Astec Industries beat Wall Street expectations by 3 pennies per share in the first quarter, boosting earnings by 10 percent in spite of flat overall revenue.
"During the quarter we continued to see flat revenues and our domestic customers tend to remain cautious," said J. Don Brock, founder, chairman and CEO of the Chattanooga-based asphalt and construction equipment maker. "While our revenues were flat, our margins are improving."
The Chattanooga-based company, which designs, builds and sells equipment around the world for asphalt, mining and energy projects, reported that earnings grew to $13.3 million, or 57 cents per diluted share, up from $12 million, or 52 cents per share, in the first quarter of 2012.
Sales slipped 2 percent to $247.8 million, down from $252 million in the first quarter of the prior year.
But Brock expects macroeconomic conditions, on which his company's fortunes depend, to slowly improve.
"We do see improvements in homebuilding and commercial building, although its somewhat slow," he said.
Brock anticipates that energy drilling and exploration will begin to grow again, that highway spending will remain flat, and that demand will grow sharply for the company's wood pellet plants -- a new product that will roll out this year.
The continuing struggle in the U.S. is the fact that road maintenance and construction took a back seat in state budget meetings during the recession, Brock said, and politicians are only now coming to grips with the country's depleted infrastructure. But recent signs have been encouraging, and could result in a boon to Astec's bottom line.
In Los Angeles' current mayoral election, for example, two of the leading candidates have focused the election on fixing the city's streets, with one candidate even dubbing herself the "pothole queen" after personally filling 747 potholes, according to news reports.
"Both [would-be] mayors are saying they're going to fix the roads better than the other one, they've even got them out there with shovels," Brock said. "It's nice to see politicians recognize that the infrastructure is falling apart."
The company is also hoping to benefit from sales of several new technologies it researched during the recession, and is now introducing to the world.
"We're excited about the new products we've developed over the last few years," Brock said.
Astec plans to sell several wood pellet plants to European customers, which will burn the wood pellets as fuel to generate energy, said Ben Brock, who is expected to take over the company in the coming year.
"In the last two weeks we've had multiple conversations with customers in Europe who want to build the plants in the United States," Ben Brock said.
Domestic sales increased 4 percent to $161.9 million in the first quarter, while international sales fell 11 percent to $85.9 million compared to $96.9 million -- a reversal of a trend that has seen Astec grow international sales to nearly half of its portfolio before the European debt crisis.
Whenever one sector lags, Astec continues to plug the holes with new products, changing the mix in response to dips and hiccups across the globe.
"I think the other thing that helped us was that our product mix was right, we did a lot of new products last year," Ben Brock said.
Astec's domestic backlog increased 5 percent during the quarter to $167.3 million, though the company's international backlog decreased 6 percent to $109.2 million.