Executive Summary / Key Takeaways

• Strategic Optimization Drives Efficiency: The Gorman-Rupp Company (GRC) is strategically streamlining its National Pump Company (NPC) operations, reducing facilities from six to three, which is projected to yield $2 million to $2.5 million in annualized payroll and facility cost savings. This move aims to enhance profitability and reallocate resources to higher-growth markets like fire, municipal, and data center-driven HVAC.
• Robust Demand and Backlog: Despite a slight miss on Q3 2025 revenue and adjusted EPS compared to analyst estimates, GRC demonstrated strong underlying demand with incoming orders for the first nine months of 2025 increasing over 10%. The company's backlog reached $234.2 million as of September 30, 2025, a 12.7% increase year-over-year, positioning it favorably for the balance of 2025 and into 2026.
• Technological Differentiators in Specialized Markets: GRC leverages advanced pump technologies, including its "Spy Pro" ESP sensor systems for real-time monitoring in oil and gas wells, and the "Emerald Edge" platform for optimizing artificial lift operations. These innovations offer tangible benefits such as reduced operational expenses, enhanced pump performance, and extended asset life for customers, bolstering GRC's competitive position in high-value applications.
• Solid Financial Foundation and Shareholder Returns: GRC maintains a strong liquidity position and has actively reduced its outstanding debt by $45 million through the first three quarters of 2025, leading to a significant decrease in interest expense. The company continues its remarkable history of shareholder returns, declaring its 303rd consecutive quarterly dividend and marking its 53rd consecutive year of increased annual dividends.
• Attractive Valuation with Growth Potential: GRC's current valuation, with a P/E ratio of 24.3x, appears attractive when compared to a peer group average of 45x, though it is above its estimated fair P/E of 18.8x. Analysts project a 13.64% increase in EPS for the next year, from $1.98 to $2.25 per share, indicating potential for future earnings growth.

A Legacy of Liquid Handling Innovation

The Gorman-Rupp Company, founded in 1933, stands as a long-established designer, manufacturer, and international marketer of pumps and pump systems. Its extensive product portfolio serves a diverse array of liquid-handling applications across critical sectors including water, wastewater, construction, industrial, petroleum, agriculture, fire suppression, heating, ventilating and air conditioning (HVAC), and military. This broad market exposure has historically been a cornerstone of the company's stable financial growth.

GRC's overarching strategy centers on delivering product quality, reliable performance, and timely service. The company consistently invests in employee training, new product development, and modern manufacturing equipment and facilities. These investments are designed to enhance production efficiency, increase capacity, and drive growth by providing innovative solutions to its global customer base.

The industrial landscape GRC operates within is currently shaped by significant trends, notably the increasing demand related to data centers and ongoing infrastructure investments. These trends are creating new opportunities for GRC's specialized pump systems, particularly in the industrial and municipal markets. The company's ability to adapt its offerings to these evolving demands underscores its strategic agility.

Technological Edge: Precision and Performance in Pumping Systems

GRC distinguishes itself through a commitment to specialized pump technologies that deliver tangible operational benefits. The company's core offerings include a wide range of proprietary pump designs, such as self-priming centrifugal, standard centrifugal, magnetic drive centrifugal, axial and mixed flow, vertical turbine line shaft, submersible, high-pressure booster, rotary gear, rotary vein, diaphragm, bellows, and oscillating pumps. These designs are engineered for durability, ease of use, and efficiency across demanding applications.

A key technological differentiator for GRC is its "Spy Pro" electrical submersible pump (ESP) sensor systems. These systems provide real-time monitoring capabilities crucial for optimizing operations in ESP wells, particularly within the petroleum sector. The Spy Pro gauge offers a unique mechanical concept with customizable electronic features, extending the monitoring capabilities of typical ESP sensor systems. Its precision-welded design eliminates the need for re-dressing and contamination, while a shorter, slimline profile improves deployment in challenging well conditions. For customers, this technology translates into reduced well intervention, lower risk and liability, optimized pump performance, extended run life, and increased oil production.

