アラモ・グループ（ALG）2026年第3四半期決算説明会：ベジテーション部門のマージン改善、Econ買収によりポートフォリオ拡大

主要なポイント

• 2026年第3四半期の売上高は前年同期比4%減の4億310万ドルとなり、これには事業売却に伴う730万ドルの減少が含まれています。
• 調整後売上総利益率は、植生管理部門の業績改善、価格改定、調達コストの削減、および部品・サービス部門の貢献度向上に支えられ、40ベースポイント上昇して24.7%となりました。
• 調整後EBITDAは5,240万ドル（売上高比13.0%）となり、前年同期の5,500万ドル（売上高比13.1%）から減少しました。調整後希薄化後EPSは2.34ドルから2.06ドルに減少しました。
• 植生管理部門の調整後EBITDAマージンは280ベースポイント拡大して12.5%となりました。事業売却の影響を除く同部門の売上高は2.7%増加しましたが、これはエンドマーケットの回復というよりも、主に製造スループットの改善と価格改定によるものです。
• 産業用機械部門の売上高は5.8%減の2億3,280万ドルとなりましたが、純受注高は前年同期比24%増加し、オーガニックベースでも2桁増を維持しました。
• アラモ・グループは、慣習的な取引完了調整額を含め、イーコン・エンジニアリングを約1億5,870万ドルで取得しました。経営陣は、買収完了後最初の通年で本取引がEPS向上に寄与すると見込んでいます。

主要財務データ

同社は、事業および製品ラインの売却と事業縮小に伴い、税引前で純額3,330万ドルの費用を計上しました。また、2つの施設売却により約600万ドルの売却益を認識しましたが、この利益は調整後業績から除外されています。

2026年9月30日時点で、アラモ・グループは2億3,070万ドルの現金と同等物、および2億3,230万ドルの総負債を保有していました。イーコンの買収を反映したプロフォーマベースの純レバレッジ比率は調整後EBITDAの約0.7倍で、リボルビング信用枠の利用可能残高は2億660万ドル、さらに4億ドルの追加融資枠（アコーディオン機能）を有しています。

事業および業績の動向

植生管理部門

売上高は1億7,040万ドルとなり、前年同期の1億7,310万ドルから1.5%減少しました。730万ドルの事業売却の影響を除くと、販売量の増加と良好な価格設定により売上高は2.7%増加しました。

調整後EBITDAは、前年同期の1,680万ドルから2,130万ドルに増加しました。マージンは、販売量の増加、価格改定、調達コスト削減、コスト削減策、およびオペレーション改善を反映し、9.7%から12.5%へと拡大しました。

米国の農業関連事業およびツリーケア・リサイクル事業は、エンドマーケットの軟調さが続いたものの、事業売却の影響を除くと2桁の売上成長を達成しました。欧州の農業関連売上は概ね横ばいとなり、自治体向け草刈り機械は地方自治体市場の継続的な低迷を受けて減少しました。

同部門のBBレシオ（受注出荷比率）は0.92倍でした。受注残高は1億7,100万ドルで、約3ヶ月分の売上高に相当し、過去の標準的な水準に整合しています。

産業用機械部門

売上高は前年同期の2億4,700万ドルから5.8%減の2億3,280万ドルとなりました。ピーターセンの影響を除くと、売上高は12.6%減少しました。

調整後EBITDAは前年同期の3,820万ドルから3,110万ドルに減少、マージンも15.5%から13.4%に低下しました。資材費および物流費のインフレと減産の影響が、価格改定、調達コスト削減、および高利益率な部品・サービス比率の拡大による効果を上回りました。

除雪機器グループが最も大きな売上減の影響を受けました。これは主に、燃料費や融雪塩などの資材費上昇を背景に、カナダの事業者が買い替えを見送るかトラックの改修を選択したためです。路面清掃車の需要は自治体顧客向けで弱含みとなりましたが、民間向けのナイトホークの売上は2桁増となりました。油圧ショベルおよび強力吸引車の売上は概ね横ばいでしたが、第3四半期の受注は大幅な2桁増を記録しました。

産業用機械部門の純受注高は前年同期比で24%増加し、ピーターセンを除いても2桁増を維持しました。BBレシオは0.94倍で、受注残高は計3億5,000万ドルと、売上高の約4.5ヶ月分に相当します。

イーコン・エンジニアリングの買収とポートフォリオの再編

イーコン・エンジニアリングは、売上の約半分を道路維持管理車両の製造から、残り半分をレンタル車両事業から得ています。レンタル稼働率は平均90%を超えており、経営陣によると、イーコンは英国のレンタル市場で80%以上のシェアを保持しています。

2026年度において、イーコンは約8,800万ドルの売上高、3,800万ドルの調整後EBITDA、1,900万ドルの調整後EBITを創出しました。約1億5,900万ドルの買収価格は、直近12ヶ月の調整後EBITDAの約4倍、調整後EBITの約8倍に相当します。

経営陣は、イーコンの統合によりアラモ・グループのプロフォーマ調整後EBITDAマージンが13%強から15%弱へ引き上げられたはずであると述べました。イーコンの純設備投資額は平均して売上高の約20%です。

