Alamo Group's third quarter was a clear miss. Adjusted EPS of $2.06 fell 22.3% short of the $2.65 consensus and declined 12.0% from a year ago. Revenue of $403.1 million was 7.7% below the $437.0 million estimate and down 4.0% year over year. The miss also marks a sharp turn in trajectory. Sales grew 6.7% in the first quarter and grew again in the second, and adjusted EPS rose 7.2% to $2.82 in Q2. Both have now reversed. The central tension is that the Industrial business, which had carried the story, is now the problem, while the long-troubled Vegetation Management Division has become the source of improvement. Management is betting that rising orders, price catch-up and an accretive acquisition will restore momentum before shrinking backlogs catch up with it.
The GAAP picture is noisier still. Diluted EPS was just $0.17 versus $2.10 a year ago. The gap reflects $33.3 million of net pre-tax charges tied to the sale and wind-down of Dixie Chopper, Boxer and other product lines, and divestiture-related tax effects lifted the effective rate to about 56%. Those charges are reasonably excluded from the adjusted figures, but they do not explain the revenue miss. Even after adding back the $7.3 million booked as a sales reduction, revenue still fell well short of expectations. Adjusted gross margin improved 40 basis points to 24.7%. Adjusted SG&A, however, rose to 13.9% of sales as volume fell, leaving adjusted EBITDA margin roughly flat at 13.0%. Cash conversion also softened. Nine-month operating cash flow fell to $83.2 million from $102.4 million as inventories climbed to $420 million from $378 million a year earlier.
The divisional split is where the quarter's story lies. Industrial sales fell 5.8% overall and roughly 12.6% excluding the Petersen acquisition. Adjusted EBITDA margin compressed to 13.4% from 15.5% a year ago and 16.7% in Q2. Management blamed steel and freight inflation that outran pricing, along with deleverage on fixed costs. Snow equipment, which was a source of double-digit order growth earlier in the year, became the largest drag as Canadian contractors deferred purchases amid higher fuel, salt and input costs. Management warned the softness may spill into Q4. Vegetation Management moved the other way. Adjusted EBITDA margin rose to 12.5%, up from 9.7% a year ago, about 10% in Q2 and just 2.3% in Q4 2025, and sales excluding divestitures grew 2.7% on better throughput. That is credible evidence the turnaround is working, though Veg orders fell year over year and management now describes end markets as softer in the second half and likely down low-to-mid single digits into 2027.
The bullish counterpoint is order intake. Industrial bookings rose 24% to $217.9 million, a sharp improvement from declines of 2% in Q2 and 11% in Q1. Organic sweeper and excavator/vacuum truck orders were up strongly, and management characterized the municipal activity as green shoots. Even so, book-to-bill remained below 1.0 in both divisions, at 0.94 for Industrial and 0.92 for Veg. Total backlog of $521.3 million is down from $618.3 million a year ago, which limits near-term revenue visibility. Management expects pricing and surcharges to catch up with inflation from Q4 through the first half of 2027, but that remains a forecast. It offered no formal 2027 guidance and framed Industrial only as flat to up low single digits.
The Econ Engineering acquisition is the most important forward-looking development. Alamo paid $158.7 million, about 4x trailing adjusted EBITDA, for a U.K. vocational truck maker with roughly $88 million in sales and $38 million in adjusted EBITDA. Management says the deal lifts pro forma adjusted EBITDA margin to just under 15% and will be EPS accretive in its first full year. The purchase was funded with revolver borrowings, and pro forma net leverage of 0.7x leaves ample balance-sheet room. Combined with the completed divestitures of roughly $30 million in breakeven-or-worse Veg sales, the portfolio is meaningfully higher quality than it was a year ago.
Investors were already skeptical heading in. Earnings Whispers sentiment deteriorated from -0.25 to -0.50, a meaningful move deeper into negative territory. Shares were $152.73 on the report date, 8.7% below the open following the August report and about 9.5% under the 200-day moving average. Price trend and AVWAP readings remain negative. Management's own tone also cooled, shifting from Q2's enthusiasm about 2027 to an acknowledgment that results were mixed.
The bottom line is that Alamo delivered a decisive miss and a clear deceleration, and bears have legitimate ammunition in the collapse in Industrial margins, the weakness in snow equipment, the shrinking backlog and softening Veg end markets. Yet the Veg margin recovery, the 24% jump in Industrial orders and a cheaply priced, margin-accretive acquisition preserve a credible medium-term story. The next two quarters must show that pricing catches inflation and that orders convert into revenue.