The Gorman-Rupp Company (NYSEMKT:GRC) reports financial results for the third quarter and nine months ended September 30, 2016.

Net sales during the third quarter were $91.3 million compared to $104.2 million during the third quarter of 2015, a decrease of 12.4% or $12.9 million. Excluding sales from the New Orleans Permanent Canal Closures & Pumps (“PCCP”) project of $1.6 million in the third quarter of 2016 and $9.8 million for the same period in 2015, net sales during the quarter decreased 5.0%. Domestic sales decreased 19.3% or $13.9 million while international sales increased 3.3% or $1.0 million compared to the same period in 2015.

Sales in the third quarter of 2016 in our larger water markets decreased 8.9% or $6.5 million compared to the third quarter of 2015. Sales in the municipal market decreased $5.1 million driven by reduced PCCP project sales noted above, offset in part by increased shipments attributable to other flood control projects and clean water applications. Sales in the agriculture market decreased $1.8 million principally due to wet weather conditions in many locations domestically and lower farm income. However, sales in the construction market increased $2.0 million due primarily to sales to rental businesses as a result of flooding in several areas domestically and a fleet purchase by a new customer. The remainder of the overall sales decrease was largely due to reduced shipments of repair parts.

Sales decreased 20.3% or $6.4 million in non-water markets during the third quarter of 2016 compared to the third quarter of 2015. Sales in the industrial market decreased $4.2 million and sales in the petroleum market decreased $1.4 million, both principally attributable to the continued slowdown in oil and gas production.

Net sales for the nine months ended September 30, 2016 were $287.9 million compared to $307.4 million during the same period in 2015, a decrease of 6.3% or $19.5 million. Excluding sales from the PCCP project of $9.5 million in the first nine months of 2016 and $30.3 million in the first nine months of 2015, net sales for the first nine months increased 0.5%. Domestic sales decreased 8.1% or $16.7 million and international sales decreased 2.8% or $2.8 million. Of the total decrease in net sales in the first nine months of 2016, approximately $0.9 million was due to unfavorable foreign currency translation.

Sales in the first nine months of 2016 in our larger water markets decreased 6.8% or $14.9 million compared to the same period in 2015. Sales in the municipal market decreased $8.8 million driven by reduced PCCP project sales noted above, offset in part by increased shipments attributable to other flood control projects and clean water and wastewater applications. Sales decreased $3.1 million in the agriculture market principally due to wet weather conditions in many locations domestically and lower farm income, and sales in the fire protection market decreased $2.2 million due to market softness domestically and in countries in the Middle East.

Sales decreased 5.3% or $4.6 million in non-water markets during the first nine months of 2016 compared to the same period in 2015. Increased sales of $2.6 million in the OEM market related to power generation equipment and services were offset by a decrease of $7.1 million in the industrial market largely attributable to the continued slowdown in oil and gas production.

Gross profit was $22.7 million for the third quarter of 2016, resulting in gross margin of 24.8%, compared to gross profit of $23.3 million and gross margin of 22.4% for the same period in 2015. The quarter’s gross profit margin increase was due principally to favorable sales mix changes and a non-cash pension settlement charge of 120 basis points in the third quarter of 2015 which did not recur in the same period this year, partially offset by lower leverage due to sales volume decreases. Operating income was $9.9 million, resulting in operating margin of 10.8% for the third quarter of 2016, compared to operating income of $8.9 million and operating margin of 8.6% for the same period in 2015. The operating margin improvement was largely driven by a non-cash pension settlement charge totaling 180 basis points in third quarter of 2015 which did not recur in the same period this year and a gain on the sale of property, plant and equipment in the third quarter of 2016 of 110 basis points, offset by lower operating leverage due to sales volume decreases.

Net income was $6.9 million during the third quarter of 2016 compared to $5.9 million in the third quarter of 2015 and earnings per share were $0.27 and $0.22 for the respective periods. Gain on the sale of property, plant and equipment increased the third quarter of 2016 earnings by $0.03 per share. Conversely, the non-cash pension settlement charge in the third quarter of 2015 reduced earnings by $0.05 per share.

Gross profit was $68.8 million for the first nine months of 2016, resulting in gross margin of 23.9%, compared to gross profit of $71.4 million and gross margin of 23.2% for the same period in 2015. The gross profit margin increase was due principally to a non-cash pension settlement charge of 80 basis points in the first nine months of 2015 which did not recur in the same period this year. Operating income was $28.6 million, resulting in operating margin of 9.9% for the first nine months of 2016, compared to operating income of $29.4 million and operating margin of 9.6% for the same period in 2015. The operating margin improvement also was largely driven by a non-cash pension settlement charge totaling 110 basis points in the first nine months of 2015 which did not recur in the same period this year and a gain on the sale of property, plant and equipment of 30 basis points in the first nine months of 2016, offset by lower operating leverage due to sales volume decreases.

Net income was $19.8 million during the first nine months of both 2016 and 2015 and earnings per share were $0.76 and $0.75 for the respective periods. Gain on the sale of property, plant and equipment increased the first nine months of 2016 earnings by $0.03 per share. Conversely, the non-cash pension settlement charge reduced the first nine months of 2015 earnings by $0.09 per share.

The Company’s backlog of orders was $102.8 million at September 30, 2016 compared to $138.8 million at September 30, 2015 and $117.1 million at December 31, 2015. Excluding the PCCP project in 2015 and 2016, the backlog at September 30, 2016 was down 16.0% as compared to September 30, 2015. In addition to the impact of PCCP, backlog has been impacted by lower orders in the petroleum and fire protection markets. Encouragingly, the municipal wastewater sector appears to be gaining momentum as incoming orders have increased as compared to the first nine months of 2015. Approximately $1.2 million of orders related to the PCCP project remain in the September 30, 2016 backlog total and are expected to ship by the end of the fourth quarter of 2016.

The Company generated $52.2 million of operating cash flow during the first nine months of 2016 and continues to have a strong and flexible balance sheet. Cash and cash equivalents totaled $63.7 million at September 30, 2016 and working capital increased $16.9 million from December 31, 2015 to a record $162.8 million at September 30, 2016. The increase in working capital was due principally to higher cash balances partially offset by lower inventories and increased customer deposits. Net capital expenditures for the first nine months of 2016 of $5.6 million consisted primarily of machinery and equipment, a new operations facility in Africa, and other building improvements. Capital expenditures for the fourth quarter of 2016 are currently expected to be in the range of $1 to $3 million. The Company had no bank debt as of September 30, 2016.

At its October 27, 2016 meeting, the Board of Directors of the Company declared a quarterly cash dividend of $0.115 per share on the common stock of the Company, payable December 9, 2016, to shareholders of record November 15, 2016. The cash dividend represents a 9.5% increase over the dividend paid in the previous quarter. This will mark the 267th consecutive quarterly dividend paid by The Gorman-Rupp Company and the 44th consecutive year of increased dividends paid to its shareholders. This increase continues to position the Company in the top 50 of all U.S. public companies with respect to number of years of increased dividend payments.

Jeffrey S. Gorman, President and CEO commented, “Although we are seeing some improvements in the municipal, industrial and construction markets compared to last year, persistent weakness of capital spending within the oil & gas and agriculture markets continues to be a headwind. In addition, with the completion of the PCCP project nearly at hand, comparisons of revenue with last year need to be kept in mind. As revenue growth continues to be challenging, we remain focused on operating efficiencies and will continue to manage expenses closely. Along with our strong balance sheet and increase in dividend, we will continue to position ourselves for future growth and increasing shareholder returns.”