In Q4 2025, Alamo Group's total net sales fell 3% to $373.7 million as a 13.2% decline in Vegetation Management (adjusted EBITDA margin collapsing to 2.3% from 10.2%) more than offset 4.2% growth and margin expansion in Industrial Equipment. Gross margin fell 110 basis points to 22.7% and adjusted diluted EPS dropped to $1.70 from $2.39, hurt by inverse leverage on lower Vegetation volumes, inventory reserve charges, and tariff costs. New CEO Robert Hureau laid out a four-pillar strategy and long-term through-the-cycle targets of 10% sales growth, ~15% adjusted operating margin, ~18-20% adjusted EBITDA margin, and 100% FCF conversion. The company closed the margin-accretive Petersen Industries tuck-in in January 2026, raised its dividend 13.3% to $0.34, and pointed to green shoots including U.S. Agriculture turning positive for the first time in eight quarters and a $400 million Industrial backlog. Management expects Vegetation margins to improve sequentially in Q1 2026 and Industrial end-market growth to slow to flattish-to-low-single-digit as prior government investment tailwinds fade.
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 212-827-3746, 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 1-855-669-9658 with the passcode 4809758. Additionally, the call is being webcast on the company's 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 Agnes Kamps, Executive Vice President and Chief Financial Officer. Management will make some opening remarks, and then we will 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 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 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 Robert Hureau. Robert, please go ahead.
Thank you, Ed. I'd like to thank everyone for joining our fourth quarter earnings conference call. We appreciate your continued interest in the Alamo Group. Before we get started, I'd like to share a few thoughts. As you know, the fourth quarter was the first full quarter during which I've been at the helm at the Alamo Group. During this time, I've had an opportunity to visit some of our manufacturing facilities, speak with our customers, suppliers, partners, investors, and interact with our employees. The input from everyone has been incredibly valuable. In addition, during this period, the leadership team and I have been working together to develop a set of strategic initiatives designed to grow the business and a framework by which we'll operate.
As I reflect on the Alamo Group business, its products, markets, financial profile, and all the opportunities in front of us, I can say that I am more confident and excited today about where we expect to take this company over the next three to five years than I was when I joined just a short time ago. I'll turn the call over to Agnes to review our financial results in detail. When she's finished, I'll come back and discuss the performance for each of our divisions, highlight some of the key initiatives which are underway, and summarize a few of our long-term goals. Agnes?
Thank you, Robert. Net sales for the fourth quarter of 2025 were $373.7 million, down 3% compared to the fourth quarter of 2024. Gross profit for the fourth quarter of 2025 was $85 million compared to $91.8 million for the fourth quarter of 2024. Gross margin for the fourth quarter of 2025 was 22.7%, down 110 basis points compared to the fourth quarter of 2024. The degradation in gross margin was due to a few reasons, including inverse leverage on the lower Vegetation Management Division volumes, charges related to inventory reserves taken during the quarter on certain Vegetation Management Division product lines that we intend to divest or discontinue, and the impact from tariff costs, partially offset by pricing and disciplined margin management in our Industrial Equipment Division.
Selling, general, and administrative expense, or SG&A expense, for the fourth quarter of 2025 was $58.3 million, up 9.3% from the fourth quarter of 2024. SG&A expense in the fourth quarter of 2025 included approximately $3.2 million related to the acquisition and integration costs, restructuring costs. The addition of Ring-O-Matic. Net interest expense for the fourth quarter of 2025 was $2.5 million compared to $2.7 million in the fourth quarter of 2024. For the full fiscal year 2025, our effective income tax rate was 25.6%, which was higher than the effective income tax rate for the full year of 2024. However, the 2025 effective tax rate is in line with our current and longer-term expectations.
During the fourth quarter of 2025, we recognized expenses related to acquisition and integration activities of $1.6 million. Most of these costs were related to the acquisition of Petersen Industries. In addition, we recognized $7.3 million in restructuring expenses. Both acquisition and integration expenses and the restructuring expenses are being treated as adjustments for certain non-GAAP measures as shown in the press release. Adjusted EBITDA for the fourth quarter of 2025 was $44.8 million or 12% of net sales compared to adjusted EBITDA of $51.8 million or 13.4% of net sales for the fourth quarter of 2024. Adjusted earnings per share on a fully diluted basis for the fourth quarter of 2025 was $1.70 compared to $2.39 for the fourth quarter of 2024.
Now I'll share some comments regarding the results for each of the divisions. Net sales in the Industrial Equipment Division for the fourth quarter of 2025 were $234.9 million, an increase of 4.2% compared to the fourth quarter of 2024. Adjusted EBITDA for the Industrial Equipment Division for the fourth quarter of 2025 was $41.5 million or 17.7% of net sales compared to $35.5 million or 15.7% of net sales for the fourth quarter of 2024. We are pleased with the continued strong performance, particularly with the adjusted EBITDA margins in the Industrial Equipment Division. The performance in this division demonstrates the attractiveness of our vocational truck-related end markets in which we have great leadership positions.
