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Alamo Group Inc (ALG) Q1 2021 Earnings Call Transcript

By Motley Fool Transcribers - May 7, 2021 at 7:00PM

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ALG earnings call for the period ending March 31, 2021.

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Alamo Group Inc (ALG 1.72%)
Q1 2021 Earnings Call
May 7, 2021, 9:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Alamo Group First Quarter 2021 Conference Call. [Operator Instructions]

At this time, I'd like to turn the conference over to Edward Rizzuti, Vice President, General Counsel and Secretary. 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) 827-3746, and we'll 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 one (888) 203-1112 with the passcode 1046379. 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; Jeff Leonard, Executive Vice President; Dan Malone, Executive Vice President, 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 our 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; COVID-19 impacts, including operational and supply chain disruptions; 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, Director

Thanks, Ed, and we want to thank all of you for joining us today. Dan Malone, our CFO, will begin our call with a review of our financial results for the first quarter of 2021, and I will then provide a few more comments on the results. Following -- and following our formal remarks, we look forward to taking your questions.

So Dan, please go ahead.

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

Thank you, Ron. The key takeaways from our first quarter 2021 results are. Record first quarter net income and earnings per share up over 12% from the prior first quarter on a GAAP basis and up nearly 3% on an adjusted basis. First quarter sales down 1% from the prior year first quarter. First quarter operating income essentially flat to the adjusted prior year result. First quarter and trailing 12-month EBITDA also flat to the comparable adjusted prior period performance. First quarter cash flows reflected working capital needs driven by high order backlog and a record order backlog of $453 million, up 95% over the prior year quarter and up nearly 28% since year-end 2020. First quarter 2021 net sales of $311.2 million were 1% lower than the prior year first quarter. While we continue to see a strong rise in order rates and backlog, the COVID-19 pandemic continued to negatively impact our manufacturing efficiencies and inbound supply chain during the quarter, delaying some shipments. Industrial division first quarter 2021 net sales of $211.9 million represented a 7.9% decrease from the prior year first quarter due to pandemic-related impact on customer demand and disruptions to our supply chain and operations. Agricultural division first quarter 2021 sales were $99.3 million up 17.5% from the prior year first quarter. During the quarter, we continued to see strong organic sales growth across this division. The immediate top line benefit of the surge in customer demand was somewhat constrained by the negative impact of the pandemic on inbound supply chain and manufacturing efficiencies, as previously mentioned. Net income for the first quarter 2021 was $17.5 million or $1.47 per diluted share, up over 12% from the prior year first quarter. Excluding the Morbark inventory step-up expense from the prior year result, first quarter net income was up 2.9% over the adjusted prior year result.

Lower interest expense, favorable income tax provision adjustments and lower operating expenses more than offset the nonrecurrence of prior year foreign currency and property disposition gains to produce this result. Operating income for the first quarter 2021 was $25.4 million or 8.2% of net sales, which is up from $23.9 million or 7.6% of net sales in the prior year period but essentially flat to the adjusted prior year result that excludes the $2 million of Morbark inventory step-up expense. Lower operating expenses were enough to offset an unfavorable gross margin comparison. Gross margin for the first quarter of 2021 was $76.4 million or 24.6% of net sales compared to $78.9 million or 25.1% of net sales in the prior year first quarter. Excluding the Morbark inventory step-up expenses, the prior year first quarter gross margin was $80.9 million or 25.7% of net sales. In the first quarter of 2021, we saw a compression of gross margins due to rising material costs that were not fully offset by favorable product mix and pricing actions. Also, an expected positive impact from higher customer demand on operating leverage has been somewhat limited by the uneven distribution and timing of new order growth across our business units as well as COVID-19 operational and supply chain disruptions, as previously discussed. First quarter 2021 EBITDA was $36.7 million, down slightly from the prior year first quarter adjusted EBITDA. Trailing 12-month EBITDA was $145 million was essentially flat to adjusted 2020 EBITDA. First quarter 2021 EBITDA was 11.8% of net sales, which is also flat to the prior year first quarter adjusted results. Favorable product mix, pricing actions and other cost containment measures offset material cost inflation and the negative pandemic impacts. During the first quarter 2021, we saw an $8.6 million net use of cash for operating activities compared to a $5.6 million net provision of cash from operations in the prior year first quarter.

