Q4 2023 Alamo Group Inc Earnings Call
Participants
Edward Rizzuti; EVP, General Counsel & Secretary; Alamo Group Inc.
Jeff Leonard; President, CEO & Director; Alamo Group Inc.
Richard Wehrle; EVP & CFO; Alamo Group Inc.
Mig Dobre; Analyst; Robert W. Baird & Co. Incorporated.
Chris Moore; Analyst; CJS Securities, Inc.
Mike Shlisky; Analyst; D.A. Davidson & Co
Tim Moore; Analyst; EF Hutton LLC
Presentation
Operator
Good day, and welcome to the Alamo Group, Incorporated fourth quarter 2023 conference call. All participants will be in a listen only mode. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Mr. Edward Rizzuto, Executive Vice President, General Counsel and Secretary. Please go ahead, sir.
Edward Rizzuti
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 two one two eight two seven three seven four six 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 one eight seven seven three four four seven five two nine with the passcode one two nine four six eight nine. Additionally, the call is being webcast on the Company's website at w. w. w. dot alamo dash 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, and Richard Worley, Executive Vice President, Chief Financial Officer and of 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 and 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 adverse economic conditions, which could lead to a reduction in overall market demand, supply chain disruptions, labor constraints, competition, weather seasonality, currency-related issues, geopolitical events 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 Lennar. Jeff, please go ahead.
Jeff Leonard
Thank you, Ed. I'd like to again thank everyone who has joined us on the conference call today and to express our appreciation for your continued interest in Alamo Group. The fourth quarter shaped up broadly in line with our expectations, and we were very pleased with the financial results we reported today. Despite gathering headwinds in several of our served markets, our teams achieved record quarterly sales and earnings for the ninth consecutive quarter.
I would now like to turn the call over to Richard Worley, who will take us through a review of our financial results for the fourth quarter. I will then provide additional comments on the results and say a few words about the outlook as we enter 2024. Following our formal remarks, we look forward to taking your questions.
Richard, please go ahead.
Richard Wehrle
Thanks, Jeff, and good morning, everyone. Alamo Group's fourth quarter 2023 closed with an excellent performance that produced record net sales and net income driven by continued strong demand for products. Fourth quarter consolidated net sales were $417.5 million, an increase of 8% compared to $386.6 million in the fourth quarter of last year.
Gross margin dollars increased by $11 million and gross margin percent was up almost 80 basis points in the quarter compared to the fourth quarter of 2022. Both margin dollars and percentage and percentage increase were driven by higher volume and price initiatives we've had in place along with improved productivity.
Operating income for the fourth quarter came in at $44.8 million versus $42.7 million in the fourth quarter of 2022, an increase of 5%. Operating income as a percent of sales was just under 11% for the fourth quarter versus 11% for the four for the same quarter last year.
Consolidated net income for the fourth quarter was $31.5 million or $2.63 per share diluted share, an increase of 8% versus net income of $29.2 million or $2.44 per diluted share for the fourth quarter of 2022. Vegetation management was off in total sales compared to the fourth quarter of 2022. We expected the softness in coming in both in forestry and agricultural markets.
Net sales were $214.4 million, a decrease of 8% compared to $232.5 million for the fourth quarter of 2022. As we care as we have continued to monitor dealer inventory levels, which are up but not at historical levels. We honor dealer requests during the quarter to reschedule shipments until 2024 which was a big reason for lower sales.
The division's operating income for the fourth quarter was $19.8 million, down 35% versus $30.2 million for the same period in 2022. Industrial Equipment division, net sales had a tremendous quarter coming in at $203.2 million, up 32% compared to $154.1 million for the fourth quarter of 2022. This was due to a solid performance across all product lines, particularly vacuum trucks, sweepers, debris collectors and snow removal equipment, while truck traffic, while truck chassis deliveries and component part receipts return to more consistent cadence, there were a few late component deliveries that impacted this division's operations, although not as significantly as in previous quarters.
This resulted in a substantial rise in operating income in the fourth quarter of 2023 of just over $25 million compared to $12.5 million for the fourth quarter 2022, an increase of over 100%. Consolidated net sales were a record for the full year of 2023 coming in at just under $1.7 billion, up 12% compared to $1.5 billion for full year of 2022.
