Astec increases sales but misses estimates

Astec increases sales but misses estimates

October 26th, 2011 by Ellis Smith in Business Around the Region

Colby Knight welds the inside of a double-barrel drum used inside an asphalt mixer at Astec Inc.

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Astec Industries increased third-quarter revenue this year by more than 20 percent to $214.6 million, the company announced Tuesday.

But the Chattanooga-based manufacturer grew earnings only about 6 percent to $7.7 million from the previous near. The 34 cents per share result missed analysts' expectations by 16 cents per share.

"This is the lowest gross margin in this segment since 2004," said Robert McCarthy, senior research analyst for Robert W. Baird & Co.

J. Don Brock, chairman and CEO, blamed the company's smaller margins on research and development expenses and fickle customers, unnerved by the uncertain global economy.

"Considering the overall condition of the domestic economy and the uncertainty in Washington, we continue to be pleased with the company's performance," Brock said.

But the $3.3 million in R&D could pay off, he said, with millions in potential orders for the company's new wood pellet plant and fracking equipment, which is used to harvest natural gas.

"Frankly there are $100 million worth of orders we could reach out and get," Brock said.

The company made other investments during the quarter, including more than $50 million in new facilities during the quarter, with more than $20 million overseas.

"We felt like with the cash we had it was the right time to do it," Brock said.

Astec also won an $89 million U.S. Army contract to supply asphalt plants over the next five years, of which $13 million will be realized in 2012, Brock said.

Short-term uncertainty could be further alleviated if Congress passes a multi-year highway bill, Brock said, which would give the construction industry more confidence to stock up on equipment instead of panic buying when needs arise.

He also noted that despite increasing demand, many mid-level managers at Astec itself had shown reluctance to re-hire many of the employees that had been let go.

"We're back up to about 3800 employees right now, but each additional company is reluctant to bring people back in," Brock said.

As the company fufills backlogged orders from the third quarter, the fourth quarter should be more profitable, he said, and will be more in line with year-to-date earnings.

For 2012, Brock expects revenue to climb an additional 10 percent to 15 percent.

"We have an internal goal always to grow organically at 10 percent per year," Brock said. "The wild card would be, if we get any kind of stimulus, if we help the infrastructure side of it, or if we could get any resolution on the highway bill."

Astec shares fell by $2.90 a share, or nearly 8.4 percent, to close Tuesday at $31.70 in trading on the Nasdaq Exchange.