While a first quarter build in working capital is seasonal for many of our business units, high current year order backlogs will continue to drive higher working capital investment to support the top line growth. We ended the first quarter with a record $453 million in order backlog, an increase of 95% since the prior year first quarter and nearly 28% higher than year-end 2020. During the quarter, we saw an acceleration of customer demand across the entire range of our industrial and agricultural products. We finished the first quarter of 2021 with order backlogs well above prior year quarter levels in both divisions and for all of our business units. To recap our first quarter 2021 results, record first quarter net income and earnings per share, up over 12% from the prior first quarter on a GAAP basis and up nearly 3% on an adjusted basis. First quarter sales down 1% from the prior year quarter. First quarter operating income essentially flat to the adjusted prior year result. First quarter and trailing 12-month EBITDA also flat to the comparable adjusted prior period performance. First quarter cash flows reflected working capital needs driven by high order backlog. And a record order backlog of $453 million, up 95% over the prior year first quarter and up nearly 28% since year-end 2020.

I would now like to turn the call back over to Ron.

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

Thank you, Dan. I appreciate the financial update. There's an old Chinese curse that I think says "may you live in interesting times." And so I mean, we are certainly living in interesting times. But I'm glad that for Alamo Group, we actually are managing our way through this nicely and as our first quarter results showed, where we had strong sales and record earnings. But there are certainly many challenges that are ongoing. Many of these -- most of these are the repercussions from the ongoing COVID pandemic, which is still very much an unresolved issue that is affecting our company, our workforce and the world economy in general. And the many other issues we are facing, including supply chain challenges, logistical disruptions and inflationary pressures, are basically almost extensions of the pandemic. We are certainly not alone in this as nearly all industrial manufacturing companies that we know of are facing these same issues. But despite these issues and distractions, we're very pleased with the way our company has performed in this environment, and we remain diligent in managing these issues to deliver ongoing solid results. We're glad to see that the markets for our products are holding up well and have mostly returned to pre-pandemic levels and in some cases, even better. This is most evident in our bookings and backlog, which are at record levels. And even though if not for these challenges, we could have shipped more in the first quarter, but we would have still finished the quarter with record backlog. Like I said, I think if we didn't have quite as many supply chain issues, our sales would have been a record for the first quarter instead of being down 1%. But even with that, we would have still finished with record backlogs. Certainly, our agricultural division showed the strongest results in the first quarter 2021 as this market not only remains steady, that market has actually remained steady throughout most of this COVID situation and has further benefited from some pent-up demand in the farming sector as a result of several years of weak market conditions and low farm incomes.

And this current market strength has also been aided for us by sort of lower levels of dealer inventories going into this time and above-average farm subsidies in the U.S. And even with -- even if subsidies aren't quite as strong this year as they were last year, we think higher agricultural commodity prices and strong demand for equipment will continue to be good. The fundamentals of the market are good for not only the rest of 2021, but the next several years as well look very promising. And even though supply chain issues, logistical problems and inflationary pressure, all limited our results in the first quarter in our ag sector and continue to impact us today, these should impact us a little less than the second half of the year based on our pricing and the input we're getting from our suppliers. So we're pleased that the outlook is improving. We are also pleased that while our North American ag units are certainly performing the strongest, it is very reassuring to note that our European units are all showing improvement as well as are our Brazilian and Australian operations. So with a good market, record backlogs, the outlook for Alamo's agricultural division is very positive. The same can actually be said for Alamo's industrial division. While our results were not quite as good in the first quarter of 2021 as our ag division on a relative basis, it was still a solid quarter. It started off weak in January as budget issues continued to constrain governmental entities, which is our single biggest market for this division's infrastructure maintenance equipment. But momentum built during the quarter, and we ended with very strong results in March that are continuing on into the second quarter of 2021 as well. We are continuing to benefit by improved governmental budgets as revenues at city, county and state levels, all of which seem to be showing better-than-anticipated results.