また、アラモ・グループは主に植生管理部門におけるいくつかの小規模事業および製品ラインの売却または事業撤退をほぼ完了しました。これらの事業は年間売上高で約3,000万ドル（過去12ヶ月の連結売上高の2%未満）に相当し、業績はよくて収支トントン、あるいは赤字であったと説明されています。

経営陣の見通し

アラモ・グループは、2027年度の公式な財務見通し（ガイダンス）を開示しませんでした。

経営陣は、北米の農業、北米のツリーケア、欧州を含む植生管理部門のエンドマーケットが引き続き軟調であり、全体として1桁台前半から半ばの下落傾向にあると説明しました。同社はサイクルが底打ちに近づいている可能性があると考えているものの、この軟調さは2027年まで続く可能性があると予想しています。

産業用機械部門について、経営陣は2026年を過渡期と位置付け、先行きは見通しにくいとしつつも、2027年は概ね横ばいから1桁台前半の増加になるとの見方を示しました。

同社は、鋼材コストの大幅な上昇がないと仮定すれば、今後の1〜2四半期で価格改定が資材インフレに追いつくと見込んでいます。調達コストの削減効果は2026年第4四半期も継続し、2027年には加速する見込みです。

アラモ・グループは、長期的な実効税率を引き続き約25%〜26%と見込んでいます。設備投資額は売上高の約2%、イーコンを含めると約3%を目標としています。同社は純レバレッジ比率を最大2.5倍とし、通常は年間1〜2件の小規模補完型買収の完了を目指しています。

リスクと注目点

• 農業、ツリーケア、および自治体向けのエンドマーケットは引き続き弱調であり、当四半期中に明確な持続的回復の兆候は見られませんでした。
• 高止まりする鋼材費、資材費、物流費が産業用機械部門のマージンを圧迫し続けています。鋼材コストがさらにインフレした場合、価格改定によるコスト回収が遅れる可能性があります。
• 減産により、特に産業用機械部門において固定費の吸収率が低下しています。
• カナダの除雪事業者は営業コストの上昇に伴い機材購入を見送っており、この減速傾向は2026年第4四半期まで長期化する可能性があります。
• イーコンのレンタル事業モデルは資本集約度が高く、純設備投資額は売上高の平均約20%に達します。
• 特に自治体向けおよび産業向け製品カテゴリーにおいて、受注時期にばらつきが残っています。

アナリスト質疑応答の要点

経営陣は、現在の受注残高水準は正常化された過去の標準的な状況と一致しているように見えると述べました。産業用機械部門の受注残高は売上高の約4.5ヶ月分に相当し、植生管理部門の受注残高は売上高の約1四半期分となっています。

産業用機械部門のマージン低下について、経営陣はその要因を資材インフレ、物流費のインフレ、および販売量の減少によるものとしました。価格設定と資材コストをあわせて考慮した場合、販売量の減少が影響の大部分を占めていると指摘しました。

経営陣は、同業他社も値上げを実施していると述べました。アラモ・グループは、インフレ分の回収と、競合上の優位性および需要の維持とのバランスを取っています。

M&Aに関して、同社は買収対象候補のロングリストを維持しており、今後も小規模補完型買収を継続して完了できると自信を示しました。イーコンとピーターセンは、魅力的なマージン、維持可能な市場参入障壁、およびアラモ・グループの既存ポートフォリオに隣接する製品を有するニッチ企業という、同社が求める理想的な企業の例として挙げられました。

決算説明会 文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good day, and welcome to the Alamo Group Third Quarter 2026 Conference Call. [Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Kevin Carter, VP of Finance, Strategy and Investor Relations. Please go ahead.

Kevin Carter

Thank you. By now, you should have 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) 827-3772, and we will send you a release and make sure you're on our 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 (855) 669-9658 with a passcode 779-8005. Additionally, the call is being webcast on our website at www.alamo-group.com, and a replay will be available for 60 days.

On the line with me today are Robert Hureau, President and Chief Executive Officer; and Agnieszka Kamps, Executive Vice President and Chief Financial Officer. Management will make some opening remarks, and then we will open the line for your questions. During the call today, management may reference certain non-GAAP remarks in their remarks. Reconciliation of these non-GAAP results to applicable GAAP numbers are included in the attachments to our earnings release.

Before turning the call over to Robert, I would 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: adverse economic conditions, which could lead to a reduction in overall market demand, supply chain disruptions, labor constraints, increasing costs due to inflation, disease outbreaks, geopolitical risks, including tariffs, trade disputes and the effects of the wars in Ukraine and the Middle East, competition, weather, seasonality, currency-related issues and other risk factors listed from time to time in our SEC reports.

The company does not undertake any obligation to update the information contained herein, which only speaks as of this date. I would like to turn the call over to Robert Hureau. Robert, please go ahead.

Robert Hureau

Thank you, Kevin. I'd like to thank everyone for joining our third quarter earnings conference call. We appreciate your continued interest in Alamo Group. While our results were mixed, there were several encouraging developments in the third quarter. The Vegetation Management Division continued to improve with higher underlying sales and profitability. And the Industrial Equipment Division delivered meaningful year-over-year order growth despite lower sales in the quarter.