Net sales for the Vegetation Management Division for the fourth quarter of 2025 were $138.7 million, a decrease of 13.2% compared to the fourth quarter of 2024. The decrease in the net sales reflects weakness in certain end markets, particularly Tree Care and municipal mowing. Adjusted EBITDA for the Vegetation Management Division for the fourth quarter of 2025 was $3.2 million or 2.3% of net sales compared to $16.3 million or 10.2% of net sales for the fourth quarter of 2024. The adjusted EBITDA margins in the Vegetation Management Division were low this quarter due to inverse leverage on both fixed manufacturing costs and SG&A expenses from the lower volumes. Moving on to the balance sheet and cash flow.
Cash provided by operating activities for the fiscal year 2025 was $177.5 million compared to $209.8 million for the fiscal year 2024. The operating cash flow of $177.5 million reflects disciplined management of accounts receivable and accounts payable, where we made improvements on days sales outstanding and days payables outstanding. The operating cash flow also reflects uses of cash for inventory, which will be our intensified focus in 2026. Our free cash flow conversion for the full fiscal year 2025 was robust at 142% of net income. Cash used in investing activities for the fiscal year 2025 was $46.2 million and reflects cash used for the acquisition of Ring-O-Matic and $30.6 million used for capital expenditures.
The increase in capital expenditure compared to the same period in prior year was due to expansion of our manufacturing facility in Industrial Equipment Division. We are excited about opening of this new facility as it enables growth and improves operations in Western Europe. Cash used in financing activities for the fiscal year 2025 was $30.8 million, reflecting repayments of principal on our long-term debt and dividends paid. As of December 3first, 2025, our gross debt was $205.7 million. As of December 3first, 2025, we had $309.7 million in cash on the balance sheet. January 2026, we closed on the acquisition of Petersen Industries. We funded this acquisition with a $120 million draw on our revolver and approximately $50 million cash on hand.
Subsequent to the closing of the acquisition, total availability under our credit facility was $477 million, including accordion, and pro forma net leverage remains quite low. We're excited about the acquisition of Petersen, given its leadership position, attractive margins, and commercial synergies. To conclude, I would like to emphasize our commitment to delivering long-term value to our shareholders. We are pleased that our Board has approved $0.04 per share, or 13.3% increase in our quarterly dividend to $0.34 per share. As we move forward, we remain focused on driving growth and optimization of our operations. Thank you. I'll turn it back over to Robert.
Thank you, Agnes. Let me start by providing more color on the operating performance for each of our divisions. First, the Industrial Equipment Division. As Agnes mentioned, net sales in the Industrial Equipment Division increased by 4% during the quarter. The increase in net sales during the quarter was due to several factors, including favorable pricing, net sales from the acquired Ring-O-Matic business, which closed in the second quarter of the year, and continued market share gains in several of our businesses, partially offset by a decrease in sales in our Snow business. The decrease in net sales in our Snow business reflects a comparison to an unusually strong fourth quarter of 2024, where we recognized one large single order in the Canadian market.
While the Snow business can be lumpy from quarter-to-quarter, there's real positive momentum in many aspects of this business, which we're excited about. Net sales in both our Excavator and Vacuum business and our Sweeper and Safety business performed well during the quarter. These businesses continued to deliver double-digit year-over-year net sales growth. The Industrial Equipment Division expanded its adjusted EBITDA margins in both the fourth quarter and the full year. The book-to-bill in the Industrial Equipment Division for the fourth quarter of 2025 was 0.85x. Net orders during the fourth quarter of 2025 were up 21% compared to the prior year. Net orders in the Excavator and Vacuum business, Sweepers and Safety business, and Snow business were all up year-over-year.
Lead times in all the businesses within the Industrial Equipment Division are in a good competitive position. Today, our Industrial Equipment Division represents 59% of our total net sales. As a reminder, the products in the Industrial Equipment Division serve end markets including public works, utilities, infrastructure, and construction. These are attractive long-cycle markets. As I mentioned during our last call, net sales in this division and its end markets have been very robust over the past few years, fueled in part by various government-driven investments. Looking forward, we expect the rate of growth in these end markets to slow as the near-term effect of those prior external investments slows down. Overall, 2025 was a very strong year for our Industrial Division, and we're looking forward to continuing to grow this business both organically and inorganically.
The Vegetation Management Division. Net sales in the Vegetation Management Division declined by 13% due to several factors, including a decline in certain end markets and not ramping production volumes quickly enough in a few businesses that underwent the manufacturing consolidation activity, partially offset by favorable pricing. The end market was most notable in our Tree Care and Recycling business. Recall that a portion of our Tree Care and Recycling business involves the manufacture and sale of very large and very expensive equipment used in land clearing operations and is partially tied to housing starts, which remain suppressed. On the other hand, and importantly, net sales in our U.S. Agriculture business increased year-over-year in the fourth quarter. This was the first quarter in eight quarters where net sales in this business turned positive, a very encouraging sign looking forward.