And our bookings and backlog in this sector reflect these improved fundamentals with governmental budgets and with basically the financial health of our customers. As with our agricultural division, our industrial results were constrained by COVID-related operational challenges internally and with the supply chain and logistical issues, preventing ourselves from reaching the record levels, which they could have been without this. However, we believe these issues will be less evident again in the second half of 2021 and feel optimistic that the full year results for the -- for our industrial division should be at record levels for Alamo Group. Certainly, getting operations back to pre-pandemic levels is key to this outlook. But getting -- but we're also really -- a big contributor is getting the full benefit of the high level of acquisitions we completed in 2019. This is what really should drive the record results that we anticipate. These acquisitions of Morbark, Dutch Power and Dixie Chopper have all performed well, but we have really -- due to the pandemic of 2020, we have really not achieved their full potential. And with that, I mean, we feel very -- on a combined basis, very optimistic about Alamo Group. And it's good to see that in general, business is returning to more normal levels of activity, among other things, including things such as our acquisition activities, which were definitely curtailed for most of the last 12 months. I mean we're actually starting to see opportunities and look at opportunities. So which -- since acquisitions are definitely key part of our ongoing strategy, I think it's -- we're glad to see that. We also -- I mean, during the last year, we really constrained our capital spending as we focused on cost control and paying down debt, which we're very pleased both were very successful initiatives.

But with the strong bookings and record backlog, we need to improve our operational capabilities. And we are starting to invest more in better manufacturing technologies that will allow us to be more efficient and grow our margins and meet this increased demand as evidenced by our bookings and backlogs. So while we are optimistic about the outlook for Alamo Group, we are also very cognizant that the COVID pandemic is still not fully resolved. It is certainly good to see the growing availability of vaccines, but unfortunately, the number of new cases is still a concern. And while we are pleased our markets are showing steady improvement, the supply chain and logistical challenges are ample evidence that COVID is still affecting us all. We hope this situation and feel it will continue to show steady improvement, but we will continue to monitor our operations and monitor our markets and remain ready to respond to changes, good or bad, that could affect our company. And actually, we believe this responsiveness has helped us navigate through this and other periods of economic upheaval and are committed to reacting quickly as conditions warrant. And really, that is why we feel optimistic about the outlook for Alamo Group. There are always challenges, and we certainly are living in interesting times. But by staying focused on our strategy, we feel we can prosper even in challenging times and continue to grow at above-market rates over the long term. And lastly, while, as most of you know, I will soon be retiring as CEO of Alamo Group, I remain very optimistic about the outlook for the company. My replacement, Jeff Leonard, and the whole Alamo team are more than capable to continue along the path of success we have followed. And I look forward to following their continued progress and staying active as a member of the Board of Directors. And I want to thank all of you in the investment community as well for your support over these last nearly 22 years. It's certainly been a great trip. So thank you very much, and appreciate the help and support all these many years.

With that, I would now like to open the floor to any questions you might have.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Mike Shlisky with Collier Security.

Mike Shlisky -- Collier Security -- Analyst

So there was one topic, I mean you kind of touched on it, but didn't mention too much about. I was wondering if we can just dive into it, and that is chassis availability. Have you been having any -- has that been a big part of the challenges you've been facing? And do you anticipate having to, at any point, really curtail or shut down temporarily if some of these companies just can't get you the chassis that you're looking for?

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

Yes. I mean, certainly, chassis availability, the lead times have really grown. There's several manufacturers who have announced they're going through some temporary shutdowns. The chip issue we're all hearing about that's affecting the auto industry is certainly affecting chassis deliveries. Fortunately -- I mean, we certainly missed some deliveries, missed some shipments. Our shipments have been delayed because of some issues. But by and large, we've been able to deal with it pretty effectively. And even though, I mean -- and we're having ongoing regular discussions with our chassis suppliers. And while like they've come out, like I said, down to some plant closures. But they seem to be, number one, doing a little bit better than they said they were going to do, and the outlook seems to be a little bit -- not quite as bad as they implied. Yes, there will be, as I've already said, we're going to have supply chain issues in the second quarter and all. And -- but I mean, I think we've tried to get a little bit more resourceful in sourcing chassis and looking outside some of our normal channels, successfully. And so I mean, it is an issue and it will affect our deliveries, but we think that we can still achieve -- have good results and very positive and still meet a lot of the deliveries. But certainly, there will be some challenges and some missed deliveries. But by and large, I mean, I think we're in better shape than I thought we would be right now.