Strong demand for our products in both divisions, along with positive impacts of pricing initiatives and improved supply chain and productivity were the main drivers of the increase. Consolidated sales were the highest in the Company history 2020 to 2023, gross margin percent was up almost 200 basis points and gross margin increased $77 million versus 2022, an increase of 20%.
The margin improvement resulted from continued and continued improvement in supply chain conditions, which led to efficiencies and enhanced capital cap capacity utilization. Full year operating income for 2023 was just under $198 million or slightly below 12% of sales compared to full year 2022, which was $148.6 million, just under 10% of sales, up 33% increase in operating income dollars and 190 basis point increase in operating income as a percent of sales.
Net income for 2023 was $136.2 million or $11.36 per diluted share versus net income of $101.9 million or $8.54 per diluted share for 2022, an increase of 34%. The company's backlog at the end of 2023 came in at just over $860 million. That's down 15% compared to backlog levels at the end of 2022.
Few additional financial items. I'd like to cover that relate to the balance sheet at the end of 20 at the end of 2023, which continues to remain extremely strong working capital increased $53 million compared to the end of 2020 to increase primarily from higher accounts receivable and to a lesser extent, inventory. For the full year of 2023, we reduced our debt level on our credit facility by almost $67 million.
Our bank leverage ratio at the end of 2023 was just under [1:1], which had its lowest level in just over eight years, four years, excuse me. And finally, the Company's trailing 12 month EBITDA was a record coming in at just under $247 million, up 26% compared to calendar 2022.
For 2024, cash flow shipment should remain strong as our focus will be continue to reduce both inventory and debt. We will remain disciplined in execution, controlling costs and expenses and as inflation is expected to continue to put pressure on our margins for the supply chain will continue to be major focuses to reduce the amount of work in process we hold.
So in summary, Q4 was a record for look out for our quarter for Alamo Group sales were up 8%, which translated into 8% increase in net income. We are also pleased that our Board recently approved an increase of our regular quarterly dividend of $0.22 per share to $0.26 per share for 2024.
With that, I'll turn the call back over to Jeff.
Jeff Leonard
Thank you, Richard. We want to thank everyone who joined us on the conference call today. In the fourth quarter, we produced solid financial results that were broadly in line with our expectations. We were especially pleased that our fourth quarter results established the company's ninth consecutive quarter of record sales and earnings. Overall, our markets continued to display significant strength during the fourth quarter, although they began to diverge directionally as we closed out the year. Municipal county and state agencies continued to accelerate their investment in renewal and modernization of their infrastructure maintenance fleet state rainy day funds remain near all-time highs and ended 2023, nearly double what they were before the pandemic in 2019. The pace of spending by state and municipal governments continued to accelerate last year relative to 2022 and double digit annual spending growth was reported again in 2023. This continued to drive robust demand across our full product offering and the Industrial Equipment division as well as our roadside and specialty mowing products and the vegetation management division. The market for our forestry and tree care products was more challenging in the fourth quarter as negative trends emerged in the wood biomass market.
According to the USDA United States, wood pellet exports increased 6% by weight, and the price per ton also increased 6% relative to 2022 less positive lead domestic suppliers are confronting cost pressures and tight supplies of waste wood feedstocks that are pressuring margins in the long term supply contracts. This slowed planned investments in major equipment, higher interest rates, also constrained ordering activity related to these larger and more expensive products. While recent biomass market dynamics were less favorable in the final months of 2023.
Demand for our forestry products remained at a good level in the fourth quarter, although off from the peaks of the previous few years in the hobby farm and ranch segment, fourth quarter trends were also mixed after a long upward run spanning several years. Cattle prices declined modestly in the fourth quarter, but still ended the year with strong double digit gains. Hog prices were lower in the fourth quarter and were down for the full year as well. Agricultural crop prices, including corn, soybeans and wheat, all moved lower in the fourth quarter, although they remained at historically good levels. As a result of these commodity price trends, US farmer sentiment declined in the fourth quarter. The higher interest rates that prevailed through the second half of the year caused dealers to push inventories lower. This was most notable in the hobby farm and ranch market where dealers deferred certain planned equipment deliveries and canceled some longer lead time orders. This dealer destocking pattern impacted orders within the vegetation management division. Dealers selling the products of our Industrial Equipment division have not been impacted as much by higher interest rates as they don't carry meaningful inventories of these made to order products.
