Alamo Group Inc

NYSE:ALG

Earnings Call Transcript 2021-Q4

[Operator]

Good day, and welcome to the Alamo Group Fourth Quarter 2021 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Edward Rizzuti, Vice President, General Counsel and Secretary. Please go ahead sir.

[Edward Rizzuti, Vice President, General Counsel & 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 will send you a release and make sure you're 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 passcode 5363300. 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 Jeff Leonard, President and Chief Executive Officer; Richard Wehrle, Executive Vice President, Chief Financial Officer and Treasurer; and Dan Malon, Executive Vice President and Chief Sustainability Officer. 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 Jeff, 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 Jeff Leonard. Jeff, please go ahead.

[Jeff Leonard, President & Chief Executive Officer]

Thank you, Ed. We want to thank all of you for joining us today. Richard will begin our call with a review of our financial results for the fourth quarter and year-end 2021. I will then provide more comments on the results. Following our formal remarks, we look forward to taking your questions. So, Richard, please go ahead.

[Richard Wehrle]

Thanks, Jeff. Good morning, everyone. We appreciate you joining us to hear about our fourth quarter and year end results. One quick reminder before we start and that's the change that we announced in July of 2021, which realize the previous two divisions agricultural and industrial into the vegetation management and industrial equipment divisions. This change took effect at the beginning of the fourth quarter 2021. In the financial information and period-to-period comparisons for 2021 and 2020 are based on the two segments. We delivered record results for the full year 2021 driven by a robust demand for our products and a very challenging operating environment. Fourth quarter net sales for 2021 came in at $337.2 million, an increase of 17% over $288.6 million in the same period last year. Gross margin in the quarter improved compared to the fourth quarter of 2020 and specific price actions we took during 2021 began to offset costs increases we incurred late 2020 and throughout 2021. Net income for the fourth quarter of 2021 was $19.2 million or $1.62 per share on a diluted basis, an increase of 108% versus net income of 9.3 million or $0.78 per diluted share for the fourth quarter of 2020. Vegetation Management division had a solid fourth quarter of 2021 to cap off an excellent performance for the year. Fourth quarter net sales were 204.3 million, an increase of 27% compared to 160.4 million for the fourth quarter of 2020. The increase is primarily due to strong retail demand for forestry, tree care and mowing products and lower dealer inventories. Income from operations for the fourth quarter of 2021 was 18.1 billion, up 212% versus $5.8 million for the same period of 2021. Industrial Equipment division net sales in the fourth quarter of 2021 were $132.8 billion, up 4% compared to $128.2 million for the fourth quarter of 2020. The increase was mainly due to higher net sales of excavator and vacuum trucks, along with modest increases and other product lines. Delays in truck chassis deliveries due to ongoing computer chip shortages had a significant impact on the vocational truck business. Income from operations in the fourth quarter of 2021 was $9.7 billion, is down 16% compared to 11.5 million for the fourth quarter of 2020. Profitability was hampered by supply chain problems and skilled labor shortages. Consolidated net sales for 2021 were $1.3 billion, up 15% compared to $1.2 billion for the full year 2020. Gross margin for 2021 was slightly below the gross margin for 2020 as we experienced inflation pressures in material costs both in raw steel and purchase components, as well as high freight costs related to delivery of component parts. Net income for the full year of 2021 was $80.2 million or $6.75 per diluted share, versus the net income of 57.8 million or $4.88 per diluted share for the full year 2020, an increase of 39%. For the full year 2021, the vegetation management division came in at 812.7 million compared to 654.6 million for the full year 2020, up 24%. The division experienced robust demand at all product categories, particularly in forestry, tree care, land clearing and agricultural mowing. Full year 2021 income from operations was $78.9 million, up 69% versus $46.7 million for the full year 2020. The strong results for the North American operations were supported by solid results in the UK, France, Brazil, and Australia. For the full year 2021 net sales for the Industrial Equipment division were $521.5 million, compared to $508.8 million for the full year 2020, an increase of almost 3%. Sales of excavators, packing trucks, street sweepers and debris collectors lead the way, there's the sales increases were offset by lower net sales and snow removal products, shortages and deliveries of engines for both snow blowers due to the lack of computer chip availability, caused delays and completely manufactured units. Full year income from operations for 2020 was $38 million versus $48.1 million for the full year 2020, a decrease of 21%. This division was significantly impacted by supply chain problems, higher material and freight costs as well as skilled labor shortages, lower net sales and higher warranty costs, so we also had a negative effect on the profitability in this division for 2021. Just as in the previous three quarters, strong quarter bookings continued