, related to weather and that being a factor in addition to obviously we've heard from other companies that the sector overall is still weak here. Just wondering sort of especially with the weather comments, how you're thinking about growth as we progress through the year relative to the 6% ex currency that we saw in the first quarter.

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Yes. I mean, it's really sort of hard to say. I mean, certainly, I think weather may affected some spare parts sales a little because the farmers were a little slower getting into the fields. But I mean, I think once they get in there, the activity will pick up. But certainly farm incomes are down and we feel that, I mean, I say, it's -- we're seeing that equipment purchases in total had been off. I think weather, I mean, there is still some rain in the Midwest and I mean, but that's fairly localized. I mean, I think on a broad basis, I think weather will get better, like say the winter was a little later, so it caused some delays. I don't see it causing any major disruptions long term, I mean, like to the whole year, just some delays, but I think it's just the ag conditions themselves. There is a little too much green in storage and so I mean, they need to get crop prices up before I think we're going to see equipment sales start to rebound.

Joe Mondillo -- Sidoti & Company -- Analyst

Okay. And then on the margin side, first off, could you quantify how much costs were related to the system upgrade?

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Like say, I know exactly what the system upgrade cost, but it was the disruptions in other areas that -- and I don't think we handled it as well as we should to be honest, but I can't give you a number for that. So I really ...

Ronald A. Robinson -- Chief Executive Officer and President and Director

The actual system upgrade was only (inaudible) was a couple hundred thousand dollars, but there was really more of the days we were not producing product that was the main cost. Joe, it lasted a little more than a week and it just kind of shut us down for a little bit because you can't obviously run your lean process until you get ready so.

Joe Mondillo -- Sidoti & Company -- Analyst

Okay. So that as well as the adverse sort of price cost situation, which I assume improves maybe even starting in the second quarter. That must've cost over $1 million dollars at least would you say?

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Correct. Yes, all that cost over $1 million, yes.

Ronald A. Robinson -- Chief Executive Officer and President and Director

Yes.

Joe Mondillo -- Sidoti & Company -- Analyst

Okay. And in terms of the price cost, I guess, overall, but you certainly sort of highlighted it more at the Ag segment, that starts to improve in second quarter considering the price increases that you have put in place?

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Yes, absolutely. I mean, because the Ag sector is one of the sectors where we sort of do out-of-season, pre-season sales for dealer stocking orders and so we had, I mean, some backlog at the end of the year that was prior to our latest price increases. So we -- yes, but most of that is behind us. Most of that backlog is now shipped that was at the lower margins and I think most of what we're shipping going forward is all at higher margins plus in the second and third quarters our aftermarket parts are a higher percentage of our agricultural sales. While -- because those are the active quarters for farm activity. That's when they're, like say, the first and fourth quarters is more -- is higher percent of equipment sales versus second thirds are -- the percent of part sales goes up.

Ronald A. Robinson -- Chief Executive Officer and President and Director

We know that some of our material costs are coming down because we had negotiated based upon orders placed back in the fourth quarter. And so the lead -- with the lead times of those particular products, we know that those are going to be coming as well.

Joe Mondillo -- Sidoti & Company -- Analyst

Okay, great. And then at the Industrial segment, very strong quarter on the top line, part of that I assume was a little bit of that was due to the favorable comp and the fact that you did have some production disruptions in the first quarter last year with that strike at the one facility of yours. Could you sort of give us an idea, if you can at all, how much of that was related to sort of that comp and what is sort of normalized growth? I mean, 20% is not sort of normalized, I assume, you would agree. Any way of sort of defining what sort of a normal growth was?

Ronald A. Robinson -- Chief Executive Officer and President and Director

Actually, 0.5% (ph) percentage of that growth was normalized in this case just because the backlog went up. I mean, we actually had very good bookings in the quarter, we were helped by some new product introductions. But, yes, no, actually, it was the comp affect was actually fairly minimal.

Joe Mondillo -- Sidoti & Company -- Analyst

Okay.

Ronald A. Robinson -- Chief Executive Officer and President and Director

It only affected the Gradall plant. I mean, real battle zone one more we had -- but -- and I mean, some things like, I know even last year, we were saying like our snow group was off a little, This year, I mean, I'd like say, the late winter and heavy snow throughout this year certainly maybe caused farmers to be late, but it made our snow division actually have a pretty good year; finished last year very strong and start this year very good. So snow was up and that had nothing to do with sort of the great all strike last year. So I mean, actually, like I said, these comps were a little off than last year, but this year like they were just solid performance across all products within the division.

Dan E. Malone -- Executive Vice President and Chief Financial Officer

I think, last year we said it was only about $5 million impact on the top line...

Ronald A. Robinson -- Chief Executive Officer and President and Director

From a sales standpoint, yes.