Mike Shlisky -- Collier Security -- Analyst

Got it. And just curious, have you seen any company -- any customers come back with any cancellations from the backlog? Or has anybody threatened or actually switched brands to other companies? Just give me some of your thoughts about, is everyone kind of in the same boat as Alamo right now?

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

Yes. As I said in my comments, I mean, everybody is pretty well in our same boat. And we don't -- I mean, yes, we have not lost any orders. That's -- like I say, I mean, our backlog is -- it shows. And yes, I mean, customers want the product. But I mean, I don't think anybody's in any particular better shape than we are. And so I mean we don't see losing orders or we don't see cancellations or anything like that being a big concern. I mean -- but that's why -- I mean, I commented our backlog is very good, almost too good just because I don't like to see our lead times growing like they are. But like I said, I think if you've been following some of our competitors, especially the public ones, their lead times are or the same or worse than ours.

Mike Shlisky -- Collier Security -- Analyst

Yes. Yes. Got it. And then in an environment like this, if folks can't get new equipment, do you anticipate seeing, especially in Q2, more parts and service activity than you have seen in the past?

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

Yes. And we are seeing it. Any time that it usually is following a sort of a year of economic downturns and all parts tend to hold up better, and they have held up better, and we're seeing a little bit better. But yes, there's supply [Technical Issues] But yes, they are holding up well and a little bit better, and I expect they will continue to do a little bit better than whole goods in the short term.

Mike Shlisky -- Collier Security -- Analyst

Okay. And then we've heard some good, positive comments from other companies that are public on the tree care world at the moment. Can you give us an update on how things are going at Morbark specifically? Any good positives or challenges there in the demand for that product?

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

Yes. Morbark is -- probably has one of the largest increases in backlog of any of our units. They -- as you said, tree care products are holding up well. The demand, there's growing and new, diverse demand for those types of products, and we are very much experiencing that. So yes, we're very pleased to have Morbark part of our group. They've opened up some new avenues for growth for us and I think even that new avenues for acquisitions and other things like that. So we're pleased that tree care is holding up well, and the outlook looks very good for that. And like I say, our backlog is strong, and again, almost too strong. Morbark, we had a couple -- that's one of the plants we've had some COVID issues internally, I mean, where we've had some cases ourselves. And so that shutdown a department for like a week or something. So some more -- a few more internal disruptions. But there -- we're very optimistic about the outlook for Morbark.

Mike Shlisky -- Collier Security -- Analyst

Okay. And then maybe lastly, Ron, not going to let you go without saying a big thank you for all the great information and answers over the last bunch of years. I appreciate it, and best of luck. Congrats to you.

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

Thank you very much. I appreciate it, Mike.

Operator

Our next question comes from Chris Moore with CJS Securities.

Chris Moore -- CJS Securities -- Analyst

Just one more on the $452 million backlog, how much of that would you consider extended? And is that extended portion still growing?

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

Yes, it's still growing. And I mean, like I said, normally, we like about a quarter's worth of backlog. We're certainly well beyond that. I mean it's between -- it's not like two quarters, but I mean, it's -- but that's why we're going to -- we're picking up a little bit R&D spending -- I mean, capex spending to bring some more capabilities into our plants. So that we can meet it and not only meet the improved demand, but do it very efficiently. There's some supply chain issues that are causing some of it to be a little longer than we would like. But it's still -- I think, like I say, we're not out -- out longer than I'd like to be, but not out -- there's not like there's a bunch of long-term things. I mean everything will ship this year or should still ship this year. And like I said, a little bit longer, but reasonable. Some of that will be tied to supply chain issues. I mean we certainly know what the supply chain issues we have today. We just hope there's not particularly new ones tomorrow. But our purchasing people are really on top of that. Certainly, logistics are a problem. I mean getting ships, getting items out of the ports is taking -- is certainly taking -- logistics are as much as supply chain issues in the short term. It's very hard to get -- not only is it expensive, but it's hard to get trucks to get stuff inbound and even get stuff outbound. So yes, all in all -- but like I said, I don't think our -- like I say, I don't think our backlog is too far out there.

