Alamo Group Inc. (ALG) Cash Flow Statement

The OCF/NI ratio has been highly erratic, ranging from near zero to nearly five times net income, which suggests that reported earnings are not consistently translating into cash. The Q1 2026 negative operating cash flow of -$23.5M against net income of $29.2M highlights a substantial working capital outflow, likely tied to seasonal inventory builds and receivable timing. Investors should monitor whether this volatility reflects normal seasonality or a structural shift in cash conversion.

The FCF trajectory is highly volatile on a quarterly basis, but the cumulative picture over the last ten quarters shows positive FCF generation, with the exception of two quarters. The Q1 2026 negative FCF of -$28.0M appears to be driven by a large working capital outflow of -$70.0M, which may be seasonal or related to acquisition activity. Excluding working capital swings, the underlying FCF generation appears stable, supported by modest capex requirements.

Capex intensity is remarkably low for an industrial manufacturer, suggesting that the company's asset base is largely mature and that maintenance capex is modest relative to revenue. This low capital intensity supports strong FCF conversion, but it may also indicate underinvestment in organic growth, which could limit future expansion. The company appears to rely on acquisitions for growth rather than internal capex, consistent with its serial acquirer profile.

The working capital line item is the most volatile component of operating cash flow, with large outflows in Q1 2026 and Q1 2025, and large inflows in Q4 2025 and Q4 2024. This pattern suggests a seasonal build-up of inventory and receivables in the first quarter, followed by a release in the fourth quarter, likely tied to municipal budget cycles. The magnitude of these swings warrants close monitoring, as they can obscure the underlying cash generation.

Dividends have increased gradually from $3.1M to $4.1M per quarter, reflecting a steady but modest return to shareholders. Buybacks have been minimal, with the exception of Q2 2026, suggesting management prefers to retain cash for acquisitions. The $166.5M acquisition outflow in Q1 2026 is a significant deployment of the company's cash pile, indicating an active M&A strategy that could reshape the business.

The cumulative gap between operating cash flow and net income is positive, suggesting that earnings are backed by cash and that the company's accruals are conservative. This divergence may be partly due to non-cash charges like D&A and SBC, which are added back in operating cash flow. The positive gap supports the quality of earnings, but the volatility in working capital suggests that the timing of cash flows can be lumpy.