for the fourth quarter 2021 resulting in a record backlog for the full year 2021 coming in at just under 801 million, an increase of 126% compared to our backlog at the end of 2024. Part of the higher backlog was due to supply chain issues that delayed the company and completely manufactured products to ship. Turning to a few additional highlights – financial highlights for 2021, our balance sheet continues to remain extremely healthy. Accounts receivable are almost 238 million, up 14% from a year ago from solid sales volume, inventory increased 32%, which is reflection of higher work in process, material cost inflation, as well as our efforts to purchase higher level of key components and service parts for customers during this time of constraints applies. Finally, the company achieved a record EBITDA for full year 2021 162.1 million, up over 16% compared to a full year of 2020. From a cash flow standpoint for 2021, the company use from operating activities to increase inventory by just over $78 million to support the higher backlog, invested approximately $43 billion for the acquisition and capital expenditures, which led to approximately 16 million for debt reduction for the year, we had to 2021 with a leverage ratio below 1.75. We expect in 2022 to remain disciplined in our capital allocation strategy as far as our priorities remain to reinvest our –reinvest in our facilities to support long-term growth plants, organically and through acquisitions, returning cash flow to shareholders through dividends and to reduce debt levels to support continued financial flexibility. We're pleased that in January of this year, the company approved a 29% increase in our quarterly dividend from $0.14 a share to $0.18 a share for the first quarter of 2022. Let me turn it back to Jeff for a broader update on call. Thank you, Richard. Business conditions in the fourth quarter continue the pattern we've experienced for most of 2021 Namely a combination of good market conditions and strong demand tempered by persistent headwinds resulting from both direct and indirect impacts from the ongoing Coronavirus pandemic. Our markets during the quarter remain strong, even as lead times for our products have naturally extended as a result of continued shortages of a number of industrial components we’ve acquired to manufacture our products. Our vegetation management division enjoyed sustained market tailwinds across all of its served markets and in most regions, where we operate and tradition traditional agricultural segment, shipments of tractors in the US market declined seasonally in the fourth quarter, but increased more than 10% for all of 2021. Low dealer equipment inventories combined with favorable commodity prices for coin corn, soybeans, cotton and cattle resulted in stronger than expected sales for our mowers and tillage equipment, particularly in North America. Brazil was another bright spot during the quarter and for all FY 2021 as demand for our traditional mower products was augmented by strong demand for sugarcane harvesting and transport equipment. It was gratifying to note, that sales and our Brazilian company, although modest, and overall scale were up over 90% compared to the fourth quarter of 2020 and nearly doubled compared to the prior year. Activity in the governmental mowing segment was also at a good level during the quarter. Fourth quarter sales of tractor mounted and self propelled mowers to governmental agencies approved nicely in North America. While growth was even stronger in the United Kingdom, sales also increased but less significantly in France and certain other parts of Europe. Sales of our forestry and tree care products were also sharply higher in the fourth quarter, as we continue to experience very strong demand for our tool carriers and related motion attachments. To address the increasing business potential in this segment, we've initiated several projects to expand our manufacturing capacity, improve efficiency and reduce cycle times associated with building these products. Demand for our large industrial chippers and waste wood recycling equipment, also remain strong in the fourth quarter, as they have dropped 2021. Sales of our tree and brush chippers remained at a good level, although the fourth quarter is normally a bit slower for these products. We were also very pleased to complete the acquisition of Timberwolf in the United Kingdom during the quarter. Although, of modest size, this acquisition strengthens our three tier product offering in the small to mid-sized chipper range, offers nice cross branding opportunities and gives us a stronger channel into the forestry and tree care markets in the United Kingdom, and Continental Europe. Timberwolf produces excellent high quality products and the company has an outstanding reputation for efficiently service serving its customers both before and after the sale, with strong demand for its products across most of its markets. The vegetation management division produced excellent results for the fourth quarter in spite of headwinds of material cost inflation and skilled labor shortages. It was gratifying to see that as a result of timely pricing actions implemented throughout 2021. Gross margin in this division was slightly higher than it was in 2020. Despite higher input costs. With strong top line leverage and its operations, vegetation management's profitability was excellent in the fourth quarter and also for the full year 2021. The divisions order bookings were again up nicely in the fourth quarter and were also up significantly for the full year compared to the prior year. Order backlog