Looking at how these market forces drove our business in the fourth quarter, sales in the vegetation management division were down 8% and new order bookings declined 34% compared to the fourth quarter of 2020 to year end. Order backlog in this division declined 39% relative to the fourth quarter of 2022. These numbers need to be viewed with perspective, though, as the division sales orders and backlog remained elevated compared to pre-pandemic levels.
The division's fourth quarter EBITDA of 12.6% was 360 basis points lower than the prior year. However, on a full year basis, EBITDA was 80 points higher versus 2022. The division's backlog represents a solid four months of sales at the current pace two months longer than the level reported reported pre-pandemic fourth quarter sales were lower compared to the prior year in forestry tree care and the hobby farm and ranch markets. But sales of mowers to governmental agencies were sharply higher. Fourth quarter EBITDA was impacted by costs associated with sales incentives to motivate retail sales.
Although these incentives were more modest than those employed in the second and third quarters, fourth quarter sales in the Industrial Equipment division were 32% higher than the prior year. The division's order bookings in the fourth quarter were down 9% just due to a difficult comparable. This was the result of an extraordinarily large snow removal equipment order that was received in the final quarter of 2022.
The year end order backlog in this division was 18% higher than the prior year. Fourth quarter EBITDA of 15.1% was 320 basis points higher than the prior year, with the improvement driven by better efficiency, better manufacturing flow as the chassis supply situation continued to improve. Full year EBITDA of 13.6% also marked a 320 basis point improvement versus 2022 and again, this was primarily the result of improved efficiency and higher chassis receipts at the 2023 monthly sales pace. The division's backlog represents approximately nine months of sales.
All of the product lines within this division achieved fourth quarter sales growth in excess of 20%. We were especially pleased that Royal Truck equipment that we acquired in late October had a very strong fourth quarter with sales more than 60% higher than the prior year. Foil truck contributed nicely to the division's sales and EBITDA in the quarter. We're very excited about the new opportunities we've identified in the highway safety market and expect we can continue to grow in this area.
We were also pleased that our teams were able to substantially complete the transfer of compact sweeper manufacturing from our Kent Washington facility to our facility in Mako. On-the-go was caused in the fourth quarter and then to divest the Kent facility Overall we were pleased with the results achieved in the fourth quarter despite a more mixed market environment, the fact that our teams were able to offset much of the impact of the more challenging conditions in vegetation management with performance improvements in Industrial Equipment clearly shows the strength of our product offering as we enter 2024, the trends evident in the fourth quarter are expected to continue the excess channel inventory and vegetation management will take some time to work through and it now appears that the highly anticipated benefits of an interest rate reduction may not occur until later in the year. We are closely monitoring this and will not hesitate to adjust our capacity as needed to match current demand. We remain bullish on the prospects for our Industrial Equipment division and expect the good momentum evident in the fourth quarter to continue driven by elevated spending by governmental agencies, combined with a modest sustained tailwind from the federal infrastructure bill. We're expecting another sequential improvement in chassis receipts in the first half of 2024, and this will help sustain a reasonable level of organic growth our balance sheet is strong and we reduced total debt by more than 22% or more than $67 million during 2023. This positions us well for what we expect will be a more active in an M&A market in 2024.
So in conclusion, we believe the Company is in a good position as we enter 2024, and we're optimistic about our prospects for the new year.
Before closing my remarks today, I'd like to thank our customers, dealers, suppliers, our thousands of exceptional employees and our financial stakeholders for their continued support for the company.
This concludes our prepared remarks. We're now ready to take your questions. So operator, please go ahead.
Question and Answer Session
Operator
(Operator Instructions) Mig Dobre, Baird.
Mig Dobre
Good morning, and thank you for taking the question. And maybe we can start with vegetation management on. Can you can you maybe give us a little more more insight into the order cancellations that you experienced in the quarter? Sounds like you expect dealer destocking to continue in 24. Is there a way to sort of frame the overhang from the destock in dollar terms, and I'm not sure I can give you that on this call.