Regarding the production inefficiencies in the two facilities that underwent consolidation, we're making progress. We see the progress in the various underlying KPIs, but not yet in the financial results. We currently expect the work to continue through the remainder of the first quarter and into the second quarter before the facilities are running as designed and better aligned to the end market demand. The book-to-bill in the Vegetation Management Division for the fourth quarter of 2025 was 1.1x. Net orders for the total division during the fourth quarter of 2025 were down 3% compared to the prior year. Net orders in the U.S. and European Agricultural businesses were up year-over-year, while net orders in the Other businesses were down year-over-year. Today, our Vegetation Management Division represents 41% of total net sales.
As a reminder, the products in the Vegetation Management Division serve end markets including Tree Care and Recycling, Agriculture, Public Works, and Land Maintenance. As I mentioned on our last call, net sales in this division and its end markets have declined over the past few years, rolling over a period of significant growth that occurred between 2021 and 2023. Looking forward, we expect the rate of decline in the end markets to improve and stabilize before returning to growth. Inventory in the channel remains healthy. We're seeing pockets of increased quoting activity in the first quarter in certain businesses within the Vegetation Management Division. This is also a positive sign, potentially pointing to a more stable 2026. We have much more work to do in the Vegetation Management Division. We're confident we'll improve the manufacturing efficiencies and drive margin improvement as originally planned.
I'd now like to share some comments regarding the broad framework of our long-term strategy. As mentioned before, there are four pillars of the strategy in which we'll focus and devote resources. 1. People and culture. 2. Commercial excellence. 3. Operational excellence. 4. Capital deployment. Examples of the types of steps we're taking related to one or more of these four strategic pillars I just mentioned include the following. First, we finalized construction of our manufacturing facility expansion project in France, nearly doubling the size of the facility. The increase in the manufacturing footprint will allow us to continue to grow sales in Western Europe in the attractive vocational truck space. Net orders, by the way, in France were up 32% year-over-year in the second half of 2025.
We completed the consolidation of additional manufacturing facilities in our Snow and Sweeper and Safety businesses within the Industrial Equipment Division. Production's up and running smoothly in both facilities in which the manufacturing lines were consolidated. These consolidations will allow us to continue to remove fixed costs and expand gross margins. We launched our global procurement and supply chain initiative. This initiative will allow us to expand margins and optimize carrying levels of inventories over the next several years. In our Tree Care and Recycling business, within our Vegetation Management Division, we signed several new independent dealers in critical parts of the United States where we had long-standing gaps. These commercial efforts will help improve sales and market share. We recruited and elevated several very experienced and talented senior leaders in a few businesses within the Vegetation Management Division.
We're looking forward to positive outcomes from these industry veterans in 2026. As Agnes mentioned, we signed and recently closed on the acquisition of Petersen Industries, a market leader in the manufacture of grapple equipment serving the bulky waste end market. This acquisition is a great example of the type of tuck-in acquisitions we're targeting. The M&A pipeline is robust, and we're excited to build on this momentum in 2026. We continue to centralize certain functional departments like IT, Finance, Procurement, and HR. These actions will help unlock previously constrained value and will lay the foundation for a more modern technology-driven organization, all while maintaining that local entrepreneurial brand spirit we love. In terms of product innovation, we're in final stages of testing our next generation hybrid sweeper, which uses a proprietary electric sweeping architecture compared to third-party hydraulic systems in our competitors' products.
This new electric sweeping architecture can run on diesel, CNG, or electric chassis globally and delivers superior efficiency, safety, and performance. This is a great example of how Alamo Group's product innovation engine is beginning to shift from fast follower to first mover. Lastly, we performed a review of the portfolio of the businesses we operate. As a result, we identified and aligned around divesting or discontinuing a few product lines that don't fit our go-forward strategy and are not, and have not been profitable. These actions will unfold over the course of 2026, and while small, we expect will also contribute to our margin expansion story. These are all great examples of the key initiatives underway that we believe will help deliver on our long-term goals. Before I conclude, I'd like to highlight again a few of our financial targets.
It's very important to understand these are long-term through-the-cycle targets. First, sales growth of 10%, including the effects of acquisitions. Second, adjusted operating margins of around 15%. Third, adjusted EBITDA margins of around 18%-20%. Finally, fourth, free cash flow as a percentage of net income of 100%. In summary, as we've worked through the transition during the latter part of 2025, I'd like to express my thanks and appreciation to our employees who continue to demonstrate a strong passion for helping solve the needs of our customers. I also want to thank our customers and shareholders, many of whom I've had the opportunity to meet. All of you are helping to further shape the future of Alamo Group and to deliver sustainable, superior performance. This concludes our prepared remarks. Operator, please open the lines for questions.