Joe Mondillo -- Sidoti & Company -- Analyst

Okay.

Dan E. Malone -- Executive Vice President and Chief Financial Officer

For the strike.

Ronald A. Robinson -- Chief Executive Officer and President and Director

Just related to the strike, Joe.

Joe Mondillo -- Sidoti & Company -- Analyst

Right. Okay. Just lastly and I'll hop back in queue. I'm just curious regarding the new segment reporting. Is there any more color or how significant is this I guess in terms of productivity and cost improvements or what not? Could you speak to that or any more color regarding that, how significant it is the kind of...

Dan E. Malone -- Executive Vice President and Chief Financial Officer

I think, in the short term, there won't be a lot. I think it'll make us more efficient internally as we're having like units -- same kind of products in Europe and the US start working together better and make that a little bit more efficient and make the flow of information between the units go a little bit better. I don't think this is a major change but this we actually truly are changing the way we operate the business internally. I mean, you're doing a reorganization and so we have to tell everybody that we're doing it and it's not a big deal. But I think it's the right deal and just be a pretty small incremental effect, but it'll help us be more efficient moving forward.

Joe Mondillo -- Sidoti & Company -- Analyst

Okay. Great. Thanks a lot. Appreciate it.

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Thanks, Joe.

Ronald A. Robinson -- Chief Executive Officer and President and Director

Thanks.

Operator

All right. Thank you. (Operator Instructions) And our next question comes from DeForest Hinman with Walthausen & Co.

DeForest Hinman -- Walthausen & Co -- Analyst

Hi. Thanks for taking the questions. Just little more thinking about backlog, while materials have been moving around, can you help us understand if the implied margin in the backlog is higher or lower versus what we've been doing maybe over the last quarter or last couple of quarters?

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Yes. I think, like I said, we have most of the -- they had a little low margin product in Ag in the backlog. We actually still have a little low margin product in Europe in our Rivard unit in backlog, which is probably going to take another couple quarters. In fact, that -- I mean, we had some big bookings early last year. We've had cost increases that have impacted those and some of those orders are being fully shipped in the second and the third quarter of this year -- well, I mean, are going to being shipped for the last two quarters and the next two quarters. So that's a little bit, but I would say in general those -- our backlog is at higher margin than it was it revealed in the first quarter. We definitely had, like say, it had some residual Ag products, so I think, I mean, in total, our margin and our backlog will be better in the second and third quarters and combined with the fact that costs aren't going up quite as much, steel prices are actually coming down and the fact that, like say, we did some price -- last year was an odd year, usually, we do one price increase a year, we did actually two last year and already one this year, so I think the margin and backlog were in better shape than we were say three four months ago.

DeForest Hinman -- Walthausen & Co -- Analyst

Okay. That's very helpful.

Dan E. Malone -- Executive Vice President and Chief Financial Officer

And heavily focused on the Ag, because, I mean, the industrial stuff usually is more build to order and we don't not have big lump borders like we do in Ag or like we did this one in Europe in Rivard, so I mean that kind of stuff where we respond quicker on pricing -- on cost changes and the majority of the backlog is in the Industrial Division.

DeForest Hinman -- Walthausen & Co -- Analyst

Okay. Very helpful on the inventories, they were touched on in their press release. It sounds like to some extent there's inventory build and the queue, it's kind of across the board, raw materials, finished goods and Dutch Power project (ph) added some -- is going to add some inventory or did add inventory in the quarter. Can you help us understand how that moves over the course of the year or do we have any internal target that you're willing to share in terms of where we think that inventory needs to go either in terms of absolute dollar basis or inventory turn metric?

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Certainly, last year, (inaudible) prices were going up but lead times were going up, and so, I mean, I think we found ourselves ordering sort of in advance and so we end up with a little too much and I think we didn't plan our inventory as well. So that's why -- and then when Ag sales fell off a little this quarter, I mean, we actually had inventory in the backlog to meet demand that didn't fully develop. So we ended up with a little more there. I think we just didn't manage that as well as we should have. But I mean, we don't -- I mean, to give out, we have individual targets for units that we need to get back in line. I mean, just sort of gross numbers. I think in the next quarter or two, we need to reduce at least $20 million out of inventory on adjusted for whatever sales increase there are, but just on today's basis that I say, I expect to get at least $20 million out in the next quarter or two.

DeForest Hinman -- Walthausen & Co -- Analyst

Okay. That's helpful. And then we've closed the Dutch Power deal. Can you give us an update on the deal pipeline and maybe help us understand some of the multiples that you're seeing?

