Gorman-Rupp: Going with the flow

Paul Rolfes | May 13, 2008 6:20am EDT | Comment

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Gorman-Rupp Co. (AMEX:GRC) has a stellar reputation making one of those not-so-sexy but all-so-necessary line of products — industrial pumps and pumping systems.

The Mansfield, Ohio-based company designs, manufactures and sells all sorts of pumps to move liquids from Point A to Point B. Its products are used in water, wastewater, construction, industrial, petroleum, agriculture, fire protection and heating/ventilation/air conditioning. Last year, when flooding struck its hometown, Gorman-Rupp had to put its pumps to use to clear one building of sewage and water from a nearby stream.

Gorman-Rupp also has managed to stave off the substantial buildup of rust that plagues many other old-line industrial manufacturers in the decaying Rust Belt that includes the Buckeye State. Gorman-Rupp has four U.S. operations, and others in Canada, Ireland and the Netherlands, with a global network of 1,000 distributors.

Just how durable are Gorman-Rupp’s products? The company’s 2007 annual report, celebrating its 75 years in operation, has on the cover a photo of Pump No. 1, which was manufactured in March 1933 and remained in continuous operation at an ice company plant for 20 years.

Gorman-Rupp’s stock shows similar durability. But according to a survey by Thomson Financial of four analysts who follow Gorman-Rupp, three have it at “hold” with the other saying it’s a “sell.”

It’s a valuation thing; something that Friedman, Billings, Ramsey & Co. analysts noted in an April 30 downgrade to “underperform” from “market perform” because of the lofty share price following release of first-quarter results. Still, FBR’s analysts raised their 12-month price target to $31 from $25.

Shares of Gorman-Rupp hit a 52-week and an all-time high of $40.44 on April 28, in a run-up that followed the April 24 posting of better-than-expected Q1 results. The stock hit its 52-week low of $22.44 on Aug. 6, and outside of a couple of spikes higher since then, shares have traded mostly in a range of $25 to $32. The stock closed Monday at $36.70 — above the 12-month consensus price target of $31 at Thomson Financial.

Not surprisingly, the roster of company senior executives includes several named Gorman. The chairman is 83-year-old James C. Gorman, a title that he’s held since 1989. He served as company president from 1964 until 1989, and as chief executive officer from 1964 until 1996. The current president and CEO is Jeffrey S. Gorman, 55, who assumed those titles in 1998, after rising through the company’s management ranks.

Jeffrey Gorman also owns the most stock of any insider, holding 442,518 shares as of Dec. 31. Gorman-Rupp stock appears to be a favorite of some institutional investors and mutual funds, especially PowerShare Capital Management LLC and its PowerShares Water Resources Portfolio (AMEX:PHO). Last December, the company completed a 5-for-4 split and increased its dividend 4.2% to $0.10 per share payable quarterly.

The company has little in the way of outstanding debt, a rarity in corporate America. When it released its first-quarter results last month, Gorman-Rupp also announced a $52 million expansion project at one of its hometown buildings. CEO Gorman told The Mansfield News-Journal: “We believe in U.S. manufacturing.”

International growth might play a more important role in the company’s future, however. In April 2007, Gorman-Rupp International Co., a wholly owned subsidiary, acquired a 90% controlling interest in Wavo Pompen B.V. in The Netherlands, which was renamed Gorman-Rupp Europe B.V.

For the first quarter, Gorman-Rupp continued to pump out results that beat analysts’ expectations, crediting its international expansion. The company said net sales increased 9.4% to $81.4 million, while net income rose 40.5% to $7.2 million. Earnings per share increased to $0.43, compared with $0.30 in the first quarter of 2007. Consensus estimates were looking for $78.9 million in revenue and EPS of $0.37.

Similarly, Gorman-Rupp pumped out strong 2007 results, with full-year net sales rising 12.8% to $305.6 million, net income increasing 19.9% to $22.9 million, and earnings per share hitting a record $1.37, compared with $1.14 per share in 2006.

At the end of 2007, Gorman-Rupp had an order backlog totaling $116.4 million, a 6.3% increase from the year before. The company said its expects to ship nearly all the backlog this year.

The biggest question marks facing Gorman-Rupp are the wobbly U.S. economy, and whether the company can maintain the kind of growth it’s posted in recent years.

Analyst Ryan Connors of Boenning & Scattergood noted in an April 24 research report that, “Despite the positive (first-quarter) earnings report, Gorman-Rupp will likely face headwinds in key domestic end-markets as 2008 unfolds, and with the shares trading at a premium valuation versus peers, we maintain our ‘market perform’ rating.”

Among the accolades heaped on Gorman-Rupp in 2007, it was ranked for a second straight year in last October’s “200 Best Small Companies” list from Forbes, rising to 184th from 187th. It also was one of six companies recognized last year for workplace safety excellence by the state of Ohio.

For investors, Gorman-Rupp’s stock might offer a safe haven from the whipsawing behavior of the overall market, and one to add to a portfolio whenever it exhibits the slightest of price dips.