Jeff Leonard
We can certainly put something together for you. The pace of order cancellations in the fourth quarter was actually down a bit from Q. three, Mig, but it was still heavily concentrated in the hobby farm and ranch segment where dealers can have, firstly to reprice orders as we've seen for a while and then to partially replace those new orders. But we're also kind of an off-season period in that market at the moment. So I think the real test of the tape will be how the early months of 24 shape up as we head into the spring season, but it really wasn't that unusual compared to what we saw in Q3, for example. But the order softness remains. And that's really just because the inventories still remain too high out in the dealers and we continue to run incentives, which elevated our marketing costs in that division. It's tried and move those inventories out of dealer stocks. It's been pointed out to me repeatedly that the thing you've got to think about here from a dealer perspective is a dealer's balance sheet is denominated in dollars, not units.
And so as the price of those units has gone up over the years, it means less units of space on the balance sheet and inventory. So it tends to squeeze short-line suppliers like us made when those balance sheets start to come under pressure. So none of that has really surprised and we've been through it before, and I think we could still see some daylight sort of toward the middle of the year of this division. I'm still optimistic that this system will clear up sort of towards the back end of Q2. That's just my latest thoughts.
Mig Dobre
If we look at your your implied orders in Q4 were calculated, if you would orders and Vigen vegetation management, our math is about $176 million in orders. And I'm sort of curious if you think that this level of order intake is what we should be thinking for 2024, at least for the front half of 24 or if you expect another step down, for instance, as this destock continues to materialize?
Jeff Leonard
Yes, that's a great question, Mig. I think what I would say about it is the bookings that you see are net. So it's net of order cancellations. So it does tend to depress the order run rate. And I think we'll continue to see those order cancellations slow for the next quarter or two, which will drive the net booking number higher. So no, I don't believe this is the new normal long term, certainly not for 2024. It's hard to call the bottom in the ag space. But I think when we look at what our dealers are telling us and where their inventories are, where either at the bottom or close to it really close to it right now. And so I think we should start to see those numbers ticking back up. I hope that helps you a little bit?
Yes, no, it is helpful.
Mig Dobre
And I'm trying to understand from a revenue standpoint, if that's kind of where you are in terms of bookings and backlog so from a revenue standpoint, how we should be thinking about the front half of 24 relative to the two to the $214 million that you put up fourth quarter.
Richard Wehrle
I'd make this, Richard, we kind of think the first quarter as we move out of the relatively what you saw seen here in the fourth quarter in that general range and probably somewhat into the second quarter.
Mig Dobre
And then from a margin standpoint sequentially, are we looking at something similar to the fourth quarter?
Richard Wehrle
We're hoping to hold it right where it's at or I think as Jeff mentioned on the repricing we're talking about, we think our if we think in standard gross margins, we think that will come down some. But overall, we think our efficiencies and we're working on reducing our purchase price variances that we can actually start get. We're pushing back to our vendors to reduce costs. So our incoming in our incoming cost should come down. And if that's the case, hopefully, we'll hold the margins roughly in the same area that we're at now.
Jeff Leonard
And make remember there's some seasonality here that Q4 first blend in the revenue to the revenue stream tends to be lower, and that will start to increase towards the back of the first quarter and into the second. So that should support at least a modest improvement of EBITDA. It normally does if you look at the pattern this division.
Mig Dobre
Okay, understood. And then final question for me is obviously there's pressure on margin in vegetation management and we talked about the revenue and what's going on with de-stock. And from that point in time, do you think you're going to have to adjust capacity or adjust the cost base to at least tried to stabilize margins. If these trends continue into the back half of 21.
Jeff Leonard
We're working on that right now, Mike, because we've had some under-absorption flow through into the P&L and we don't tolerate that long term. So we're working on that right now.
Operator
The next question will come from Chris Moore with CJS Securities.
Chris Moore
Thanks for taking a couple of good morning and maybe withstand same similar lines, but just in terms of the 12% operating margin target for this year, is it fair to say that it will be challenged in the first half of the year and with a little improvement and the vegetation side, you may be back end up in that arena or just kind of any thoughts you have at this stage?
