Astec Industries Inc. (ASTE) delivered earnings per share (EPS) of 45 cents in its second quarter ended June 30, 2010, up from 34 cents in the year-ago period. The company exceeded the Zacks Consensus estimate of 39 cents. Increases in revenues, particularly international, and improved margins were instrumental in driving the better-than-expected results.
Revenue in the quarter was $209.2 million, an 11% jump from $188.8 million in the year-ago period. International revenues contributed 38% to total revenue in the quarter, up from 32% in the year-ago period. In dollar terms, international revenues were $80 million, a 34% improvement from the year-earlier period. Domestic revenues, however, remained flat at $129.2 million compared with the second quarter of fiscal 2009.
As of June 30, 2010, Astec Industries’ backlog was $139.7 million, up from $134.8 million as of March 31, 2010, and $133.6 million as of June 30, 2009.
As a percentage of revenue, cost of sales increased 40 basis points (bps) to 77.7% while selling, general, administrative & engineering expenses dropped 200 bps to 14.7%. Consequently, gross margin dipped 41 bps to 22.3% and operating margin surged 160 bps to 7.6% in the quarter.
Segment Performance
The Mobile Asphalt Paving Group posted the highest increase of 28% to $47.2 million of revenues in the quarter. The segment’s operating income improved 44% to $6.3 million and segment margin jumped 150 bps to 13.3%.
The Aggregate and Mining Group delivered year-over-year growth of 21% to $67 million. Operating income stretched 26% to $4.97 million with segment margin expanding 30 bps to 7.4%.
The Underground segment, however, incurred a revenue decline of 20.5% to $13.6 million. The segment’s loss of $1.9 million was an improvement over the loss of $4.2 million reported in the year-ago quarter.
Revenues at the Asphalt Group dipped 6.1% to $65.4 million. Operating income dropped 33% to $7.6 million and segment margin was 11.6%, down 460 bps.
Financial Position
Astec Industries had cash and cash equivalents of $82 million as of June 30, 2010, up from $49 million as of March 31, 2010. The company has a debt free balance sheet.
Our Take
A large number of Astec Industries’ customers depend substantially on government funding of highway construction and maintenance, along with other infrastructure projects. Uncertainty surrounding the Highway Bill renewal is thus currently a major overhang for the company. Customers are abstaining from making large capital expenditure commitments and instead purchasing equipment needed for current jobs.
A multi-year Highway Bill should give Astec Industries’ customers the confidence to indulge in capital expenditures and enhance production capacity. We maintain our Underperform rating on Astec Industries in the absence of key drivers in the domestic market until the Highway Bill is renewed.
Chattanooga, Tennessee–based Astec Industries is a leading manufacturer and marketer of road building equipment. The company sells equipment used in every phase of road building, from quarrying and crushing the aggregate to applying the asphalt. The company also sells equipment and components unrelated to road construction. Astec Industries operates through four business segments: Aggregate and Mining Group, Asphalt Group, Mobile Asphalt Group and Underground Group.
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