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Astec Industries Inc. (ASTE - Analyst Report) reported third-quarter 2013 earnings of 28 cents per share, declined 3.4% from 29 cents in the year-earlier quarter. The results fell short of the Zacks Consensus Estimate of 37 cents.

Operational Update

Total revenue decreased 2% to $213.2 million from $218.4 million in the year-ago quarter, missing the Zacks Consensus Estimate of $236 million. The year-over-year decline was primarily driven by lack of equipment sales in the Aggregate and Mining Group.

Domestic sales dropped 1% year over year to $132.4 million. International sales were at $80.8 million down 4% year over year due to declined sales, primarily in Europe, Canada and South America. Brazil, Africa and the Middle East also recorded low sales, but were partially offset by the increase in post-Soviet states.

Cost of sales fell 2% year over year to $167.4 million. Gross profit was $45.8 million, down 3.2% from $47.3 million in the year-ago quarter. Gross margin contracted 20 basis points (bps) year over year to 21.5%, affected by the decrease in overhead absorption.

Selling, general, administrative & engineering expenses were $36.6 million in the reported quarter compared with $38.4 million in the year-ago quarter. Income from operations increased 3% year over year to $9 million. Consequently, operating margin expanded 30 bps year over year to 4.3%.

Segment Performance

Revenues in the Asphalt Group segment rose 0.6% to $47.1 million from $46.8 million in the year-ago quarter. Segment profit grew significantly by around 109% to $4.9 million from $2.3 million in the prior-year quarter.

Total revenue for the Aggregate and Mining Group segment went down 13.1% year over year to $79.8 million. Segment profit was $6.8 million versus $8.7 million in the prior-year quarter, down 22%.

Mobile Asphalt Paving Group segment’s total revenue decreased 3.3% to $35.4 million from $36.6 million in the year-ago quarter. However, segment profit rose 26.2% year over year to $2.1 million.

Underground Group reported total revenue of $27.3 million, up 32.8% from $20.5 million in the year-earlier quarter. However, the segment reported a loss of $0.8 million compared with the loss of $0.1 million a year ago.

All Others reported revenues of $23.6 million versus $22.6 million in the year-ago quarter. Segment loss was $5.6 million, slightly wider than the year-ago quarter’s loss of $5.2 million.

Financial Position

Cash and cash equivalents amounted to $46 million as of Sep 30, 2013, up from $35.6 million as of Sep 30, 2012. Astec has no debt on its balance sheet. Astec’s domestic backlog increased 20% to $132.9 million as of Sep 30, 2013 from $110.6 million as of Sep 30, 2012. Conversely, the company’s international backlog declined 20% to $95.6 million as of Sep 30, 2013 from $120.1 million as of Sep 30, 2012.

Our Take
Astec will benefit from new product introductions and growth in the oil and gas business. Its first pellet plant in Georgia is expected to start production before the end of the year. The company is also making progress on the construction of a manufacturing facility in Brazil. In addition Astec’s continuous endeavor for acquisitions will assist in the expansion of product offering and market coverage.

Astec’s strategic program, including the merger of Astec Underground and GEFCO to create an energy group and remove the Underground group, will drive long-term growth. The company continues to expand with a new pellet plant, high tech drill rigs, pump trailers, water heaters and gas processing heaters.

Lack of clarity on the future of highway funding made customers cautious regarding spending on major equipment purchases, which affected its performance. Adverse weather conditions, increasing competition and ongoing economic uncertainties remain headwinds in the future.

Chattanooga, Tenn.-based Astec is a manufacturer of specialized equipment for infrastructural building and restoration.

Astec currently maintains a Zacks Rank #3 (Hold). Another company belonging to the industrial product sector, Lonking Holdings Ltd. , holds a Zacks Rank #2 (Buy). Astec’s peers such as Komatsu Ltd. (KMTUY) and H&E Equipment Services Inc. (HEES - Snapshot Report) are yet to announce their quarterly results.

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