Jeff Leonard
I do, Chris. I think as we move toward the back end of Q2, we'll get back to that pace because, as we said a moment ago that the margin should trend upward in vegetation management, particularly notably in Q2. It will start at the back end of the fourth quarter in a couple of weeks' time. It's already starting to warm up down here in the south. So I think that will bode well for us. So I think we'll be back there certainly within the second quarter. That's my expectation as we sit here now, as I say, it's really hard to call the bottom in ag because it's really comes down to the sentiment of dealers and to get the dealer sentiment improve with, we need to get interest rates moving in a better direction for them because they're not really in a bad place right now. They're just pessimistic about what the short-term yields everybody was sort of factoring in this earlier in the year interest rate reduction, which gave us a moment of optimism. And I think that kind of crushed fairly quickly in the hobby farm and ranch segment. But in any event, we're still going to reassess our targets. We gather up our management team typically in the second quarter, early in the second quarter, pull together the best brains in the Company revised our strategy. And at that point, we'll revise our target. So I would say towards the back end of the second quarter, look for some news on revised targets.
Richard Wehrle
Chris, one thing I would point to this, too, that I think we all kind of seem to forget about is how will the Industrial Equipment division is performing. I mean their margins are up every single quarter that we've had here going back to Q2 next year. And as Jeff mentioned earlier, our expectations is that's going to continue to go on as we move into the balance of 20 into 2020 for yourself?
I think that's the beauty of our business. We've got two businesses here and we can't forget about the industrial piece because their performance has done really well.
Jeff Leonard
Chris, it's Jeff. One other thing I'd like to point out, we had some extraordinarily high SG&A costs come through at the corporate level this quarter. Because of the changes that weren't announced, our Board of Directors yesterday, we had high recruiting costs. And if you back those back out, that's clearly a one-time event. We'd have been right on what the analysts were expecting for us in the quarter. So that's why I said, I'm still bullish that there's some things going on the back of here that we know about that are just causing us to say look, okay, this is a bit of a one-time event in Q1 that won't repeat in Q2. So I still like where we sit very, very much. And as I've said for the last couple of quarters, these two divisions would converge in a better place and industrial made up a little more ground than I expected in Q1. And I think our vegetation management guys did a really good job playing defense, protecting their bottom line and did a little bit better maybe than I could have hoped they could do with the pressure on the top line in that division.
Having said that, we do have some under-absorption. We need to deal with it. We're going to deal with it properly to make sure that we don't have that repeat in the second quarter. So that's our plan forward.
Chris Moore
That's very helpful. And the 11.6% industrial margins this quarter there. Is that about the top or there's still room for even more improvement on that front?
Richard Wehrle
No, there's going to continue to be more room for that, Chris, because as we mentioned in there, we still got component issues on a few items that when you're dealing with something of that magnitude and the sheer size and volume of a unit that's pretty expensive from a cost standpoint and you missed something that doesn't get that. We can't complete that unit. It sits in with which our width is still high. We're pushing $31 million-plus in whip and that's very difficult to get through. It does relieve itself as you move forward. But again, sometimes you just get those things that pop out in that. I think if those continue to improve what we're expecting and we're pushing our procurement folks to kind of get a little bit more level loading of those deliveries of those components that we need to complete these units will continue to see margins moving in the right direction for them, and it should be up yet.
Jeff Leonard
When you look at that division. Chris, the vacuum truck business continues to perform exceptionally well. Fleet utilization has been excellent all through the first the fourth quarter, and it has started well in the first quarter as well. And then our sweepers group is starting to gain momentum to. They had a nice pickup year over year and a nice sequential pickup quarter over quarter.
And our snow removal group, the margins continue to expand there and their backlog is still rising. So I think when you look at the picture in the Industrial division, it looks very bullish from my point of view, and we still have eliminated all of the costs related to the inefficiencies that Richard was referring to. So we've still got some running room to pick up there.
So I think the outlook for industrial is bullish from my point of view.
Richard Wehrle
And Chris, they came in at 12.3% EBIT for the quarter, which is a huge improvement over even Q. three by itself. And I think we've been asked the question, do we expect their margins to continue to go north above that and the answer is yes.
Operator
Mike Shlisky, DA Davidson.
Mike Shlisky
And so another debt reduction here in the fourth quarter in the back half of 23, given what your business is handled here in in 2024. When you take both segments together. I'm curious whether you can give us any thoughts whether you think you can get to zero net debt by the end of the year? Or just any kind of rough brackets around your planned targets for debt reduction over the next couple of quarters?