in this division increased over 100%, compared to the fourth quarter of 2020. Our industrial equipment division also experienced market tailwinds in the fourth quarter. In the United States, governmental agencies at the state county and local levels generally remain in good physical shape, partly due to expanded pandemic related federal support. For example, 47 states report general fund revenue for 2021 came in above their original budget projections, municipal revenue revenues that were strong in the first half of the year softened slightly in the second half largely due to flatter property tax revenues. The industrial divisions order bookings in the fourth quarter and for the full year are sharply higher relative to the same period in 2021, and its year-end order backlog was more than 150% higher than prior year. The Division sales in the fourth quarter and for the full year increased slightly relative to the corresponding periods of 2020 as the ongoing impacts of the truck chassis shortage, labor shortage and other supply chain limitations constrained revenue growth despite the strong demand for its products that was evident in the development of new orders and order backlog. Gross margin improved somewhat in the fourth quarter, but was flat on a full year basis compared to 2020. Most of the division's sales are to governmental agencies who generally cannot accept surcharges, price escalation mechanisms, or re-pricing of open contracts. Sales as it divisions, excavators and vacuum trucks improved in the fourth quarter and were higher for the full year compared to the same periods in 2020. Order bookings remain strong in the fourth quarter as they were throughout 2021 street sweeper in pre collector sales increased slightly in the fourth quarter and grew nicely for the full year, although the increase came mainly from pricing. Sales of snow removal products declined in the fourth quarter and were also modestly lower for the full year compared to the prior year. Snow removal equipment sales were constrained by limited availability of truck chassis, industrial engines and other components and this part of the division struggled with operational efficiency as a result. Postponed engine deliveries delayed pre-planned preseason production snowblowers and this negatively impacted sales in the quarter. High steel costs and increased warranty expenses also negatively impacted profitability in our snow removal segment during the quarter. More positively, fourth quarter order bookings were stronger aided by several early winter storms in the US and Canada, the increased demand for spare parts and services. Snow removal equipment orders for the full year also showed a nice improvement compared to 2020. The industrial equipment divisions production rates and efficiencies were impacted in the fourth quarter as they had been all year by material cost inflation, delivery delays, and postponements of many key components needed to produce this products. In addition to the impact of chassis availability, shortages associated with other commodities such as hydraulic components, axles, and wiring harnesses impacted both the capacity and the efficiency of the division's manufacturing operations, and increased variances as to pressure gross margin. We were pleased, however, that the resulting impact on gross margin was largely offset by price actions taken earlier in the year. Expenses were higher, however, as selling activities returned to normal pre-pandemic levels and sales commissions increased. The division also increased its investment in research and development in the quarter, partly through the establishment of an advanced vehicle technology center to accelerate work on hybrid and electric drives for its vocational trucks. These factors combined resulted in the industrial division producing lower profitability in the fourth quarter, and also for the full year of 2021. As we look ahead now into the first half of 2022, we expect to encounter more of the same headwinds that we experienced in the second half of 2021 with expected interest rate hikes adding one more potential challenge to the current mix. The spread of the Omicron variant of the coronavirus, while currently declining certainly impacted several of our operations in January after employees returned from the year-end holidays. Unfortunately, after recent meetings with the major truck OEMs, it's now evident that we can't reasonably expect meaningful improvements in truck chassis deliveries until the second half of the year at the earliest as the impact of the semiconductor shortage persists. We also don't expect consistent improvement in hydraulic and electrical component availability in the coming months as industry demand continues to outstrip supplies. One bright spot is steel prices that declined sharply in the fourth quarter and are expected to stabilize at these lower levels, which should benefit us in the early months of 2022. In our markets, though, the strong tailwinds experienced in the fourth quarter appear that they will continue for the foreseeable future as orders continue to flow in are very good rate in both of our operating divisions, but particularly so in industrial equipment. I'm confident that our teams will continue to find creative ways to mitigate the impact of the many challenges on the supply side. With our record backlog at the end of the year and with good -- sustained good momentum and all of our markets, I remain optimistic about Alamo Group's prospects for 2022 and beyond. This concludes our prepared remarks. We're now ready to take your questions. So operator, please go ahead.