Dan E. Malone -- Executive Vice President and Chief Financial Officer

The deal pipeline is actually staying pretty active. We're seeing lots of stuff, I mean, half of what we're interested in, I mean, those doesn't really fit us in our strategy. But even the things we're -- we'd like. I mean, we're actually (inaudible) from our side is spending a lot more time on just analyzing and looking at the deals right now than we typically do. And that's why I said, I mean, which comes down to a case by case basis, but I think in general, we're seeing that valuations have softened a little bit and so, yes, I mean, they are -- we're not -- like these double-digit multiples, but I'm seeing those the last several deals I have actually seen since the first of the year have been certainly below that. And I think that bodes well for us, come down to a case by case basis. But at least, we're getting more to look at, and I think we've done one and I think we're seeing other a couple of things that we're interested in that are probably actionable.

Valuations are actionable. That will allow us, I mean, our goals it's not as much what the multiple is and what we think within a couple of years, we can have it, that it needs to be we making the same kind of returns as our organic -- as our internal businesses are already. So that's sort of where our target is and so we analyze each case of what we can do between synergies and growth opportunities. What would -- can we get it to where it's making the same kind of returns that are the existing businesses already are within a reasonably short period of time. Because I mean, since we're sort of mature products, mature markets, I mean, this isn't some 10-year strategy, if we can't get there in the next year or two, I think you would be disappointed. So that's how we try to evaluate things and come up with multiples. But we're seeing more that are coming in, that are available and sort of within the ranges that we think we can achieve that.

DeForest Hinman -- Walthausen & Co -- Analyst

Okay. That's very helpful color. Can you update us on what type of debt to EBITDA leverage you're comfortable with at this time when it comes to doing a deal?

Dan E. Malone -- Executive Vice President and Chief Financial Officer

We're fairly conservative. Certainly, I mean, all of our borrowing is sort of unsecured and very low covenant -- covenant-light and usually 3 times, 3.5 times leverage multiples. We can maintain that. I mean, if you go above that I think you had a little more restrictions and all like this, but even within that, we can do $300 million or $400 million worth of -- that kind of -- with our EBITDA and the EBITDA what the acquisition target brings like I said $300 million or $400 million, I'd be glad, I'd love to find something at that range that we could buy. And we probably even be willing to do more than that. But if we did more than that, we'd probably want to do more of a combination of debt and equity rather than and all that, just because again we're fairly conservative thinking and we want to have (inaudible) just because we do an acquisition that mean we're out of the acquisition market for a while. We want to continue to be active in there. So like I said even with conservative leverage 3 times, 3.5 times that gives us more than enough capacity to do anything we're looking at right now.

DeForest Hinman -- Walthausen & Co -- Analyst

Thank you. Once again helpful color. And then just update us on the outlook for share repurchases given the authorization, indeed how you balance potential share repurchases with potential deals?

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Well, I think the share repurchases are fairly, like I said, we're not trying to do a big share repurchase, we're just trying to avoid the steady creep in our stock due to other things like stock options. So we're not doing a lot and I don't see that being affected since the amount we're doing, I mean, the total amount we said we'd buy was over a multi-year period. So in any one year, we're not doing a lot and I don't see that going to be -- that would be affected by acquisitions or any other thing. I mean, if we still raise our dividend even with the stock repurchase, I don't see that being affected by anything else we're doing; like I said, we're very conservatively financed -- conservative financial structure and like I said, nothing we're going to that going to either way would inhibit us from doing that program.

DeForest Hinman -- Walthausen & Co -- Analyst

Okay. Thank you. That's all my questions.

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Thank you very much.

Ronald A. Robinson -- Chief Executive Officer and President and Director

Thank you, DeForest.

Operator

All right. Thank you. (Operator Instructions) And our next question will come from Joe Mondillo with Sidoti & Company.

Joe Mondillo -- Sidoti & Company -- Analyst

Hi, guys. Just a couple of follow-up questions. I was wondering what the backlog looks like organically, so excluding Dutch Power, percentage wise?

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Yes. I think I said that 2.6% year-over-year.

Ronald A. Robinson -- Chief Executive Officer and President and Director

Yes, organically, the backlog was up another 2.6% with Dutch Power, it was up by 8.4%.

Joe Mondillo -- Sidoti & Company -- Analyst

Okay. And where -- could you just walk us through maybe some of the strengths and weaknesses within the backlog because that does sort of project the slowing from -- I think, it was up 10% at the end of the fourth quarter?

Dan E. Malone -- Executive Vice President and Chief Financial Officer

You know, the slowing parts, Industrial was up, Ag was down a little bit, actually Europe without Dutch Power was off little. But, I mean, I know in Europe, we worked against some very strong comparables last year. So I mean, backlog is important but as we said in some ways we don't want it to get too big because if it gets too far out, we like to keep our deliveries fairly reasonable. So I would say, yes, I like a little more backlog now in Ag; Industrial is at a more than healthy level and I think Europe is at a reasonable level for being able to maintain good lead times.