Richard Wehrle
Chris, that we've got roughly, if not by just like I'm sorry, we got about $240 million, $235 million in term. So and the balance of this in our revolver. The intent here is to continue to move forward in 2024 and reduce the revolver down. And we do have that ability if any, excess cash does come in we can pay on the term on the back on the on the long-term piece of on the back end. So it doesn't that's our intent to continue, but we have it off to zero? No, but we're going to do everything we can obviously to reduce or to eliminate the revolving piece of that debt and continue to any excess cash. We have is to pay on the term permanently.
Jeff Leonard
Mike, we're obviously trying to keep this balance sheet that could sheet in great shape for what we're expecting would be about M&A more than 24. We're already seeing some signs of that. So obviously, that's that's the most important thing. We're ready to jump on the opportunities when they come.
Mike Shlisky
And that's kind of where I was going to go with my next question, and that was on how it's going with the Royal Truck business since you acquired it, I couldn't help, but notice that your new Chairman, as someone who has who is no stranger to the highway infrastructure safety of business and you call this Your next new platform, I know you mentioned in the opening comments, but could you maybe give us a little more detail as to the number or sizing of the M&A candidates you could maybe add to that over the next, I guess, I mean for 18 months.
Jeff Leonard
Just now this this space might cause a type of mechanical market space. We like it's fairly fragmented. There's a lot of middling sized companies, companies in that $30 million to $70 million annual revenue range. But then there's a couple of big players in that space that we like a great, great deal. And so you're right, Rich. Corrado, our new incoming Chairman, announced this morning has a background in that space, and he was with me out of the Axis show the American traffic safety show a few days ago, kind of kicking the tires on a few things. So we like the space, we think we can grow there and we think near-term opportunities there.
Mike Shlisky
Got it. And then second, maybe you have a somewhat broader question when you put together the outlook for margins in both the group's and the outlook for potentially turning around and visitation and obviously strong growth in industrial here. I just want to get can you give us some kind of a sense as to whether you expect a year of growth net-net for revenues and margins in 2020 on a holistic.
Richard Wehrle
I think probably what you want to look at the two divisions. The Industrial, we expect revenue levels to be higher than they were in 2023, 2024. The vegetation management, I think probably it's going to be a bit soft, as we mentioned as you start to have first half of the year, but we think we can gain some momentum and tried to get something that's relatively in the general same ballpark of where we were at 2023?
Jeff Leonard
Yes. I still think there's some tumor net-net for growth. I'm the optimist in the group because I do believe we're near the bottom on ag. I was the first one to say, look, it's hard to call the bottom. When you're immersed in the business when the guys running the business are deep in it, it's hard to call the bottom. But all the signals that I see tell me we are either at the bottom or very, very, very close to it in the hobby farm and ranch segment so I still I'm still an optimist on 2024. And as I said, I'm very, very bullish on where our industrial division is go and they still got great momentum they're still booking good orders. Again, they had a kind of a difficult comparable from a booking point of view. And I think I missed that snow removal or a year ago, this time. And but they had a great quarter and their backlog is up like 18%. So they're really well positioned to continue to gain ground here. And that is our strategy is one of our market segments softens, the others accelerate. And if we can keep doing that, we're in a really nice place. So I think you'll see us refresh our targets, Mike here in a couple of months, and I think they'll be well received. That's my judgment.
Mike Shlisky
So so flat up in one segment? Well, the up nicely in the other segments and both you have market opportunities in 24 as well for segments?
Jeff Leonard
Yes, that's my belief.
Operator
Tim Moore, EF Hutton.
Tim Moore
Thanks and great full year organic sales growth and wonderful backlog finish on the Industrial Equipment side with new orders. Definitely ahead of my forecast there. I just wanted to drill more into one topic that investors really weren't believing or maybe over looking where your stock price is $160 in October and based on some calls, I was counting on, but seems like a very good catalyst. I know we're just start highlighting this topic three questions ago, but I'm just the industrial equipment operating margin runway. We know that you've got to you'll be getting operating leverage growth just from volumes and Richard mentioned getting went down with the procurement team and more inefficiencies taken out.
