Astec Industries Inc. (ASTE) reported first-quarter 2014 earnings per share of 41 cents, a 28% year-over-year decline from 57 cents in the year-earlier quarter and also short of the Zacks Consensus Estimate of 57 cents.
Operational Update
Total revenue decreased 4% to $238.7 million from $247.8 million in the year-ago quarter, falling way short of the Zacks Consensus Estimate of $261 million. An 18% year-over-year increase in domestic sales to $175.5 million was offset by a 26% decline in international sales to $63.2 million. Increase in sales in the Aggregate and Mining Group segment was offset by a decline in the other two segments – Infrastructure Group and Energy Group.
Cost of sales fell 4% year over year to $181.9 million. Gross profit was $57 million, down 3% from $59 million in the year-ago quarter. However, despite lower sales, gross margin expanded 20 basis points (bps) year over year to 23.8% attributed to benefits from the company’s focus on lean manufacturing and cost management.
Selling, general, administrative and engineering expenses were $43.4 million in the reported quarter versus $40.4 million in the year-ago quarter. Income from operations decreased 27% year over year to $13.3 million. Consequently, operating margin contracted 170 bps year over year to 5.6%.
Segment Performance
Revenues in the Infrastructure Group segment declined 9.6% to $98.8 million from $109.3 million in the year-ago quarter. Segment profit also fell over 32% to $8.8 million from $12.9 million in the prior-year quarter.
Total revenue for the Aggregate and Mining Group segment went up 2.6% year over year to $93 million. Segment profit was flat at $9.1 million compared with the prior-year quarter.
The Energy Group segment’s total revenue decreased 2% to $46.8 million from $47.7 million in the year-ago quarter. However, segment profit increased 61% year over year to $1.9 million.
Financial Position
Astec ended the quarter with cash and cash equivalents of $45 million, down from $73 million as of 2013-end. Astec has no debt on its balance sheet. The company’s domestic backlog increased 8% to $300 million as of Mar 31, 2014 from $276 million as of Dec 31, 2013. The domestic backlog increased 18% year over year to $197 million while international backlog dipped 6% to $103 million at the quarter end .
Our Take
Astec continues to invest significantly in increasing its capacity, manufacturing new products as well as upgrading its existing products. Introduction of products such as stabilizers, new models at Roadtec, larger crushers at Telsmith, pump trailers and vertical drilling rigs will effectively contribute to sales growth. The revealing of 37 new products at ConExpo, the premier construction equipment trade show, will also boost sales.
The U.K. parliament has approved a tax credit for utilities to burn wood pellets as a source of fuel and switch from coal-fired plants to wood plants. This opens up a sizeable opportunity for Astec as the company is a supplier of all equipments used in wood pellet plants. Astec continues to receive new orders in addition to existing ones for wood pellet plants and these are expected to be significant contributors to its top line.
Astec’s recent acquisition of Omagh, Northern Ireland-based Telestack will help Astec grow in the infrastructure, mining and energy industries and also increase its global presence given that it sells equipment to six continents. The addition of Telestack will help boost Astec’s product portfolio in all of the above-mentioned industries as well as material handling at ports across the globe. The acquisition is expected to be immediately accretive to earnings.
However, Astec continues to witness decline in international sales due to strong U.S dollar and weakness in certain markets like Canada and Australia.
Astec currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Komatsu Ltd. (KMTUY), Hyster-Yale Materials Handling, Inc. (HY) and Columbus McKinnon Corp. (CMCO). While Komatsu holds a Zacks Rank #1 (Strong Buy), Hyster-Yale Materials Handling and Columbus McKinnon hold a Zacks Rank #2 (Buy).
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