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Astec's (ASTE) Q2 Earnings Lag Estimates on Lower Demand

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Astec Industries, Inc.’s (ASTE - Free Report) second-quarter 2019 earnings per share of 36 cents missed the Zacks Consensus Estimate of 41 cents and also fell 65% from the prior-year quarter. The figure also came in lower than the company’s guidance of 40-50 cents. This can be attributed to lower-than-projected volume and under absorption of production costs.

The company witnessed weakening of demand in domestic markets. The late start to the construction season has compelled some customers to use existing equipment for the remainder of the construction season. Nearly drought-free conditions across the country have affected demand for water well drilling equipment, while low oil prices have reduced demand for high-pressure pump trailers and process seeders used in oil and gas production.

During the reported quarter, Astec recognized pre-tax profit of $20 million on the sale of its Hazlehurst, GA, wood pellet plant, which marks an end to its involvement in the wood pellet plant business. Including this, earnings per share in the second quarter was $1.03, showing improvement from a loss per share of $1.76 reported in the second quarter of 2018.

Astec reported revenues of $305 million in the quarter, up 12% from the year-ago quarter. The top line beat the Zacks Consensus Estimate of 300 million. Including the impact of pellet plants, sales in the quarter stood at $285 million compared with $347 million in the prior-year quarter. The company’s domestic sales decreased 19% year over year to $226 million and international sales fell 15% year over year to $59 million.

Astec Industries, Inc. Price, Consensus and EPS Surprise
 

Astec Industries, Inc. Price, Consensus and EPS Surprise

Astec Industries, Inc. price-consensus-eps-surprise-chart | Astec Industries, Inc. Quote

Cost of sales went down 18% year over year to $221 million. Adjusted gross profit came in at $63.5 million, down from $82 million in the year-ago quarter. Gross margin was 22.3% in the reported quarter compared with 23.6% in the second quarter of 2018. Selling, general, administrative and engineering (SG&A) rose 3% year over year to $538 million. The company reported adjusted operating profit of $10.5 million, declining 66% from the prior-year quarter’s figure of $30.8 million.

Segment Performance

Revenues for the Infrastructure Group segment rose 60% to $133 million from the year-ago quarter. The segment reported an operating profit of $24.4 million, an improvement from the operating loss of $62.7 million in the year-ago quarter.
 
Total revenues for the Aggregate and Mining Group segment went down 8% year over year to $107 million. Operating profit declined 32% year over year to $8.57 million.
 
The Energy Group segment’s total revenues decreased 11% year over year to $65 million. The segment reported operating profit of $3.1 million, down 63% from $8.5 million in the year-ago quarter.
 
Financial Position
 
Astec reported cash and cash equivalents of $24.9 million at the end of the second quarter of 2019, down from $65.2 million at the end of the prior-year quarter. Receivables declined to $139 million as of Jun 30, 2019, from $144 million as of Jun 30 2018. Inventories were at $361 million as of second quarter 2019-end, compared with $395 million as of second quarter 2018-end.
 
The company’s total backlog declined around 19% year-over-year to $246 million as of Jun 30, 2019. Backlog plunged 32%, 10% and 8% the Aggregate and Mining Group, Infrastructure Group and Energy group, respectively. Domestic backlog plunged 26% year over year to $162 million as of second-quarter 2019-end whole international backlog remained flat at $85 million.

Astec also announced the appointment of Barry Ruffalo as its president and CEO, effective Aug 12, 2019. Ruffalo will join the board of directors as a Class I director and will stand for re-election at the company’s 2020 annual meeting. On Aug 12, Richard Dorris, interim CEO, will resume his role as chief operating officer.

Outlook

Even though Astec witnessed lower demand in the first half of this year, its ongoing strategic procurement, operational excellence initiatives and manpower reductions is likely to lead to improved profits even if market conditions do not pick up. The company anticipates the second half results to be in line with the first-half results.

Share Price Performance
 

Astec’s shares have fallen 36.3% year to date, compared with the industry‘s decline of 6.2%.
 
Zacks Rank & Stocks to Consider

Astec currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Roper Technologies, Inc. (ROP - Free Report) , John Bean Technologies Corp. (JBT - Free Report) and CECO Environmental Corp. (CECE - Free Report) , each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here

Roper Technologies has an estimated earnings growth rate of 9.8% for the ongoing year. The company’s shares have gained 30.3% in the past year.

John Bean Technologies has an expected earnings growth rate of 5.9% for the current year. The stock has appreciated 33.1% in a year’s time.

CECO Environmental has an impressive projected earnings growth rate of 84.8% for 2019. The company’s shares have rallied 29.6% over the past year.

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