Can you maybe dive into more, you know, just on the inefficiencies plants and any way to kind of ballpark, if you're 80% back to maybe being recovered on normalization of supply chain components and delays and not need to restart those lines of production to finish off the final assembly steps of our backyard lessening their?
Jeff Leonard
Yeah, let me take the first crack at that. And I think Richard was to add a comment or two as well, it could be that I will look like you guys. When you look at the chassis situation, Tim, there are still problems that all the truck builders are having getting frame rails out of Mexico. They all share one supplier. And So believe it or not a kind of a straight piece has been steel frame rail is holding up production for all the major OEMs in North America. That's issue number one issue number two, as Allison Transmission has been having difficulties at the moment getting the transmissions that we need for the vacuum trucks. And that has set back the pace of recovery in the truck chassis market a little bit.
Having said that, we're going to get hundreds more chassis in 2024 than we were in 2023. I think we are in a very, very strong position, and we are finally starting to get a nice diversity of chassis coming in after working to diversify our supply channels six, six months or so ago. So I think, you know, we're probably better than 80% back in terms of the supply chain itself. But we still have these shop floor inefficiencies when when something like a frame rail doesn't come or transmission doesn't come and suddenly a chassis that you're expecting to receive doesn't show up on your door. And then there's still some labor issues in some of our bigger plants, not not labor unrest, just shortage of getting enough people to be able to run these plants the way we run them want to run the way we want to run them. But I would say it's much better now than it was a quarter ago, and I think it's going to continue to grow Africa.
Richard Wehrle
You know, I think, Tim, on that, and that's the key to me here is not as it is is chassis. But our with this high, not because of chassis or whip is high because of component parts or lack of them when we need them, if they're here on time. And they're efficient world that when we open the work quarter, we run right through it and we complete and close, but we end up missing something we have to go park that unit and it could be less said before 90% to 95% complete and we can't finish it and we have to go start on something else until the component gets it. That's the efficiencies that we keep pushing back on that we have to work on that the government needs to do a better job and help us out there and trying to make sure that those components are delivered to us on time with a good quality cost price an item in there. So that helps us because SOP is starting is probably about the worst thing we could do and it's worse in the Industrial division that is in vegetation management, I think thanks for that color.
Tim Moore
Thanks for that color, Richard and Jeff.
Jeff Leonard
Just to add a little bit. I could just add a little more color for ECM. The supply chain problems were actually more of an issue in the fourth quarter and vegetation management. Some of the bigger components that we need for the forestry side started to be more disruptive than we've seen for a while and that caused some real headaches in forestry up in our Morbark business, but we were not anticipating. So we're battling our way through that. But net net, as you look across the Company, we are in a much better place. Steel prices are looking a little bit favorable as we ended the year. So that could be a little bit of a tailwind for us for at least the first few months of 2024.
So on balance, as I said, I think I've called the bottom. You guys can all tell me as long a quarter of 10 from now in the ag space, but I'm calling bottom and I think I'm up optimistic optimistic about where the next couple of quarters may go. And I certainly think we're going to be back to very nice running by the middle of this year in the vegetation management division.
Tim Moore
That's really good Q1. We always appreciate your candor, and that's just such a good improvement there, even on industrial equipment compared to 1.5 or two years ago with the going back to the final step. And it's just nice to for investors to know that like, you know, they're yet 100%, but there's still that extra operating margin level expansion just from it when you get there?
Jeff Leonard
When you go into the Industrial Equipment division, Tim, the vacuum truck business is our steady performer there doing great. And we were able to add nicely to the rental fleet and expect to add significantly to the rental fleet as we go into 2024. That's going to be very positive. That's very profitable business for us. And then our sweeper and debris collector business, which has been running, okay, not perfectly. The last couple of quarters of 2023 really picked up the pace in the fourth quarter, and it's got a really good start. We came out of the gate in 24 also with a very good backlog. So that's an improvement. And then our snow removal group was at its best point in years from a profitability point of view with an exceptionally strong background back backlog. So the outlook and snow is very nice for us right now, too.
Tim Moore
That's great. And can we do things are firing on all cylinders and industrial and you get back to the 12%-plus operating margin pretty pretty easily. You should with them the outlook. But I'm one. Just switching gears and I think most of my questions already answered on the vegetation side. What about I'm just any updates on upcoming launches or trade shows for hybrid and electric product offering US and European cities and towns. They're starting to pursue better duty cycles and more environmental friendly fleet mixes. I'm leaving you talk about there in launches and introductions Yes.