Chris Moore -- CJS Securities -- Analyst

Got it. Okay. That's helpful. So industrial revenue was down 7.9% in Q1. Probably not easy to do, but if you would look to kind of break that out between lower demand from state, local and muni governments on the one hand versus things like logistics and supply chain and weather and COVID quarantine. I'm just trying to get a sense how much of that was from the lower demand piece of it from the state and local and muni government's funding issues.

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

Yes. I'll let the guy who runs our industrial division and will soon run all of Alamo Group, Jeff Leonard, answer that one.

Jeffery A. Leonard -- Executive Vice President Manager of Industrial Division

Yes, that's a really good question. There are several things going on in the quarter that you should keep in mind. I mean, one, last year was a national election year. And this election was not settled really until January, and some might argue, it took a little bit longer than it probably should have to settle it. Governmental organizations in the U.S. react to that very strongly, and they kind of sit on the sidelines until they know which way the winds are going to blow. So that's factor number one. Factor number two was the February storms in the Southern United States. Typically, one of our bellwether businesses is our mowing businesses, which start mowing in the Southern states already in late January and early February. So we had a delayed start to that, which also affected our parts business a little bit adversely in those product lines, those specific product lines. As we move forward, lead times are stretching out, to Ron's point. If you look at our industrial truck businesses, lead times for chassis have stretched out, we're not in any kind of a crisis yet. We've been very fortunate, our dealers who supply trucks to us have been able to pretty much keep with our demand, but with -- albeit with a little bit longer lead times.

So I think that the backlog does reflect the strengthening of the business. January was soft, as Ron said, February was better, March was very strong and April has started off fairly strong as well. So I think we'll see an improving situation. All of that is tempered by the supply chain, which is wobbly right now and even getting such as containers to export products is a problem at the moment. And that's holding up some of our shipments. So I think we're a little bit cautious on Q2, not because we don't believe the demand is there, no, we have plenty of demand. I think it really just is our ability to ramp up and meet the supply and get all the parts and components in from our suppliers that we need to build product. But I think those -- some of those issues are related to the winter storm, shortages of plastics, containers in the wrong place and so on. And I think those will progressively start to clear out as we move through Q2. So I think Q2 will be good. And I think as we move forward a little bit more, some of these pressures will start to ease.

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

So -- and as he said, the supply chain -- I mean, if we didn't have those many supply chain issues, we would have had record sales in the industrial division in the first quarter. So I mean -- but I mean, still bookings -- I mean, the customers were a little soft going into the year for some of the reasons he mentioned, elections and just the ongoing pandemic and budget constraints and everything else. So things started getting -- even started the year off a little slow, but built momentum nicely as the quarter developed and as the second quarter is developing.

Chris Moore -- CJS Securities -- Analyst

Got it. All right.

Jeffery A. Leonard -- Executive Vice President Manager of Industrial Division

And that strength in bookings has gone across all of our product lines in industrial.

Chris Moore -- CJS Securities -- Analyst

Got it. That's helpful. I'll leave it at there. But I also want to say, Ron, congratulations and thanks for all your help over the last few years. Appreciate it.

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

Well, thank you, Chris. I appreciate your support all these years, too.

Operator

[Operator Instructions] Your next question comes from Greg Burns with Sidoti & Company.

Greg Burns -- Sidoti & Company -- Analyst

In terms of the supply chain constraints, I know you mentioned like a crisis mode on the chassis supply. But is there any other particular components or parts that are more of an issue? And are there any specific product lines that are being impacted more than others?

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

No. I mean it's pretty well fairly broad-based as far as problems go. I mean -- and so yes, chassis -- steel is pretty well available and things like other kinds of raw materials. It's more the manufactured stuff, I mean, like I say, chassis or gearboxes, drivelines, those kind of things. But interesting, like the components that we source from China are actually pretty well, those factories are working, and we're getting components from there. But those are the ones that are being affected more by the logistical issues, the backup in the ports and the transportation and all. I mean I can tell you, part of our spending variances was flying gearboxes around the world, which is not very efficient. But like I said, there's no one thing. We're actually probably even seeing like -- things like steel, while it's almost like doubled in price, but it's probably softening a little bit right now, like it may have dropped a couple of cents in the last month or so. So -- but no, it's -- I wouldn't say -- like I said, it's fairly broad-based and no one thing in particular.