[Operator]

Thank you. [Operator Instructions] We'll take our first question from Chris Moore at CJS Securities.

[Chris Moore, CJS Securities]

Good morning guys. Thanks for taking a few questions.

[Jeff Leonard, President & Chief Executive Officer]

Hi Chris.

[Richard Wehrle]

Good morning Chris.

[Chris Moore, CJS Securities]

Good morning. You talked about a bunch of the challenges in Q4 chassis availability, engine shortage, et cetera, can you maybe just ballpark how much additional revenue you could have recognized in Q4 without some of those challenges?

[Richard Wehrle]

I don't know that I would want to give you a discreet number, Chris, but it was significant for sure. We had some pretty healthy quantities of our excavators as well as vacuum trucks parked along the fence, built and waiting for one component or another. So definitely significant.

[Chris Moore, CJS Securities]

Got it. When we look at revenue up 17% in Q4, can you maybe just kind of give a rough breakdown between price and volume?

[Jeff Leonard, President & Chief Executive Officer]

I think it varies a lot by the two divisions, Chris. I mean, if you look at vegetation management, theirs was a combination of price and volume, but mostly volume, because what had happened with our forestry and tree care side, their supply chain was very disrupted in Q3 and we finally started to get some meaningful supplies, particularly of diesel engines, the big engines we need for our big poultry chippers and our grinders flowing through into Q4, which help them a lot. On the traditional Ag side of that divisions operations, probably a little bit more price, probably 50/50 to give you a rough estimate overall. And on the governmental mowing side, it's really a combination of both again, it was very mixed. On the governmental side, both in vegetation management and in our industrial equipment division. It's a very important distinction you need to understand in the Ag side of our business, in the Ag market because we have long established relationships with many of our dealers, we were actually able to go and renegotiate price on orders and backlog that had not yet been retailed onto end users. That helped that division along a great deal. On the governmental side, both in governmental mowing, which is part of vegetation management, but also in our vacuum trucks and sweepers. Once you have a contract with the governmental, it's fixed. It takes an act of a city council or a state board to approve those purchases in the first place, and at that point they're fixed. So there's not as much opportunity to reprice on the governmental side. And the governmental side came into the quarter with a healthy back lot to begin with, which is largely fixed. So I mean, it's a mix, but certainly in vegetation management it was probably more volume and a little bit less price and industrial equipment, it was mostly price.

[Chris Moore, CJS Securities]

Got it very helpful. Makes sense. I know you don't guide in terms of ’22 revenue, but when you look at ’22, just in terms of that volume versus price discussion, do you see kind of one of them being the most important driver?

[Jeff Leonard, President & Chief Executive Officer]

I think that's going to vary a lot throughout the year, Chris, is the answer I would give to you. I mentioned the drop in steel prices in Q4, a sharp drop, which creates an additional little bit of a tailwind, although after that will eventually get priced into our inventory as well. So that's a big benefit for us. On the volume side, the first half for industrial equipment is still going to be constrained by supply chain. This truck chassis situation is just not improving. As I said, we met with all the big truck OEMs and we're hopeful that they could give us some upside here at least pointing to the back half of the year give us some commitment for increased volumes which so far they're not prepared to make meaningful commitments on. Even on 2023, we pressed hard to get some better indicators for 2023 and I think all of them are remaining cautious and you can go out, for example, and look at the Daimler Trucks Investor Day presentations and hear what their Chairman and their checkers are saying about that just to give yourself a good cross check. So I think from a revenue standpoint, vegetation management is in a real nice position. The fourth quarter can be seasonally softer, but with the backlog they have the seasonality gets slushed out of the business pretty consistently so I think they're sitting in a pretty nice position. Industrial equipment is the same way. I think industrial equipment will accelerate a little bit more in first quarter and notably in second from where they were and I'm hopeful and I said hopeful that their revenue bill will start to improve if supply chain improves? It's not all truck chassis, Chris, I mean, it's things like the transfer cases. And as I mentioned, wiring harnesses, all kinds of things that you would ordinarily not have problems getting are problematic right now for us. So it's really hard to predict the revenue. I'm not just being core, because we don't die. But I mean, this is a moving target every week, every day, every month in terms of what supplies we received. The engine situation, the diesel engine situation is improving a little bit all those tools are difficult, and obviously that hit our snow removal business really hard in the fourth quarter. They do a plant preseason build of snow blowers. And we were told in the weeks just before we start that build, that all of our engine deliveries for that line were going to be deferred into 2022. So we literally lost a season to build and we were scrounging to find as many engines as we could build that product. That's one of the reasons why snow removal which is part of industrial equipment got hit pretty hard. So I hope that gives you some flavor of it. I mean, obviously with the backlog as soon as this supply chain situation starts to ease, we're going to be hitting on all cylinders. I mean, we're in a nice position. Before you asked me, I can tell you our backlog remains very solid. We've not seen any material cancellations anywhere to speak, at least I'm not aware of any. I think my team would have told me if there were. So I feel pretty good about it. One additional thing I mentioned at the call, but I do want to highlight, January got off to a rough start, because Omicron started to really wade through our workforce. And it was different than the Delta variant. When we had Delta, we had people getting sick and going out sometimes weeks at a time, and we weren't sure when they would come back. With Omicron, it was waves of illness that went through our workforce, and we'd lose four or five people in a department for a week. But then predictably, they'd come back a week later. So it was different. But the impact was significant in January. We had a lot of people fall sick with Omicron during the early weeks of the year, right after the Christmas break. So we're starting off in a little bit of a whole in January. We've got some work to do to make that up in Q1. So I hope that helps.