Although some of our end markets remain soft, we continue to have a positive long-term outlook for both divisions. We also continue to execute our capital allocation priorities, highlighted by last week's announcement of our acquisition of Econ Engineering. In addition, we largely completed the divestitures we previously discussed with you. We're excited about the direction of the business and the opportunities ahead. I'll turn the call over to Agnieszka to review our financial results in detail. When she's finished, I'll come back and discuss the performance for each of our divisions and make some remarks regarding our acquisition of Econ, our divestitures and our long-term strategic priorities. Agnieszka?

Agnes Kamps

Thank you, Robert. I'll start with our consolidated results, then provide some additional context around the portfolio actions in the quarter before turning to the divisions and our balance sheet.

Net sales for the third quarter were $403.1 million, down 4% compared to last year. That included a $7.3 million reduction in net sales related to our divestiture activities. Despite the lower sales, the adjusted gross margin improved 40 basis points to 24.7%, and adjusted gross profit was $99.8 million compared to $102.2 million last year. The margin improvement reflected better operating performance in the Vegetation Management division, along with favorable pricing, procurement savings and a greater contribution from parts and service. The benefits were partially offset by material and freight inflation and lower volume in the Industrial Equipment Division.

Turning to Selling, General & Administrative expenses, or SG&A. Adjusted expenses in the third quarter of 2026 were $56 million compared to $56.6 million last year. This modest improvement was achieved despite the addition of Petersen, which we acquired in the first quarter. As a percentage of net sales, adjusted SG&A was 13.9% compared to 13.5% in the third quarter of 2025.

Other income and expense was net income of $3.6 million this quarter compared to net expense of $0.2 million in the third quarter last year. During the quarter, we recognized an approximately $6 million gain on sale of two facilities as part of our broader restructuring and simplification efforts. Given the onetime nature of the gain, we excluded it from our adjusted results, allowing us to better reflect our underlying operating performance.

Turning to taxes. Our effective income tax rate was 56% for the quarter, elevated by discrete tax items associated with our divestiture activities. While these items increased the reported rate this quarter, they do not change our underlying tax profile. We continue to expect our long-term effective tax rate to be approximately 25% to 26%.

Let me also provide some context on the restructuring and divestiture-related charges in the quarter. We recognized $33.3 million of net pretax charges associated with the sale and wind-down of certain businesses and product lines. These charges included inventory valuation reserves, impairment of intangible and other long-lived assets and other wind-down related costs. These items have been excluded from certain non-GAAP measures, consistent with reconciliations provided in our press release.

Adjusted EBITDA for the quarter was $52.4 million or 13% of net sales compared to $55 million or 13.1% of net sales last year. Net income for the quarter was $2 million or $0.17 per diluted share. Adjusted net income was $24.9 million and adjusted diluted earnings per share were $2.06 compared to $2.34 last year.

Next, I'll provide some additional commentary on the performance of our divisions. Starting with the Vegetation Management Division. This division delivered improved underlying performance in the quarter. Net sales were $170.4 million, down 1.5% from $173.1 million last year, including the $7.3 million reduction to net sales related to our divestitures. Excluding that impact, sales increased 2.7%, driven primarily by higher volumes and favorable pricing.

Adjusted EBITDA was $21.3 million or 12.5% of net sales, compared to $16.8 million or 9.7% of last year. The 280 basis point improvement in adjusted EBITDA margin reflects the continued steady progress we are seeing in this division.

Turning to Industrial Equipment Division. Net sales were $232.8 million, down 5.8% from $247 million last year. The decline reflected lower volumes in certain groups within the division, partially offset by the contribution from Petersen. Excluding Peterson, sales decreased 12.6%.

Adjusted EBITDA was $31.1 million or 13.4% of net sales compared to $38.2 million or 15.5% of net sales last year. Results reflected material and freight inflation and the impact of lower volumes on our cost structure, partially offset by favorable pricing, procurement savings and higher mix of parts and service.

Moving to the balance sheet and cash flow. For the nine months ended September 30, 2026, cash provided by operations was $83.2 million and capital expenditures were $16.1 million. For the last 12 months ended September 30, 2026, free cash flow, which we define as cash provided by operations less capital expenditures, was $137.1 million or 176% of net income, which continues to compare favorably to our long-term target of 100%. We ended the quarter with strong liquidity position.

At September 30, we had $230.7 million of cash and total debt was $232.3 million, along with $363.6 million of available borrowing capacity under our revolving credit facility. Pro forma for Econ acquisition, net leverage is approximately 0.7x adjusted EBITDA with $206.6 million of remaining availability under our revolver and an additional $400 million accordion feature.

Turning to capital allocation. We continued to take a balanced approach. During the quarter, we paid $4.1 million in dividends, and our Board approved a quarterly dividend of $0.34 per share. We also reduced debt by $30.4 million. Subsequent to quarter end, we acquired Econ Engineering for approximately $158.7 million plus customary closing adjustments.

Our strong cash generation and balance sheet provided us with flexibility to fund the acquisition while maintaining low leverage and significant liquidity. Going forward, we remain well positioned to invest in growth, further strengthen our operations and return value to our shareholders. Thank you. I'll turn it back over to Robert.

