Astec Falls Short of Estimates

Astec Industries Inc. ( ASTE - Analyst Report ) has reported its second-quarter 2012 results, delivering earnings of 45 cents per share, falling short of the Zacks Consensus Estimate of 66 cents as well as 61 cents in the year-earlier quarter.

Total revenues increased 2% to $253.9 million from $247.8 million in the year-ago quarter. Total revenues also missed the Zacks Consensus Estimate of $282 million.

Domestic sales of the company soared 16% to $161.5 million in the quarter compared with $139.5 million in the year-earlier quarter. International sales decreased 15% to $92.4 million from $108.3 million in the year-ago quarter.

Costs and Margins

Cost of sales increased 6.4% to $197.6 million in the quarter from $185.8 million in the prior-year quarter. Gross profit decreased 9.3% to $56.2 million from $70 million in the year-ago quarter. Consequently, gross margins decreased 290 basis points year over year to 22.1% in the quarter.

Selling, general, administrative & engineering expenses rose 4.1% to $40.4 million in the reported quarter from $38.8 million in the year-earlier quarter. Income from operations decreased 24.3% to $15.9 million from $21.0 million in the year-ago quarter. Consequently, operating margins decreased 230 basis points year over year to 6.2%.

Segment Performance

Total revenues in the Asphalt Group segment decreased 12.8% to $59.3 million from $68.2 million in the year-ago quarter. Gross profit decreased 29.7% to $11.8 million from $16.8 million in the prior-year quarter.

Total revenues of the Aggregate and Mining Group segment increased 9.6% to $94.9 million in the quarter from $86.6 million in the previous-year quarter. Gross profit also increased to $25.8 million in the quarter from $22.4 million in the prior-year quarter.

Mobile Asphalt Paving Groupsegment’s total revenue decreased 15.5% to $45.2 million versus $53.5 million in the year-ago quarter. Gross profit during the quarter dropped to $10.2 million from $15.6 million in the year-earlier quarter.

Underground Groupreported total revenues of $34.8 million versus $23.1 million in the year-ago quarter. Gross profit increased to $5.2 million from $3.9 million in the previous-year quarter.

All Others reported total revenue of $19.6 million, improving from $16.5 million in the year-earlier quarter. Gross profit remained flat year over year at $3.3 million.

Financial Position

Cash and cash equivalents amounted to $35.9 million as of June 30, 2012, a decline from $73.5 million as of June 30, 2011. The company has a zero debt balance sheet. Astec’s backlog increased to $258.3 million at the end of the second quarter of 2012 from $237.5 million at the end of second quarter of 2011.

Our Take

The acquisitions of GEFCO and STECO helped Astec focus on higher growth industries. Astec continues to seize opportunities to make acquisitions in order to augment its products range and expand its geographical footprint. Moreover, the new 27-month highway bill will help Astec by increasing demand for its products in the domestic market.

However, the economic slowdown has hurt Astec’s demand for its products in the international market. Unless and until the market resumes, we do not see a major improvement in the demand for its products. Astec also faces tough competition from companies likeCaterpillar Inc. ( CAT - Analyst Report ) , Gencor Industries Inc. ( GENC ) and privately held CMI Terex Corporation.

The company currently has a Zacks #5 Rank (short-term Strong Sell recommendation) on its stock. We have a long-term Neutral recommendation on Astec.