[Chris Moore, CJS Securities]

Thanks very much, Jeff. I guess, the last lesson for me. Operating margins were 8.8% in 2021. What would have to happen to get to the 10% level in 2022, just things kind of normalizing on the supply chain side in the second half of the year? Could that be there…?

[Jeff Leonard, President & Chief Executive Officer]

Yes. Let me comment and then I'll let Richard make some comments as well. He's itching to get a word in here for me. If you look particularly at our industrial equipment division, they're just -- their operations were very heavily disrupted. So our manufacturing, for instance, were significantly higher than what we expect to see in that division. And, Chris, it's a simple thing, you start building a product, and then you realize a part you need to complete, it isn't available. So you stop working on that product, and you start working on something else. And what I always refer to is the manufacturing cadence that we rely on for continuous improvement and to make sure that our labor costs remain in line and so on, get really disruptive in that period. So for us to get back to 10% margin, we just need the supply chain to settle down a little bit. And we'll be right there. Because the differences in the variances and we've been there before and we'll get there again. And you will see us very shortly start to set some more aspirational targets here for more income for this company. So having said that, I'll turn it back over to Richard.

[Richard Wehrle]

Chris, a couple of things, we're pleased to see the steel prices are down. But a lot of our purchase components that use steel, we're not seeing that drop yet. That's what would really be helpful for us. Because obviously, the materials and products that we make, it's not just steel, it's everything else that goes along with it. So if we could see some improvement as well from that, that would be awesome. I think the other thing that's probably a big cautionary through as we go forward is freight. There's a lot of volatility in freight, both incoming freight and outgoing freight, the shortage of drivers and just a line having trucks lined up to be able to make deliveries for us is that that's helps. It's -- the level where we're at now. It's like a herd of -- where we used to be. It was very easy to analyst somewhat of a struggle almost every month that we go through. So we could get some stability, that that would be something -- that would be great.

[Chris Moore, CJS Securities]

Got it. Thank you, guys. That was very helpful. I'll jump back in line.

[Richard Wehrle]

Thanks, Chris.

[Operator]

We go next to Mike Shlisky, D.A. Davidson. Your line is open. Please go ahead.

[Mike Shlisky, D.A. Davidson]

Yes. Hey, good morning, guys.

[Jeff Leonard, President & Chief Executive Officer]

Good morning.

[Richard Wehrle]

Good morning,. Mike.

[Mike Shlisky, D.A. Davidson]

You know, I want to start off real quickly, maybe asking about the very near-term outlook here. It sounds like you've had Omicron issues – were in the end of the fourth and part of the first like most people out there. Most of companies out there? And the supply chain is still a challenge. Is it possible that Q1 looks a lot like Q4 in a really quite a few ways as far as the [indiscernible] concerned.

[Jeff Leonard, President & Chief Executive Officer]

Yeah, I think broadly so. Mike. I think the one thing that will change is having snow removal won't be so much regret. You know, the early snows in the winter helped us a lot from a parts and service point of view. And we'll continue to have that a little bit of improvement quarter-over-quarter. I know Dan Malone wants to get a word in here about supply chain. So Dan, go ahead.

