Astec Industries, Inc. (NASDAQ:ASTE) Has Strong Domestic Backlog Exiting 2013

astec

Astec Industries (NASDAQ:ASTE) delivered a surprisingly solid quarter, after having missed the last six out of seven quarters. Shares were range-bound in the $30s through all of 2013 because of choppy quarters and end-markets. While we believe that uncertainty persists, particularly in mining and government highway funding, wood pellet plants could become an incremental driver of profitability to the base business.

The company’s earnings beat estimates benefiting from a lower tax rate and other income. Actual EPS of $0.36 and sales of $224 million were slightly ahead of the $220 million forecast. A lower effective tax rate (29% actual compared with our 35% forecast), benefited EPS by $0.03 and other income comprised the rest of the difference compared with our estimate.

Some analysts believe aggregate and mining sales beat expectations given well-known weakness in the mining sector. Aggregate demand was pointed to as an offsetting factor. Also, pellet plant revenue likely began flowing through Astec’s financials in the fourth quarter, benefiting top-line results. The underground segment was weak, as drilling rig demand remains lukewarm. The underground segment includes GEFCO, a company it acquired in 2011.

Astec noted that its new wood pellet plant in Georgia is operating to the company’s satisfaction and that the customer ordered an additional two lines for $40 million during the fourth quarter. This likely contributed to the strong backlog exiting 2013. Management noted continued instability in federal highway funding and we point out that that the current federal highway bill is set to expire in the fall. Our assumption is that rather than a new longer-term bill being passed, the current program will be maintained for the near to medium term. However, we will seek more color from management on the earnings call.

 

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