President Obama’s proposed stimulus plan could pump close to a $1 trillion into the U.S. economy, and at least part of that money could boost the business of one Chattanooga company.
Staff Photo by Allison Kwesell Junior Clavidy install ceramic liners into an asphalt storage silo inside of the warehouse at Astec Inc.
Road-building equipment maker Astec Industries Inc. is positioned to benefit from the $32 billion the federal government has proposed for transportation, analysts say.
Astec President and Chief Executive Officer J. Don Brock said that though the infrastructure improvements will help at a time when business is slow for his industry, it won’t be as much as proponents suggest.
“It will certainly help our business, and more importantly help our customers’ business,” Dr. Brock said. “It will help us do as well as we did last year or the year before.”
Infrastructure spending by the numbers:
$32 billion for transportation projects
$31 billion to build and repair federal buildings and other public infrastructure
$19 billion in water projects
$10 billion in rail and mass transit projects
Of the more than $800 billion proposed to infuse the nation’s economy with cash, about $90 billion — or more than 10 percent — is earmarked for infrastructure spending.
The funds set aside for transportation represents less than 4 percent of the massive stimulus plan.
“I think, as far as infrastructure, the $32 billion is enough for the next 18 months,” Dr. Brock said.
The real potential for growth in the road-building equipment industry could come with the renewal of the federal highway bill in September. The renewal of the transportation law would mean hundreds of billions in spending on roads and bridges for the next six years.
Dr. Brock’s hope is that any spending on a short-term stimulus would not derail the bigger projects, which would do wonders for contractors who buy Astec equipment, he said.
THE POWER OF ASPHALT
Industry analyst Arnie Ursaner, an analyst with CSJ Securities Inc. in Westchester, N.Y., agreed.
“Astec conceptually should benefit from the stimulus package,” Mr. Ursaner said.
The stimulus should help to increase some marginal business for Astec, but the potential for long-term growth at the company rests with the highway bill, he said.
Astec Industries makes equipment for asphalt road building, pipeline and utility trenching and wood processing.
The company was founded in 1972 and manufactures close to 200 products. They range from rock crushing and screening plants to asphalt facilities, milling machines, asphalt pavers, material transfer vehicles, trenchers, horizontal directional drills and wood processing equipment.
The company is the largest manufacturer of asphalt plants in the country, and since asphalt is used to coat 90 percent of the roads in the United States, Astec will be well positioned, said Bentley Offutt, an analyst with Offutt Securities in Baltimore.
“Any time you have a stimulus program, fixing roads and widening roads is part of the program,” he said.
CONTRACTORS GEAR UP
Like most other manufacturers, Astec’s business has slowed in the past year. In October, Roadtec, which makes asphalt-paving equipment for roads, laid off 70 people and moved 40 workers to other divisions. In total, Astec Industries has made layoffs at seven of its 14 companies.
More layoffs could come if the stimulus is not passed, Dr. Brock said.
“The last four months have been a little like 9/11 — the whole country went into paralysis and people are just scared,” he said.
Salesmen at Astec’s companies tell their bosses they are giving a lot of quotes on machinery, but they are not making as many sales.
But if the bill passes as expected and business picks up, the company would try to bring those workers back.
The company hopes that means contractors are gearing up for work that could follow a stimulus bill, Dr. Brock said, and Roadtec will certainly be the first to pick up orders. The main outcome of the stimulus would be to boost consumer confidence, he said.
As for job creation, Dr. Brock said, the country’s best bet lies with infrastructure spending rather than tax cuts.
“We’re getting something back on the infrastructure,” he said. “The other stuff you’re not getting anything back; you don’t see a real benefit.”