Robert Hureau

Thank you, Agnieszka. Let me start by speaking about our most recent and exciting acquisition. Last week, we announced we closed on the acquisition of Econ Engineering, a leading U.K. manufacturer of vocational trucks for use in year-round roadway maintenance. This business was founded in 1969, is headquartered in North Yorkshire in the U.K. and has a great reputation for quality products, customer service and long-standing customer relationships.

Approximately 1/2 of Econ's net sales comes from its OEM business, which includes the manufacture and sale of gritters, de-icing vehicles, road patching and repair equipment and a variety of multipurpose truck bodies. The other half of its net sales comes from its rental fleet of its own vocational trucks.

The rental business generates an attractive recurring revenue stream. Utilization over the past several years averaged above 90%. The average age of the fleet is just north of three years and its market share in the U.K. is significant. In addition, Econ provides parts and service throughout the U.K. through several of its own service depots. Its customers are primarily local authorities, government agencies and related contractors, and there's no meaningful customer concentration.

Year-round roadway maintenance is an attractive space, particularly in the U.K., where roadway maintenance is a statutory requirement and the backlog of roads needing repairs is at an all-time record high. This creates long-term resilient demand. What also makes this business interesting and attractive is that it produces and owns its own proprietary software and technology that controls the use of the machinery for precision application during use.

We believe this has potential for adoption in certain of our products in the U.S. We also believe that over time, there exists an opportunity to expand the broader product platform into other Western European markets where, as you know, we have existing manufacturing capacity.

We purchased the Econ business for approximately USD 159 million. For its fiscal year 2026, Econ generated approximately $88 million in net sales, $38 million of adjusted EBITDA and $19 million of adjusted EBIT. The transaction value represents approximately 4x trailing adjusted EBITDA and 8x trailing adjusted EBIT.

Econ's net capital expenditures average around 20% of its net sales. On a pro forma last 12-month basis, Econ would increase Alamo Group's consolidated adjusted EBITDA margin from a little over 13% to a little under 15%. In addition, on a pro forma basis for both Econ and the recently announced divestitures, the Industrial Equipment Division would represent approximately 62% of our consolidated net sales. We expect the acquisition to be accretive to earnings per share in the first full year.

Following Petersen earlier this year, Econ is our second acquisition in 2026. About a year ago, we outlined the four pillars of our long-term strategic plan, which forms the basis on which we will compete, win and create long-term shareholder value.

One of those pillars is a disciplined capital allocation strategy, within which we stated that M&A is our top priority. As it relates to M&A, we also shared the types and characteristics of the businesses that are attractive to us and that we believe will create value for you, the Alamo shareholder.

Peterson and now Econ fit that profile nicely. Also exciting is the cash-generating capability of Total Alamo Group, which allows us to borrow to buy businesses, which strengthen our portfolio, repay those borrowings and repeat that process. As Agnieszka mentioned, on a pro forma basis, our net leverage is only 0.7x. We're excited about this part of our strategy and what's to come.

Now I'd like to address the divestitures. During the past year, we said we would review our portfolio of businesses, brands and product lines and take action on those we concluded were not consistent with the current long-term strategic direction. In the third quarter, we executed on those plans, largely completing the sale or wind down of several small businesses and product lines. Nearly all these actions were in the Vegetation Management Division.

None of these are large in the context of Total Alamo Group. In the aggregate, these actions represent about $30 million of net sales, which will not recur going forward. This was less than 2% of consolidated LTM net sales and 5% of the LTM net sales in the Vegetation Management Division. Agnieszka discussed the onetime charges to the P&L, which we adjusted out of earnings as noted in the press release.

These actions were important and noteworthy for several reasons. They allow our team to sharpen their focus on our core brands and products. They reduce complexity within the organization, and they helped to improve operating margins.

At this time, there are no plans for further divestitures, but we'll continue to review the portfolio as part of our normal planning process.

Now let me turn to the operating results.

First, the Vegetation Management Division. Net sales in the Vegetation Management Division were slightly lower compared to the third quarter of 2025, including the onetime divestiture-related charge to net sales that Agnieszka highlighted. Excluding that item, net sales in the Vegetation Management division actually increased 3%. This increase was driven primarily by improved manufacturing throughput in several of our groups rather than any meaningful end market recovery.

Let me share some color on a few of our groups. Net sales increased in both our U.S. Ag Group and our Tree Care and Recycling Group. Excluding the impact related to those divestitures, net sales in each of these groups increased double digit in the quarter. The end markets in both U.S. Agriculture and Tree Care remained soft, however. This performance was driven largely by improved manufacturing throughput and favorable pricing.

Net sales in our European Ag group were flattish as that geography was impacted by the unusual heat over the latter part of the summer months. Net sales in Municipal Mowing Group were down, reflecting the continued softness in the municipal markets. Across the businesses, dealer inventories are in very good condition. And in general, we believe we continue to maintain market share across many of the groups.

