Astec Industries Inc. (ASTE) delivered EPS of 32 cents in its third quarter ended September 30, 2010, more than double of 15 cents in the year-ago period. The company surpassed the Zacks Consensus Estimate of 25 cents.
The outperformance was driven by increase in international and parts revenues as well as improved net income as a result of the company’s downsizing activities in 2009 and better utilization of capacity.
Revenues in the quarter were $177.8 million, a 7% jump from $166 million in the year-ago period. However, revenues failed to meet the Zacks Consensus Estimate of $185 million. International revenues continued to be strong, contributing 45% to total revenue in the quarter from 39% in the year-ago period. In dollar terms, international revenues were $79.3 million, a 22% improvement from the year earlier period. Domestic revenues, however, dipped 3% to $98.6 million compared to the third quarter of fiscal 2009.
As of September 30, 2010, Astec Industries’ backlog was $145.6 million, up from $139.7 million as of June 30, 2010 and $144.3 million as of September 30, 2009.
As a percentage of revenue, cost of sales decreased 272 basis points to 76.4% while selling, general, administrative & engineering expenses dropped 45 basis points to 17.9%. Consequently, gross margin surged 272 basis points to 23.6% and operating margin went up 317 basis points to 5.7% in the quarter.
Segment Performance
The Aggregate and Mining Group delivered year-over-year growth of 7.9% to $60.3 million. Operating income hiked 58% to $4.4 million with segment margin expanding 233 basis points to 7.4%.
Revenues at the Asphalt Group inched up 2.1% to $45.5 million. Operating income remained flat at $4 million and segment margin was 8.9% compared with 9.1% in the year-ago quarter.
The Mobile Asphalt Paving Group’s revenues dipped 0.36% to $36.7 million. However, the segment’s operating income improved 21% to $5.2 million and segment margin jumped 250 basis points to 14.1%.
The Underground segment’s revenues jumped 13.5% to $19.2 million. The segment’s loss of $1.57 million was an improvement over the loss of $3.0 million reported in the year-ago quarter.
Financial Position
Astec Industries had cash and cash equivalents of $81.4 million as of September 30, 2010, up from $82 million as of June 30, 2010. Astec Industries has a debt free balance sheet.
Our Take
A large number of Astec’s customers depend substantially on government funding for highway construction and maintenance, along with other infrastructure projects. With no progress on the reauthorization of the Highway Bill, Astec’s customers have tightened their spending on capital equipment and are instead purchasing equipment needed for current jobs.
We do not see any drivers in the domestic market until Congress renews the Highway Bill, which is not expected until 2011. Robust international revenues and parts sales will help offset weakness in the domestic markets.
However, lack of clear visibility of a renewal of the Highway Bill is a major concern. Further, given continued weakness in most of its end-markets and significant pricing pressures, we do not expect a major improvement in Astec’s numbers until 2011.
However, President Obama’s recent announcement of a $50 billion plan to rebuild the U.S infrastructure bodes well for Astec. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.
Chattanooga, Tennessee–based Astec Industries is a leading manufacturer and marketer of road building equipment. The company sells equipment used in all phases 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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