So, like I said, I think -- and as I said, last year's first quarter was a little bit off in the sales, it was actually very strong in bookings. So I think backlog to me is at a healthy level other than, like I said, a little bit more in Ag.

Joe Mondillo -- Sidoti & Company -- Analyst

Great. And backlog is only about a quarter's worth the revenue, right. So it's not -- you get a lot of bookings in the quarter and...

Ronald A. Robinson -- Chief Executive Officer and President and Director

And it's a little bit more than that because you remember our 20% of our sales are aftermarket parts and those don't really flow through the backlog number.

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Yes.

Joe Mondillo -- Sidoti & Company -- Analyst

Right. Okay. Good point. Okay. All right. And then at the European segment, I was surprised to see certainly beat my expectations on the growth excluding currency. I know, you had some supplier constraint issues at the end of last year and some issues over there. Was part of the growth, some timing that because of supplier constraints and any other issues that you were seeing over in that French operations or even in the UK too maybe. Was that things were just a timing issue and just pushed in the first quarter and then going forward, not to expect that kind of growth going forward, can you just talk about how -- why that was so strong?

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Well, no, I mean, the issues were worst in the third quarter and like I said, I think we had solved most of those by the fourth quarter. I like said, in France, we still got a little bit of low margin backlog in one of our units. But, yes, I think, I mean we've been helped in Europe by some new product introductions. I mentioned the robo cut at our McConnel unit in England. And so I think UK group actually has done quite nicely. I think there was a little bit of slowing I think in the overall European economy, more on the continent. I think, UK, we still got this Brexit overhang and I think part of that -- actually, the orders have been coming pretty smoothly even with Brexit but they're not coming in advance. I mean, people are -- they are ordering kind of day to day stuff pretty regularly, but they're not doing some of the big pre-season order likes maybe they've done in years past because they don't want to order and some of that's is going to be delivered next month, they don't want to order some that's going to be delivered six months, when they don't know what the tariff rate between England and France are going to be and this type of stuff.

So that's still a bit of an overhang and I'm kind of disappointed, they just keep kicking the can down the road. I think I had this big deadline end of March and one in the middle of April and now it's -- one October, but I'm kind of losing track of these important deadlines, but -- so, all in all, like I said, I think our UK group is certainly doing better, but our French group is actually like say is actually up a little too even though they got a little bit low margin backlog and I think we're really pleased the Dutch Power, like I said, we've been kind of disappointed with the lack of acquisition activity in Europe last couple of years, but this is a good one that really fits nicely with us. And I think we'll be able to do somewhat throughout some of the rest of our distribution. So, yes, actually Europe is holding up reasonably well for us and, like say, it would be a little bit more evident if it wasn't for currency.

Joe Mondillo -- Sidoti & Company -- Analyst

Right. Two more questions. On the -- I was just wondering what your sort of outlook related to investing in the rental fleet and could you talk about sort of utilization rates and sort of demand that you're seeing overall there?

Ronald A. Robinson -- Chief Executive Officer and President and Director

Yes. I mean, our demand and utilization rates are holding up at or above our expectations at our units. Like, we got two new, (inaudible) weakest are the two newest because we're still just building up the fleet there. We added two branches there last year and due to constraints on production, we actually had not fully staffed those from a product point of view and so, like say, we do have some internally pent up demand to get our equipment that all of our units especially the two newer ones. So that continuing to drive that. And utilization rates are holding up at or above our expectations and we'll probably open another branch as well this year as we continue -- which, like say, we'll consume product just setting up another branch too. So that seems to be progressing at a healthy pace and, Joe, we're -- also we expect to be higher than we are at the end of the Q1. Our expectations were at $49 million; we want to grow more than that --in the equipment and the rental fleet, right.

Joe Mondillo -- Sidoti & Company -- Analyst

All right. Well, that actually does it for me.

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Okay. Thanks Joe.

Joe Mondillo -- Sidoti & Company -- Analyst

Thanks.

Operator

All right, thank you. And at this time, there are no further questions in the queue. So I would like to turn the conference back over to management for closing remarks.

Dan E. Malone -- Executive Vice President and Chief Financial Officer

All right. Well, again, thank you all very much for joining us today. Glad to be off to a decent start for 2019. As always a few challenges, but I think we feel good about the outlook for the Company. And again thank you for joining us and we look forward to speaking with you on our second quarter conference call in August. Have a good day. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's teleconference. And you may now disconnect. Please enjoy the rest of your day.

Duration: 45 minutes

Call participants:

Edward T. Rizzuti -- Vice President, General Counsel and Secretary

Ronald A. Robinson -- Chief Executive Officer and President and Director

Dan E. Malone -- Executive Vice President and Chief Financial Officer

Joe Mondillo -- Sidoti & Company -- Analyst

DeForest Hinman -- Walthausen & Co -- Analyst

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