Jeff Leonard
Well, we launched an electric mower in our French operations about a year ago. That's starting to really gain momentum now and sell very, very well. We've started to expand the production of the hybrid hybrid Timberwolf chipper that we make in UK, and we're going to bring that to the North American market here very shortly. So that's positive. Our small compact a hybrid street sweeper has come out of the gate very, very well and actually surprised us with the momentum behind that. So that's looking very positive. And then I think you probably saw our all-electric a street sweeper, the MDM. six at the show and ConExpo. And we've been had a little bit of a setback there and that the electric chassis were played from the supplier that we're not going to get as many of those in the first quarters. We'd hope. But I mean, we're talking with Boeing about chassis, you can have on one hand. So it's not a needle mover from that point of view. But the momentum momentum is very, very good. And I continue to believe this company in a very good position. The really bright news was our larger electric sweeper has proved proven to give more operating hours than we expected on a charge of the batteries battery packs are performing better. So we're getting a more net yield product productivity time out of that product than we were expecting. And the early customers that have seen it have been very very impressed with that. And I was too from an engineering point of view, how well that's turned out. So we're in a great position there from my perspective.
Tim Moore
Yes, that's great. Color on the battery packs. And I'm a big fan of that hybrid timberland chip participants can do phenomenally well in North America as it rolls out. But I'm thankful I am that separator efficient ethanol industry.
Operator
Mig Dobre, Baird.
Mig Dobre
Thanks for the follow up on in industrial. Is there is there a way to frame for us pricing in your backlog? So if we're looking at 18% increase year over year in backlog, how much of that would be price relative to volume.
Richard Wehrle
I would probably tell you two thirds of that is more volume than it is for price, but our price has gone up every single every single month we've made adjustments in every single quarter on our backlog. So yes, it's in there.
Jeff Leonard
The purchase to the purchase cost side of that equation is flat, meaning we're not seeing much price escalation from our suppliers at the moment, a little bit on the chassis, but it's very, very modest. So most of that gain is, in fact, just good running in the business from my point of view. So I think the majority of that is true growth.
Mig Dobre
I see I ask the question because I'm trying to figure out what the reasonable expectation for revenue growth in industrial in 2024, right in your backlog is high. It sounds to me that and while there's still some supply chain issues, you're expecting more chassis in 24 than you did you had in 23. So your volume should be up, pricing is positive and should help you. So can you maybe help us understand what's the reasonable expectation for revenue in 24?
Jeff Leonard
Yes. I think when you look at that division, make a couple of things. I mean, in terms of the chassis, we have failed when some parts of the business were actually sold out for 2024, which is great seats haven't been delivered yet. So I think you will see nice revenue growth out of the industrial division. They're feeling bullish about where they sit right now and they've come out of the gate very strongly in the first quarter. I can't be specific about that, obviously, but we like the momentum and what we see there. So I think there's plenty of room for organic revenue growth in the Industrial division. We were with that division head yesterday at our Board meeting and Mike likes where you sitting and the backlog has never been higher and that business, it's a beautiful spot at the end.
And then as you point out with regard to the chassis, we're going to get hundreds more chassis in 2024, at least. That's what we've been promised that what we saw in 2023 that will flow through in a couple of nice ways. Our rental fleet should go up very nicely, I hope, hopefully by triple digits, but certainly by double digits in terms of unit count. And that helps because we're running that fleet so hard right now, it's hard to keep up with it. The utilization is so high. You're putting a lot of wear and tear on the trucks in the fleet. But secondly, it's helping our sweeper business that has a big backlog and has been constrained on that. And we're building trucks now on our debris collector group enrichment that they've sort of been the poor guy at the back of the line to get chassis and they're starting to get chassis flowing through again. So I think we're going to see nice organic growth in the Industrial division.
Richard Wehrle
One other thing too, that Mig, in 2020 for the full year royalty trust and that will probably definitely push their sales above double a double digit increase.
Operator
Okay. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead.
Jeff Leonard
Okay. Thank you very much. Appreciate everybody joining the call today, and we look forward to having you join our first quarter conference call in May of 2020 for you.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