Greg Burns -- Sidoti & Company -- Analyst

All right. And then the acquisitions in 2019 were a little bit before my time. So I was just trying to get a sense of maybe what the projected revenue and EBITDA contributions for those acquisitions were at the time. What were they doing and maybe where we are relative to that now? Just trying to get a sense of this idea that we're not yet seeing the full benefit of these acquisitions in '20. And trying to get a feel for maybe what the revenue and margin upside this year for those acquisitions.

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

Well, first of all, I mean, if you just took the three acquisitions and a 12-month sales level, they would have added almost like just 25% to our top line. We don't usually give margin information by it. But I don't know, Dan, you...

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

Well, we did disclose at the time of the -- we closed the Morbark acquisition, we disclosed there were about $240 million in sales and over $40 million in adjusted EBITDA, trailing. So that -- we did disclose that number back then. We did not -- we have not disclosed numbers on the smaller acquisitions.

Greg Burns -- Sidoti & Company -- Analyst

Okay. And then when you -- sorry, go ahead. Okay. And then when you look at maybe the synergy projects or the efficiency and integration projects you have around Morbark and the other two, have you quantified kind of a number around what you hope to achieve from those? Or maybe how much -- how many like incremental basis points of margin leverage you might get from those? Just trying to get a feel for where you are at in the integration process and maybe what the potential incremental benefit might be this year or next year.

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

Yes. Again, we certainly have internally quantified it and internally have targets and goals. We don't usually give much of that publicly. Though we had said even like in Morbark case, their actually operating profit margins were higher than our average operating profit margin. So I mean, like I said, even doing nothing, we thought they should help improve our overall margins. And with the synergies, we also said things like millions of dollars of synergies just in supply like in procurement. And we believe -- and we're pleased that pretty well the synergies on all of this, we're achieving them, but not at the level we anticipated. The purchasing one -- the procurement ones for Morbark, for instance. I mean, two, we had to work down some of their old inventory that was at the higher prices. And secondly, up until now, we hadn't really -- they haven't been producing at the same level. So we haven't been buying as much. So we were getting the synergies that we identified, but not at the full level. We think by the second half of this year, we'll start getting it more at the full level. So we got them integrated into our operating system, our ERP system. We've -- like I say, we're putting them on our benefit structure and other things like this. So I mean we've achieved most of the other synergies we have. Probably the one -- the procurement one, just not at the same level yet. The only area we were going to do more, Morbark is very North American focused.

And we -- through our network, we were going to try to take them a little more internationally. That one, we're -- certainly have not achieved the full level we wanted there just because we're still not allowing anybody to travel internationally so -- across the ocean. So I mean, that one's taking been a little bit slower in developing. But by and large, the synergies are. We also -- and like in Dutch Power, I mean, good -- I mean, we announced in the fourth quarter, a plant consolidation from three plants to two, which will have a very good payback. We've already -- even the one plant, we're proposing to close. We've actually already sold it and actually closed on the sale here in the second quarter of this year already. And so I mean, that whole plant consolidation has about a one-year payback, I mean, let alone improving our overall margins for there. So yes, we believe that when all this is done, we should definitely see overall margin improvement for Alamo Group, even though we have not sort of detailed each unit and each opportunity. But we're pleased that they are occurring. And we're -- like I said, we haven't achieved the dollars we wanted to at this point due to COVID, but we believe we'll still achieve all the synergies we anticipated.

Operator

There are no additional questions at this time. I'd like to now turn it back to management for closing remarks.

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

Okay. Well, again, thank you for joining us today. We look forward to speaking with you at our second quarter call in August. And again, I personally -- even though I probably won't be on that call, I very much appreciate your support and look forward to following the company's progress under Jeff's leadership. Thank you very much. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

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

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

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

Jeffery A. Leonard -- Executive Vice President Manager of Industrial Division

Mike Shlisky -- Collier Security -- Analyst

Chris Moore -- CJS Securities -- Analyst

Greg Burns -- Sidoti & Company -- Analyst

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S&P 500 Returns
125%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/12/2022.

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