ASTE Astec Industries Inc

Astec Industries Inc. (ASTE) reported an EPS of 61 cents in the fiscal 2011 second quarter versus 45 cents in the year-earlier quarter, beating the Zacks Consensus Estimate by a penny.

Total revenue increased 18.5% to $247.8 million from $209.2 million in the year-ago quarter, marginally beating the Zacks Consensus Estimate of $247 million.

Domestic sales of the company amounted to $139.5 million in the quarter compared with $129.2 million in the year-earlier quarter. International sales increased to $108.3 million (43.7% of the total sales) from $80.0 million (38.2% of sales), respectively, in the year-ago quarter.

Costs and Margins

Cost of sales increased to $185.8 million in the quarter from $162.6 million in the prior-year quarter. Gross profit also increased to $62.0 million from $46.7 million in the year-ago quarter. However, gross margins decreased 270 basis points year over year to 75.0% in the quarter.

Selling, general, administrative & engineering expenses rose to $38.8 million in the reported quarter from $30.8 million in the year-earlier quarter. Income from operations increased to $21.0 million from $15.8 million in the year-ago quarter. Consequently, operating margins were up 90 basis points year over year to 8.5%.

Segment Performance

Total revenue in the Asphalt Group segment amounted to $68.2 million, up from $65.4 million in the year-ago quarter. Consequently, gross profit also increased to $16.7 million from $15.0 million in the prior-year quarter.

Net sales of Aggregate and Mining Group segment were $86.6 million in the quarter, up from $67.0 million in the previous years’ quarter. Gross profit also increased to $22.4 million in the quarter from $15.2 million in the prior-year quarter.

Mobile Asphalt Paving Group segment reported total revenue of $53.5 million versus $47.2 million in the year-ago quarter. Gross profit during the quarter amounted to $15.6 million versus $12.2 million in the year-earlier quarter.

Underground Group reported net sales of $23.1 million versus $13.6 million in the year-over year quarter. Gross profit improved drastically to $3.9 million from $0.9 million in the previous years’ quarter.

All Others segment reported total revenue of $16.5 million, a marginal improvement from $16.0 million in the year-earlier quarter. However, gross profit declined to $3.2 million from $3.4 million in the year-ago quarter.

Financial Position

As of June 30, 2011, cash and cash equivalents amounted to $73.5 million, a decline from $82.0 million as of June 30, 2010. The company has a zero debt balance sheet.

Astec’ backlog increased to $217.1 million at the end of second quarter of 2011 from $139.7 million at the end of the end of second quarter of 2010.

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, the outlook for domestic sales looks bleak.

However, the company saw a pick up in domestic revenue in the fourth quarter last year following a spate of declines. Any weakness in domestic sales is expected to be countered by robust international and parts sales and contribution from the company’s new and improved products.

Furthermore, we believe President Obama’s recent announcement of a $50 billion plan to rebuild the U.S. infrastructure bodes well for Astec. The company currently has a Zacks #2 Rank (short-term Buy recommendation) on its 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. It competes with Caterpillar Inc. (CAT), Ingersoll-Rand Plc (IR) and privately held CMI Terex Corporation.

 
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