If pavement is the roof of the road, the U.S. has "a lot of roofs leaking," said Astec Industries' chairman and chief executive officer, J. Don Brock.
Repaving those roads is something that has a big effect on the Chattanooga-based road-building equipment manufacturer's domestic sales, Brock said.
"There is a continuing need for the top of the road surface, which 80 percent of your asphalt goes to," he said in a teleconference Tuesday for the release of the company's fourth quarter and year-end financials. "What money does get spent seems to be spent on asphalt, and there's an inordinate amount going to that top 2 inches of pavement."
In the fourth quarter of 2010, Astec reported a 7.3 percent increase in net sales, with $190.8 million compared to $177.9 million in the year-ago period. Net income for the fourth quarter of 2010 was $6 million or 26 cents per share compared to a net loss in the year-ago period of $15.5 million or 69 cents per share.
"The fourth quarter is generally our slowest quarter," Brock said. "Obviously we did better than we expected."
Domestic sales were weak until the last three weeks of the quarter, when Congress passed tax extensions, which Brock said "was kind of like turning the switch on" for sales.
For the year, net sales were up 4.5 percent to $771.3 million from $738.1 million in 2009. Net income for 2010 was also up, with $32.4 million or $1.42 per share compared to $3.1 million or 14 cents per share for 2009.
David Wells Jr., a senior equity analyst for Thompson Research Group in Nashville, said the biggest concerns for the company are what will happen in Congress with the highway bill and the increasing cost of steel.
"[Steel prices are] a real concern out in the marketplace," Wells said. "I would anticipate that would be a headwind they face in margins next year."
Brock said although he anticipates "considerable inflation, particularly in steel," prices are already locked in through the second quarter. However, the rising steel costs will also affect components the company buys, he said.
Brock said growth this year will continue in international sales as well as the asphalt, mobile paving, aggregate and underground markets, with minimal growth in domestic sales.
"Over the last five years we have doubled the company's net worth through organic growth, and we've set a goal over the next five years to double the size again," Brock said. "We want to grow organically at 10 percent and through acquisitions at 5 percent. We expect growth in 2011, but not as good as in the latter part of that cycle."
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