[Dan Malon]

Yeah, so one help in the first quarter that we'll have is the fact that remember, we lacked the steel price of -- the mill price started dropping in the fourth quarter. Our cost really didn't -- for steel really didn't start dropping in the fourth quarter because we kind of lag that. So we'll start getting some of that benefit of lower steel prices here in the first quarter. So that will be one, you know, hopefully significantly -- a significant difference between first and fourth.

[Mike Shlisky, D.A. Davidson]

Got you. So I know there ss some chances for some personalized improvement. It sounds like very broadly speaking, that's great to hear. And speaking of the snow business as well, I know you had a good start, but if folks have not been able to get their plow at this point in the season, or snow covered in general or the pressure whatever, have you had any people canceling and same with MSU or folks trying to hold on and get what they can?

[Jeff Leonard, President & Chief Executive Officer]

No, they're pretty much holding on Mike. In fact our backlog was nicely up in snow removal significantly. So which would give me a lot of encouragement that we actually continue to receive orders and pretty nice pace, and we really didn't have any canceled. I mean, the problem Mike is that this is an industry wide issue. These shortages of things like engines and chassis is there and they're not discriminatory, they affect everybody. And I think the OEMs that produce those kinds of components are being very careful not to show any favoritism among equipment suppliers like us, because they know they need to be with us for the long-term. You know, we're doing our best to make sure that that's the case, obviously, but it's affecting everybody in the industry. What's different for us in our snowblower business is that as a very distinctive business,. We build a batch of snowblowers for the winter season. We plan it every year. We increase or decrease based on what we think is likely to happen. And this year that just got really hurt badly because we didn't receive the engines we were expecting to get it.

[Dan Malon]

I think one thing to add to that Mike is when we have a really good season and so that really bodes well for the following year as well for new orders to come in. So –

[Mike Shlisky, D.A. Davidson]

Yeah, yeah. All right. That's that maybe two more on the other side. Can you just talk quickly on the Dixie chopper Brand and you [indiscernible] in general. I've seen some increased marketing activity assembly of some of your other competitors across zero terms and elsewhere. I'm curious if you own this for a while now, in case you had any changes or additions to the marketing plan for that brand in 2020.

[Jeff Leonard, President & Chief Executive Officer]

We actually have,. I had a call it notice our Dixie chopper brand at the Daytona 500 Just a couple of days ago. So we are taking steps to raise our profile there might be -- you may not have seen it yet. But yes, it's happening and it's happening right across the industry. And Dixie is just beginning to roll down their first prototypes that are easy, zero turns which got a really good reception and we were impressed that how the dealers embraced that with open arms. The Dixie chopper dealer guys run on adrenaline there they always have been, that's the nature of that brand. And so we didn't know how they would take to an electric CT. But they were extremely enthusiastic about and we got a really nice reception to that product along the way. So now we are definitely taking steps to raise our marketing profile with the Dixie chopper brand.

[Mike Shlisky, D.A. Davidson]

Got it. Got it. And then the other question I had on vegetation on the commodity prices. USDA put out the numbers yesterday, cow prices up 12% this year, corn prices down but still $4, $5 a bushel. Do you feel that these kind of price levels that they're putting out today are conducive to more orders in 2022, even if your best brother so for you can deliver until in some cases 2023?

[Jeff Leonard, President & Chief Executive Officer]

Yeah. I think so Mike. But you always have to be remember that balance by increased input costs for things like fertilizer along the way. So I mean, it's not all sunshine and roses for producers of commodities along the way. But no one drive, really drives our ag business. And the most important thing I can say to you is the dealer inventories remain really low. So there's no pressure at all on that business yet, because everything that's being shipped is being retailed immediately. Do I expect ag to be strong in 2022 as it was in 2022 -- 2021? Probably not. I think 2021 was a really extraordinary year in that market. But I think it's going to be another good year for sure. And I again, so I think that part of our business will do well again this year.

[Mike Shlisky, D.A. Davidson]

Got it guys. I’ll hop back in queue. Thank you.

[Jeff Leonard, President & Chief Executive Officer]

Thanks, Mike.

[Operator]

[Operator Instructions] We'll go next to Greg Burns with Sidoti & Company. Your line is open please go ahead.

[Greg Burns, Sidoti & Company]

Morning. Are you going to be putting out historical financials for the new reporting segments?

[Jeff Leonard, President & Chief Executive Officer]

Yes, we will. As we move into each of these quarters, Greg, first, second third, you'll see that the new setup that way for both vegetation management and industrial division.