Adjusted EBITDA margins in the Vegetation Management Division in the third quarter of 2026 were 12.5%, up from 9.7% in the third quarter of 2025 and roughly 10% in the second quarter of 2026. The increase in adjusted EBITDA margins were due to the higher sales volumes, favorable pricing, good cost reduction initiatives, procurement savings and the benefits from the investments we've made to improve our operations and structure. We're pleased with the progress we're making in the Vegetation Management division in restoring its margins.

The book-to-bill in the Vegetation Management division for the third quarter of 2026 was 0.92x with net orders lower compared to the same quarter in the prior year. The decline reflected the businesses we exited as well as the agricultural markets that have not yet recovered.

The Vegetation Management division backlog was $171 million or about three months' worth of sales, in line with historical levels for the division, which supports appropriate customer lead times.

Today, our Vegetation Management division represents 40% of our total net sales. As a reminder, the products in the Vegetation Management division serve end-markets, including tree care and recycling, agricultural, public works and landscape maintenance. Today, these end markets remain below the elevated levels of 2021 to 2023 with higher interest rates and inflation weighing on demand.

Now the Industrial Equipment Division. Net sales in the Industrial Equipment Division decreased 6% against a record third quarter last year. Net sales were lower for two primary reasons:

First, relatively softer end markets, principally the municipal end markets and the Canadian Snow market;

Second, the timing of certain orders throughout fiscal year 2026.

Let me share some color on each of our three groups and outline what drove the performance in the third quarter and how we think about things going forward.

First, our Snow group. Net sales in our Snow group were lower year-over-year, reflecting less seasonal urgency from contractors than we typically see at this time of year. This softness was noted principally in the Canadian markets, where our direct-to-contractor business is actually quite strong. We attribute this directly to the broader macroeconomic environment, meaning significantly higher input costs such as fuel, salt and other items, which are causing some contractors to temporarily refurbish trucks rather than purchasing new.

Long term, we remain confident because most Canadian contracts require contractors to maintain fleets with very strict age limits, supporting an ongoing replacement cycle. In general, we continue to see stable market share in the Canadian markets while actually gaining market share in the U.S. markets, particularly in large cities and with airport customers.

The launch of our Multi-Purpose Chassis or MPC product is a great example of how we gain share through product innovation. It's been a big success with good orders from some significant airports. Lastly, as we mentioned on prior calls, we continue to focus on the most profitable commercial opportunities.

Second, our Sweepers and Safety Group. On an organic basis, net sales were lower year-over-year, reflecting more measured activity from municipalities given the current state of their budgets. This impacted some of our sweeper brands and our debris collector business. However, net sales in sweeper brands like NightHawk, where we have a stronger presence in the commercial and contractor markets were up double digit year-over-year. Overall, we believe we're maintaining market share in certain segments while gaining share in others, in part, as an example, due to the introduction of our non-CDL sweeper, which is targeting contractors supporting the mega construction products projects and activity in the U.S.

As it relates to dealer inventory, all signs here indicate they're in a reasonably good position. It's important to note that net orders on an organic basis were up double digit in the third quarter, highlighting both the lumpiness of the order pattern that we've discussed in the past and some green shoots in the municipal space.

Regarding Petersen, which, as a reminder, we purchased in the first quarter of 2026 and which manufactures and sells grapple trucks used in bulky waste continues to perform well.

Third and finally, our Excavator and Vacuum Group. Net sales in the Excavator and Vacuum Group were down ever so slightly in the quarter. This softness was largely due to the timing of orders that we typically would have occurred in the first part of the year but didn't arrive until this third quarter. On a positive note, the net orders in the third quarter were up strong double digits. As with our other groups, businesses within the Excavator and Vacuum Groups that serve municipal markets are a bit softer than those businesses that serve the contractor and commercial space.

Also, similar to other groups, dealer inventories are in good shape. We continue to maintain sharp market share in core markets and continue to gain market share in exciting areas such as the hydro and air excavator vacuum trucks. As another example of our innovation initiative, we recently shipped the very first commercial version of our new AE35, which is the new non-CDL hydro excavator we highlighted to you earlier this year.

We're excited to watch the adoption of this product and how it too will contribute to future share gains. In addition, we continue to advance relationships with certain large national accounts, which are more commercially leaning.

Regarding Ring-O-Matic, the trailer-mounted vacuum business, which we purchased in 2025, albeit small, it continues to impress and scale rapidly as expected.

Across the Industrial Equipment Division, adjusted EBITDA margins were pressured by elevated material and freight costs and the lower volume. We're responding with additional pricing actions and by aligning capacity and costs with current demand. We're also encouraged by continued growth in parts and service, one of our top priorities. Our work on parts pricing, availability and service coverage is gaining traction and parts and service grew as a share of the division's net sales in the quarter.

The book-to-bill in the Industrial Equipment division for the third quarter of 2026 was 0.94x, while net orders were up a strong 24% compared to the same quarter in the prior year, still double digit when excluding Petersen, meaning organic.

Backlog was $350 million or about 4.5 months' worth of sales, which is consistent with our long-term historical levels outside of the elevated '22 to 2024 period. Lead times for our products across the division remain competitive.

