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Why Is Astec Industries (ASTE) Up 3.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Astec Industries (ASTE - Free Report) . Shares have added about 3.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Astec Industries due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Astec Q2 Earnings and Revenues Surpass Estimates

Astec’s second-quarter 2020 adjusted earnings per share of 67 cents beat the Zacks Consensus Estimate of 12 cents by a wide margin. The bottom line also improved 81% from the prior-year quarter. The better-than-expected results were driven by the company’s restructuring initiatives taken in 2019 and 2020, which offset the impact of lower revenues amid the coronavirus crisis.

Including one-time items, the company reported earnings per share of 41 cents in the quarter under review, down 60% from $1.03 in the year-ago quarter.

Astec reported revenues of $265 million in the quarter, down 6.8% from the year-ago quarter’s adjusted figure of $285 million. However, the top line surpassed the Zacks Consensus Estimate of $236 million. Including $20 million from sale of a wood pellet plant in the prior-year quarter, revenues in the second quarter of 2020 declined 13%. In the reported quarter, the company’s both domestic and international sales declined 10% and 25%, respectively, on a year-over-year basis owing to COVID-19-related disruptions.

Cost of sales declined 8% year over year to $204 million. Adjusted gross profit was $62 million, down 3% from the year-ago quarter figure of $63 million. Gross margin was 23.2% in the reported quarter compared with the prior-year quarter’s 22.2%.

Selling, general, administrative and engineering (SG&A) decreased 19% year over year to $43 million, driven by reductions in consulting fees, travel and employee expenses. Adjusted operating profit for the quarter under review was $18.8 million, which improved 78% from the prior-year quarter’s $10.5 million. Adjusted operating margin was 7.1% compared with 3.7% in the prior-year quarter courtesy of transformation initiatives put in place beginning in late 2019.

Adjusted EBITDA was $25 million in the reported quarter, up 47% from $17 million a year ago.  Adjusted EBITDA margin was 9.5% compared with 6.0% in the prior-year quarter. Despite lower sales, the company’s restructuring initiatives benefited margins in the quarter.

Segment Performance

Revenues for the Infrastructure Solutions segment increased 2% to $182 million from the year-ago quarter. The segment reported an adjusted EBITDA of $22.6 million compared with $12.5 million in the prior-year quarter.

Materials Solutions segment’s total revenues decreased 21% year over year to $83 million. The segment reported an adjusted EBITDA of $12.1 million, reflecting year-over-year increase of 7%.

Financial Position

Astec reported cash and cash equivalents of $119.8 million as of Jun 30, 2020, up from $24.9 million as of Jun 30, 2019. As of second-quarter 2020-end, total debt was $1.4 million. The company has available liquidity in excess of $270.6 million as of Mar 31, 2020.

The company’s total backlog fell 26% year over year to $182 million as of Jun 30, 2020. Orders in Materials and Infrastructure Solutions segments were down 17.3% and 30.9%, respectively. While domestic backlog slumped 21% year over year to $128 million, international backlog plunged 37% to $54 million.

Astec is undertaking initiatives to counter the financial and operational impacts of COVID-19. These steps include reducing expenses, conserving cash, suspending hiring, except for critical positions, lowering discretionary spending and overall headcount reduction.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 260% due to these changes.

VGM Scores

Currently, Astec Industries has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Astec Industries has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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