Further enhancing its technological footprint, GRC offers "Emerald Edge," a cutting-edge digital solution for Artificial Lift Well Operators. This platform provides real-time monitoring and remote control to optimize production and extend the life of existing assets. Emerald Edge reduces operational expenses (OPEX) through more efficient data management, streaming, and control of pump-off operations, leading to energy savings and fewer manual interventions. It is specifically designed to optimize Sucker Rod Pump (SRP) systems, including marginal wells, by increasing efficiency, reducing downtime, and maximizing production. The system integrates with SCADA systems and utilizes cloud hosting for secure, accessible data, scalable solutions, quicker processing, and real-time insights. This innovation is a result of a partnership combining GRC's technical expertise with UPC customer service excellence.

For investors, these technological advancements are critical. They contribute to GRC's competitive moat by offering specialized, high-performance solutions that address specific industry challenges. This differentiation allows GRC to capture value in high-margin applications, reinforce customer loyalty through superior product performance, and maintain a strong market position in technologically advanced segments.

Competitive Arena: Standing Strong Amidst Industrial Giants

The Gorman-Rupp Company operates within a highly competitive global market for pump and fluid-handling systems. Its direct competitors include industry leaders such as Xylem Inc. , Flowserve Corporation , Pentair plc (PNR), and ITT Inc. , all of whom offer a range of products that overlap with GRC's diverse end markets.

GRC's competitive strengths are rooted in its established brand reputation for durability and reliability, particularly in specialized applications. Its proprietary pump designs, including advanced self-priming centrifugal systems, provide a qualitative edge in performance for challenging environments like dewatering and wastewater management. The company's extensive distribution network also fosters strong customer relationships and enables effective market penetration in its core niches.

However, GRC's smaller scale compared to some of its larger rivals could lead to higher costs per unit due to fewer economies of scale, potentially impacting profitability. While GRC excels in application-specific technologies like its ESP sensor systems, it may face technological gaps in broader digital integration compared to competitors like Xylem , which emphasize smart water systems, or ITT Inc. (ITT), with its focus on advanced engineered solutions for harsh environments. Xylem's (XYL) and Flowserve's (FLS) trends suggest broader revenue growth and potentially superior margins due to their diversification and focus on high-performance, custom-engineered solutions for critical industries.

From a valuation perspective, GRC's trailing twelve-month (TTM) P/E ratio of 23.62 is notably lower than the peer group average of 45x, suggesting a potentially attractive entry point relative to direct competitors. However, this P/E is still above its estimated fair P/E value of 18.8x, indicating that future performance must align with expectations to sustain momentum. GRC's TTM P/S ratio stands at 1.75 and P/B at 1.36.

Indirect competition arises from alternative solutions such as advanced filtration systems and emerging IoT-enabled smart fluid systems. These technologies could impact GRC by offering integrated solutions that reduce the need for traditional pumps or provide significant efficiency gains. The high capital requirements for manufacturing and stringent regulatory approvals act as significant barriers to entry in the pump industry, benefiting established players like GRC and its larger competitors by limiting new entrants.

Strategic Optimization and Financial Resilience

The Gorman-Rupp Company recently undertook a significant operational restructuring in the third quarter of 2025 by optimizing its National Pump Company (NPC) footprint. This involved reducing NPC operating facilities from six to three, a move designed to improve profitability by lowering fixed operating costs with minimal impact on sales. The company recognized $3 million in one-time facility optimization costs during the quarter, encompassing inventory rationalization, severance, and facility expenses. These changes are expected to generate annualized savings of $2 million to $2.5 million in payroll and facility costs, with no material future optimization costs anticipated.

This strategic shift also included transitioning an NPC facility in Olive Branch, MS, to Patterson Pump Company, specifically to support the expanding data center-driven HVAC business and continued growth in the municipal and fire markets. This re-alignment underscores GRC's commitment to capitalizing on high-growth areas while enhancing operational efficiency.

Financially, GRC reported net sales of $172.8 million for the third quarter of 2025, a 2.8% increase over the same period in 2024. However, this figure fell short of analyst estimates. For the first nine months of 2025, net sales reached $515.8 million, up 3.8% from the prior year. Growth was particularly strong in the industrial market, driven by data center demand, and in the municipal market due to increased infrastructure investment. These gains were partially offset by a slowdown in the construction market.