Today, our Industrial Equipment Division represents 60% of our total net sales. As a reminder, the products in the Industrial Equipment division serve end markets, including public works, construction, utilities, infrastructure and roadway maintenance. These are large, good long-cycle markets and our view of the underlying long-term demand in these markets remains very positive.

Before wrapping up, I'd like to briefly remind everyone of a few components of our capital allocation strategy, which we discussed on the last call.

First, we'll continue to invest in our people, products, facilities and technologies to support profitable growth and productivity with capital expenditures running at approximately 2% of net sales on average or approximately 3%, including Econ.

Second, we'll maintain a strong balance sheet, targeting net leverage of up to 2.5x.

Third, acquisitions remain a top near priority with a goal of one to two tuck-ins in a typical year. As I said earlier, Peterson and Econ are great examples of what that looks like in practice. Fourth and finally, we'll continue to return capital to shareholders in a balanced manner through opportunistic repurchases under our $50 million share buyback authorization and a quarterly dividend currently $0.34 per share per quarter. That reflects our target payout ratio of approximately 15% of net income.

In closing, I'd like to express our thanks and appreciation to all our employees who work tirelessly to develop, produce and sell the industry's very best brands of vocational trucks, mowing equipment and Tree Care products. I'd also like to thank our customers and our investors for their trust and support. This concludes our prepared remarks. Operator, please open the lines for questions.

Operator

[Operator Instructions]

Our first question comes from Chris Moore of CJS Securities.

質疑応答

Christopher Moore

Right. So I understand clearly visibility into fiscal '27 is very limited. You're not guiding for '27. Without the divestitures, without the Econ engineering acquisition, consensus for '27 was roughly 4%. I was just wondering, maybe could you give kind of the puts and takes as to why that number could be a bit high, why it could be a bit low? Just kind of thinking kind of big picture, kind of how you're looking at it at this point.

Robert Hureau

Thanks, Chris. First thing I would mention, as you said, we're not providing financial guidance to 2027 at this time. When we think about our businesses, if we look at them in or by division, first, starting with the Vegetation Management Division. As we said all year, these end markets today, the North American ag markets, the North American Tree Care markets and the European markets are soft. They're down low to mid-single digits, if you will, or thereabouts in that ZIP code.

Things I would say, have gotten a little bit more challenging in the second half of '26 versus the first half. Despite that, we've done a decent job in certain of those businesses driving year-over-year growth in sales. But nonetheless, the end markets are still soft. I could point to several third-party data points that highlight that, particularly retail tractor sales being down, farm income still being down, et cetera. I think we're all generally encouraged that either 2026 or 2027 is somewhere in and around the bottom of the cycle. It's a little bit difficult to call.

Certainly, 2026 continues to be a soft market. We think that likely continues into 2027. But I think we are finding the bottom. When we speak with our customers, I would say that many of them are cautiously optimistic that things or that the decline is starting to slow, if you will, and to stabilize and to hit the bottom.

So there's some encouragement there, but certainly not growth at this time in any meaningful recurring manner. On the industrial side, as you know, when you look back over the last three years of our history, the industrial end markets and our division have grown robustly, high teens, 18%, 19%, 20% over the last three years. 2026 is a bit of a transition year.

When you look at the third-party independent data, it would suggest as an example, that while construction spend is still very much elevated, the year-over-year change is actually flat or slightly down. So we look at 2026 as a bit of a transition year. And as we think about 2027, still difficult to call, but probably low single digits or flattish or something in that ZIP code, if you will, not overly robust, not down. So hopefully, that's some color that's helpful to you.

Christopher Moore

No, very helpful. I appreciate that. And maybe just for my follow-up. Just looking at kind of maybe backlog kind of big picture. So just maybe roughly as a percentage of your revenue today, what percentage of revenue is tied to backlog versus, say, two to three years ago? And do you expect that to be much different two to three years from now with the Econ acquisition, et cetera? Just trying to kind of gauge that.

Robert Hureau

Yes. The way we think about that, Chris, is we think you need to kind of remove the go-go years of '22, '23, '24, particularly on the industrial side, just significant amounts of government investment flowing into the U.S. economy, driving really robust demand in all parts of the division, which, of course, generated a 20% returns. So I think you're going to kind of separate those and look back to periods of time where things were a bit more steady state.

I think when you do that, you find revenue and backlog to be at about 1.5 quarters, which is what we said we are today. So call it, 4.5 months of revenue sitting in backlog. That feels about right to us, and that feels when we think about it in terms of actual lead times to customers and what we hear from customers, that feels about right to us, and that's what we would think we would have going forward.

Something similar exists on the Vegetation side. I think you got to remove the years that were unusually high or low a little bit, go to some more steady-state periods of time. And I think when you do that, you'll find, again, revenue and backlog in and around a quarter or maybe a smidge over a quarter. And again, we then bounce that up with what we're hearing from customers and the lead times we know we have, it feels about right to us. I would say today and at least moving forward, we feel like we're in a good ZIP code.

Operator

The next question comes from Mircea Dobre of Robert W. Baird.

