Astec Industries Performance Should Improve Sequentially

Astec shares are down about 7% as EPS missed the consensus and our estimate by $0.14 and were down 28% year-over-year. Conexpo-related expenses were a $0.12 per share after-tax headwind in the quarter but were previously incorporated in our model. The top-line miss was a surprise as international sales accounted for the whole $20 million delta compared with our forecasts.

Management noted continued weakness in European asphalt as a headwind and expects the second half to show improvement based on better quoting activity. Management also sounded cautious on customer highway spending as a result of lack of visibility on a new highway bill (the existing one is set to expire on September 30). We have been cautious about the possibility of approval of a new long-term highway bill before the deadline approaches and believe that a likely outcome will be another extension. While Conexpo was a positive event for the company, it did not lead to as many orders as we expected.

Sentiment was positive at the event, and we were disappointed by management’s more tepid commentary. In addition, since wood pellet sales are being recognized on an installment basis this year, the revenue benefit is not significant enough to drive robust growth this year. Given negative earnings revisions and valuation, we believe that shares will likely remain range-bound until we gain more visibility on highway spending. The Telestack acquisition should be an incremental EPS driver, and if Astec obtains any additional wood pellet plant orders, that could be a positive. However, highway funding will be the main driver this year, in our opinion.

Astec previously noted in its 10-K filing that it would disclose its results in a new segment format; however, details were scant until the press release Tuesday. The previous split was asphalt, mobile asphalt and paving, underground, aggregate and mining, and other. Infrastructure is not simply a combination of mobile asphalt and paving and asphalt. Astec Inc. and Roadtec are the main components of the infrastructure segment, but Heatec and CEI were moved into energy. GEFCO, previously the underground business, is also in the energy segment.

The legacy aggregate and mining segment is more or less the same as the new one. However, the Telestack acquisition closed on April 1 and will be in the aggregate and mining segment now. The company said that the $36 million acquisition will be immediately accretive to earnings and contributes $9.5 million to a pro forma backlog of $309.5 million.

 

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