Shares of Chattanooga-based Astec Industries fell 6 percent Monday after the company said its third quarter earnings will take a hit because of design upgrades for a pair of its wood pellet plants.
Added investment in the Georgia and Arkansas plants is expected to negatively impact Astec's quarterly earnings by 54 cents to 58 cents per share, according to the company that makes equipment for the asphalt, oil and gas and wood processing industries.
Astec's stock closed Monday at $52.50 per share on the NASDAQ, down $3.51, or 6.27 percent.
Astec Chief Executive Benjamin G. Brock said in a conference call with analysts that the plants required significant design upgrades so they can meet full production rates.
In the case of the Georgia plant, it had been run with natural gas as the fuel source and was not run at full capacity, according to Astec. Market conditions improved and the plant needs to run at full capacity utilizing wood as its fuel source, the company said.
Significant design issues at the company's Arkansas plant were also recently identified as production has increased, Astec reported.
Nick Coppola, an analyst for Thompson Research Group, said it sounds as if Astec needed to revisit how to design the new pellet plants.
Brock said that based on what Astec is doing, the company will have "a really good plant" when it finishes the fixes.
"We have a high level of confidence we have identified the issues. We're excited when we get to the other side," he said. "We're not liking what we're announcing today. Long term for us, it looks really good."
The company CEO said Astec has invested about $31 million over seven years to get into what officials believe will be a $100 million per year business.
Meanwhile, Astec also announced the acquisition of substantially all of RexCon LLC, a Wisconsin-based maker of concrete batch plants, for about $26 million. The deal was funded through cash on hand, according to Astec.
"The acquisition of RexCon reflects our stated strategy to drive focused growth, both organically and through acquisitions of strong companies, that serve the infrastructure, aggregate and mining, and energy industries," Brock said.
He said RexCon is "a successful, profitable company with a reputation for innovative technology and dependable quality products."
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