Peter Kalemkerian

This is Peter Kalemkerian on for Mircea this morning. My first question here is on Industrial margin. Within that 200 basis point year-over-year decline in the quarter, is there a way to split out how much of that was attributed to price cost and how much might have been due to lower leverage on the lower volumes? So in other words, what will be recovered in margins simply from catching up on price? And then second part of the question, what is the time frame for pricing to fully catch up to the inflationary cost pressures that you're seeing? When did the price increase go into effect? And is price cost catch up a 4Q story? Or should we be thinking more like by the first half of '27?

Robert Hureau

Yes. Great. Thanks, Peter. With respect to the first question, so yes, year-over-year, we saw the operating and EBITDA margins compressed by a few hundred basis points. I'm not going to give overly granular detail, but I would say that the kind of three things driving that were, obviously, the commodity inflation and the freight inflation were fairly significant in the quarter. The teams did a decent job passing on that to customers through price increases and price surcharges, but may not have fully covered that in the quarter.

Then so the third piece, of course, is that lower volume, which compressed margins on the fixed cost base and on the fixed SG&A. So really three components to it, maybe each in 1/3, if you will, and you can kind of net which two you'd like. So perhaps if you look at material costs and pricing as one component, then the majority of it would have been the lower volumes.

The second part of your question, as it relates to the time frame and the catch-up, what I would say is throughout the year and particularly in the third quarter, various business groups made various moves with respect to fuel surcharge increases and price increases, and they made those throughout the quarter. So all things being equal, I would expect price to catch up over the course of the fourth quarter or thereabouts.

But the wildcard is, of course, where steel continues to move. It certainly feels like steel is at a very, very elevated price today. Whether it moves up or down from this point, it is difficult to tell. But I would say that all things being equal, if you snap the chalk, so to speak, we should see recovery over the next quarter or two in terms of the price material cost margin. Does that help?

Peter Kalemkerian

That was very helpful. Just I guess a follow-up question on pricing. Are you seeing similar price increases kind of throughout the industries in these various industrial categories? And how confident are you demand is normalizing across some of these product categories within industrial? So how confident are you that you can protect demand and order conversion despite the price increases?

Robert Hureau

Yes. We are seeing it throughout the space on both the Industrial side and on the Vegetation side. Of course, multiple factors are taken into consideration before we take any price, including where we are relative to our competitors and the marketplace and the dynamics that we're seeing, whether or not we're getting too high or whether or not we have opportunity to move as well as things that are more commodity-driven in nature in terms of inflation versus other things.

So all those factors are taken into consideration. We have seen movement in the industry with others taking up price. And so we'll continue to do so over the coming months and coming quarters to make sure that we are competitively priced in order to drive volume.

Peter Kalemkerian

Great. Super helpful. If I could just sneak one final one in here on Econ. First, what is the margin differential between the OEM and Rental business, if you'd be willing to split that out? And then second, is there any color you might be able to provide on the competitive landscape and Econ's share of the U.K. market?

Robert Hureau

Yes. We're not going to share that level of profitability within that specific business. I would highlight that, as I mentioned in the prepared remarks, sales were split 50-50. An interesting point is they're not buying third-party trucks for use in their rental fleet. They're manufacturing their own trucks, which is fantastic for us. But we're not going to provide that level of profitability down into the product categories. With respect to the competitive landscape, at least on the rental side, they have a significant market share. I would say 80% plus or thereabouts.

So very, very strong. We've seen, at least in the diligence that we've done, where in prior years and history, competitors have tried to move into the space and have not gotten traction in terms of winning any business from their customers. So we feel great about the nature of the business. It fits our M&A profile perfectly in terms of niche profitable businesses, high margins, good moats, good scale and density within their respective geographic areas and product categories that are very close to ours. So almost ticked all the boxes, if you will.

Operator

The next question comes from Greg Burns of Sidoti & Company.

Gregory Burns

I guess I was hoping to just maybe get a little bit more color on the organic decline you saw in the Industrial Equipment segment. You gave some kind of qualitative directionality on the kind of three divisions. But could you just maybe give us a little bit more quantitative detail on which segments or which parts were down the most by how much? And given what you saw this quarter, what gives you confidence that kind of flat to low single-digit growth you think that segment could generate next year?

Robert Hureau

Yes. What I would say, Greg, is I'm not going to necessarily give financials on each of the groups, but I gave commentary on the three groups within the Industrial Division in the prepared remarks in the order of the impact on sales in the quarter. So by far, the group that had the largest impact on the year-over-year softness in sales was the snow group. And we really do attribute that, particularly to the Canadian markets, and we attribute the impact in those Canadian markets on the broader macroeconomic conditions, the higher inflation causing contractors to delay a little or refurbish. But as we try to emphasize, we feel really good about that business.

We've got high market share in the Canadian markets. We've got great brands and products. We do both manufacturing and upfitting, great relationships with these customers. And many of those contractors that we work with who in turn service the municipalities in the Canadian markets, they're under multiyear contracts as we talked about at this time last year. And so whether or not they delay today or refurbish today, they're going to need to buy a truck tomorrow in order to maintain the average fleet age within those contracts.

So we feel really good about it. It really did feel like kind of a onetime unusual softness that occurred, could spill into the fourth quarter a little bit, but long term, fantastic business, fantastic end markets. That was the group that had the biggest impact in the quarter.