[Greg Burns, Sidoti & Company]

Okay. So we're just going to wait for the quarterly reports. No, nothing correct?

[Jeff Leonard, President & Chief Executive Officer]

Correct.

[Greg Burns, Sidoti & Company]

Okay. And then in terms of pricing, looking at the backlog and how it stands now, how many quarters until you are seeing the full benefit of the current pricing structure flow through?

[Jeff Leonard, President & Chief Executive Officer]

Well, I think in vegetation management, we're already seeing some of it flow through In Q4, and then the margins were really nice and that I think you noted in your report. On industrial equipment, I think it'll start to flow out probably at the back half of Q1 this year. Most of our really troubled contracts were in things like snowplows where the price is fixed and steel has gone up so much in the earlier quarters of 2020 -- 2021. And so I think that better price backlog will start to flow through. I'm optimistic the industrial equipment margins are going to take a nice improvement for the next couple of quarters. And that's my expectation to people.

[Greg Burns, Sidoti & Company]

Okay. Great. And then I'm fishing capacity to produce the demand you're seeing? Do you feel like you need to add capacity? Where are you in terms of your capacity, utilization and ability to ramp up?

[Jeff Leonard, President & Chief Executive Officer]

Okay. In our larger key factories, we are not at all capacity constrained in terms of footprint, people are always an issue. Now the good news as our employee turnover actually picked down a little bit in Q4, for the first time and several quarters, we were happy about that. We've obviously had to take some steps to make sure that happened along the way. We have a couple of plant expansions already underway in several places, notably in Brazil, and I wanted to highlight Brazil, because we've been investing there for a number of years. And we're really finally to get some nice traction down there. So we're putting an investment on that facilities expense footprint now, and may actually acquire some additional profit property to go a little bit farther there with it. So no, I don't feel like we're significantly capacity constrained. The one area where we have been struggling with capacity is in our land clearing business, which came along with the acquisition of Morbark. And as I mentioned in my remarks, we're setting up a couple of additional assembly lines and a couple of different plants to really take a big step up or capacity there. That's been a nice business for us. And the demand has been very steady over the last two years in that space. So you'll see us shifting some production amongst our facilities to debottleneck, those that are producing those products in addition to setting up some additional assembly lines. So we're honest, and we don't need more bricks-and-mortars to clear answer, from a bricks-and-mortars point of view. We're fine.

[Greg Burns, Sidoti & Company]

Okay, great. Thank you.

[Operator]

Over to, Mike Shlisky with D.A. Davidson. Your line is open. Please go ahead.

[Mike Shlisky, D.A. Davidson]

Oh, hey, thanks for taking my call question here. I'm also, I'd be curious a little bit about the recent infrastructure bill that was that was passed. And you started seeing any orders related to funds flowing for natural yet, especially in excavators and certain kinds of more equipment, or is that still something that's going to be coming in the future?

[Dan Malon]

Mike, it's hard for me to give you a discreet answer for that. Although, I can tell you are extraordinary excavator orders were really nice and Q4 and unusual for Q4. So I think that's a bit of an indicator to answer your question. Secondly, is, as I've mentioned a couple of times, in other places, the states and municipalities are in pretty good shape, states are in great shape as they go into 2022. And I believe that we're going to see really nice up-ticks in our governmental business in terms of orders, compared to 2021. Because the states particularly are flush right now. They're in really good shape. And some of that is the infrastructure bill that you're referring to like, as a negative is the one that I've talked to you about a few times in the past. And that is, we're pouring gasoline onto a bonfire in terms of the supply chain. So the additional orders and the additional demand just makes our supply chain situation get more complex, because people like cat and deer and the big guys that are producing yellow iron, they need as much as they can get because of the infrastructure bill. So, the both positive and negative impacts I would say.

[Mike Shlisky, D.A. Davidson]

Got it. Thanks so much, guys. I'll leave it there.

[Dan Malon]

Thanks Mike.

[Operator]

There is no else holding, I'll turn the conference back to management for any additional or closing comments.

[Edward Rizzuti, Vice President, General Counsel & Secretary]

Okay. That concludes our remarks on the call. We look forward to speaking to you at our next quarterly call. Appreciate you all joining us today. Our next call will take place in May.

[Operator]

Ladies and gentlemen, we thank you for your participation. You may disconnect at this time. And have a great day.