Gross profit for the third quarter of 2025 was $50.4 million, resulting in a gross margin of 29.2%, a decrease from 31.3% in Q3 2024. This 210 basis point decline was primarily attributed to 160 basis points in facility optimization costs, a 30 basis point increase in material costs due to the timing of price increases versus tariff expenses, and a 20 basis point increase in labor and overhead. Similarly, the operating margin for Q3 2025 decreased to 12.4% from 14.2%, largely due to facility optimization costs and increased material, labor, and overhead expenses, partially mitigated by improved leverage on selling, general, and administrative (SGA) expenses.

Despite these margin pressures, GRC demonstrated strong cash flow from operating activities, which increased to $91.2 million for the first nine months of 2025, up from $60.6 million in the prior year. This robust cash generation enabled a significant reduction in outstanding debt, with total debt decreasing by $45 million through the first three quarters of 2025. This debt reduction, coupled with refinancing transactions completed in May 2024, led to a substantial 33.1% decrease in interest expense for the first nine months of 2025, totaling $18 million.

The company's backlog of orders reached $234.2 million as of September 30, 2025, marking a 12.7% increase year-over-year. Incoming orders for the first nine months of 2025 also surged by over 10% to $550.2 million compared to the same period in 2024. These indicators underscore a healthy demand environment and provide a strong foundation for future revenue recognition.

Forward Momentum: Outlook and Shareholder Returns

The Gorman-Rupp Company's management expresses confidence in its ability to maintain gross margin rates over the long term by actively monitoring tariff impacts and implementing appropriate pricing actions. The strong incoming orders and growing backlog are expected to position the company well for the remainder of 2025 and into 2026.

For 2025, capital expenditures are planned to be approximately $20 million, primarily for machinery and equipment, and are expected to be financed through cash from operations. The company anticipates its effective tax rate for 2026 to be between 21% and 23%. Analysts project GRC's full-year EPS to increase by 13.64% next year, from $1.98 to $2.25 per share. Furthermore, year-over-year cash flow growth is projected at 19.3%, significantly outpacing the industry average of 2.9%.

GRC maintains an exceptional commitment to shareholder returns. On October 23, 2025, the Board of Directors authorized a quarterly dividend of $0.19 per share, marking the 303rd consecutive quarterly dividend payment. This represents a 2.7% increase over the previous quarter's dividend and signifies the 53rd consecutive year of increased annual dividends. The company also has an active share repurchase program, with $48.1 million available for repurchases as of September 30, 2025, providing additional flexibility for capital allocation.

Key Risks to Monitor

While GRC demonstrates considerable strengths, investors should be mindful of several key risks. U.S. trade policy, including the implementation of tariffs, poses a potential challenge. Tariffs could increase the cost of imported materials for GRC and its suppliers, and tariffs imposed by other countries could affect international sales, potentially impacting the company's financial results if mitigation strategies are insufficient.

Market risks, particularly changes in interest rates, also warrant attention. A hypothetical 100 basis point increase in interest rates is estimated to increase GRC's annual interest expense by approximately $1.6 million. The company also faces foreign currency exchange rate risk, primarily with the Euro, Canadian Dollar, South African Rand, and British Pound, though it manages this by invoicing customers in the same currency as the product source market. Economic downturns historically have impacted the company's financial performance and stock.

Conclusion

The Gorman-Rupp Company presents a compelling investment narrative rooted in its long-standing operational excellence, strategic adaptation, and commitment to specialized technological innovation. Despite recent short-term pressures on gross and operating margins due to facility optimization costs and tariff timing, the company's underlying business remains robust, evidenced by strong incoming orders and a growing backlog. GRC's proactive measures to streamline operations, reduce debt, and focus on high-growth markets like data centers and municipal infrastructure underscore its resilience and forward-looking strategy.

The company's differentiated pump technologies, such as the Spy Pro ESP sensor systems and the Emerald Edge platform, provide a distinct competitive advantage in specialized, high-value applications, contributing to its ability to generate strong cash flows and maintain profitability. While operating in a competitive landscape with larger, more diversified players, GRC's niche expertise, strong brand reputation, and consistent shareholder returns position it as a stable, dividend-growing industrial player. Investors seeking exposure to a company with a proven track record, strategic operational improvements, and a clear path to leveraging critical infrastructure and technological advancements should consider GRC's enduring strength and potential for continued value creation.