The second would be Sweepers. And there, it really is tied to the softness within the municipal markets. And we have a high degree of confidence in saying that because when we take a look at some of our brands, some are much more oriented to the municipal markets, while others are more oriented to the commercial and industrial markets. And those that are tied to municipal were soft and those that are tied to the commercial were much stronger.

Importantly, we saw in the third quarter double-digit growth organically in the orders. So we feel like it's been soft all year, and those orders kind of came back in, showing some green shoots as we look forward in the municipal market. And the last really, as I mentioned, was in the Excavator Vacuum area where call it for all intents and purposes, flattish, if you will.

So when we step back and review all of that, we still feel great about our business, our market share position, the long-term trends in the industry in these end markets, the relationships we have with customers, and we look at the data that we have, we don't see any share loss. So we feel confident about where we're going. Does that help?

Gregory Burns

Yes. Yes, it was. And then just in terms of the Econ acquisition, it looks like it's going to be nicely accretive. What does the pipeline of opportunities look like? Is that kind of the pricing you're seeing in the market? How does the outlook for further M&A look for you guys as we go into next year?

Yes. So super excited about Econ. I won't repeat all the good things that we highlighted in the prepared remarks. It fits the profile. It fits our M&A profile nicely as did Peterson. We're really, really excited about those two. We're kind of -- we feel like we're delivering on our commitments to get one or two of these deals done in that tuck-in space. We've got a long list of targets that we're continuing to look at and speak with and cultivate those relationships. So we're positive and confident that we can continue on this pace in the future.

Operator

[Operator Instructions] Our next question comes from Ross Sparenblekof William Blair.

Sam Karlov

This is Sam Karlov on for Ross. I guess just building on the margin question from earlier, gross margins did hold up pretty nicely in the quarter despite some of that volume weakness. It sounds like procurement was a piece of that. Could you guys maybe update us on your procurement initiative and then maybe quantify what that benefit was in the third quarter and how we should expect that to roll through into '27?

Robert Hureau

Yes. So yes, overall, at an aggregate level, adjusted EBITDA margins held flat on a year-over-year basis. We're pleased to see that, particularly given the degree and the degree of the inflation that we're seeing, particularly around steel and freight. So overall, a reasonable outcome given the macro environment right now. We did a decent job passing that along in terms of price.

There were procurement savings. There were cost reduction initiatives that helped us maintain that adjusted EBITDA margin. I don't think we're going to quantify the procurement savings in the quarter, but they were there. We're seeing them. We're at about, obviously, the three-quarter mark of the year. We have a major global procurement initiative. That work is building. We're monitoring both the savings on a purchased basis and the savings in terms of when we expect them to come into the P&L. We'll see some of that continuing in the fourth quarter and then an acceleration in 2027 based on everything that we're seeing and feeling. We feel like we're making good progress, a little bit longer to get it going than we would have liked, but it's there, and we expect it to come in 2027.

Sam Karlov

Got it. That's good to hear. And then just a quick follow-up. The last few quarters, we've seen the Rental Equipment kind of decline a little bit. Is there any strategy behind that? Or maybe comment on what's driving that decline in the Rental Equipment on your balance sheet?

Robert Hureau

No, nothing in particular. The Rental business is doing quite well. In fact, in the quarter, it was up pretty meaningfully on a year-over-year basis. We like that part of the business. Of course, you know it's predominantly strong in our super products brand in the vacuum space. Obviously, we like that space as evidenced by the Econ acquisition. The year-over-year decline in the capital expenditures and the depreciation of that space, again, nothing really unusual. We're picking our spots in terms of whether or not we go at things on an organic basis or on an M&A basis. We view that kind of all in one basket, if you will. So nothing unusual to speak of.

Operator

The next question comes from Michael Shlisky of D.A. Davidson.

Catherine Hubinger

This is Catherine Hubinger on for Michael Shlsky. We were curious about the Vegetation segment. Was Dixie Chopper a big impact on sales or earnings in the quarter? Even though the announcement came out at the end of September, did the Alamo team actually stop selling the products during 3Q? And then for our model, what will be the annualized impact of Dixie Chopper in '27?

Robert Hureau

Yes. So there wasn't a meaningful impact in the quarter on Dixie Chopper and the divestitures in the aggregate, I would say that the year-over-year decline in net orders in the third quarter in the Vegetation Management Division -- it's probably half of that when you factor out the slowdown that we saw in those businesses that we either shut down or divested. So there was some impact on orders, a little bit of an impact on sales, as you can imagine, as you're starting to wind these things down, business flows.

Again, all of these businesses that were product lines that we stopped or divested were not making money. They were breakeven at best. So I think you'll see improvement going forward financially and on the margins. With respect to your last question in terms of the impact on 2027 during the prepared remarks, we quantified the aggregate annual sales associated with all these product lines at about $30 million, which on an LTM basis in the Vegetation Management division is about 5% of sales. So that hopefully should give you a good sense as to the impact in 2027.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Robert Hureau

Thank you. We appreciate your support and look forward to speaking with you again on our year-end earnings call.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.