Astec shares plunge after company limits wood pellets business, but other operations boost profits in quarter

Astec shares plunge after company limits wood pellets business, but other operations boost profits in quarter

July 24th, 2018 by Dave Flessner in Breaking News

Astec Industries shed nearly 21 percent of its market value Tuesday after the Chattanooga-based equipment maker said it was scaling back investments in its wood pellet business and re-evaluating its approach to capital investments.

Shares of Astec plunged by $12.59 a share, dropping by more than 20.7 percent — one of the biggest losers on Wall Street in an otherwise generally positive market Tuesday. The market value of Astec fell by more than $290 million Tuesday after the company announced its strategic exit from a partnership with wood pellet plant customer Highland in Arkansas.

Astec said that because of "mechanical issues that would not allow us to meet our obligations," the company determined to part ways with its partner on the Highland project and pay $68 million in cash over the next 120 days and forgive roughly $7 million in receivables.

Astec CEO Ben Brock said his company will no longer pursue its own development and engineering for such plants.

Astec's net sales in the second quarter dropped 9.7 percent from a year ago, translating to a net loss of $40.7 million, or $1.76 per share. In the same period a year earlier, Astec reported net income of $14.4 million, or 62 cents per share, on sales of $301.9 million.

But excluding the effect of the contractual exit from the wood pellet operation, Astec's sales would have climbed 16.5 percent to $347 million, and its earnings would have risen 35.5 percent to $24 million, or $1.03 per share. That was 12 cents better than what Wall Street analysts had forecast.

Astec, which has been working on developing new wood pellet production machines for the past decade, said it is giving up on its plans to engineer and develop any wood pellet plants. Brock said another pellet plan built by Astec in Hazelwood, Georgia is working, but the company was unable to meet the customer schedule for the Arkansas plant.

Astec said it will continue to sell after-market parts and service support for wood pellet plants.

"We remain confident in the wood pellet industries potential over the long term," Brock told industry analysts Tuesday during a conference call. "At the same time, we are engaging in a strategic sourcing review to streamline our procurement process."

Excluding the wood pellet business, Astec earned $24 million, or $1.03 per share, on sales of $347 million, in the second quarter of 2018. In the same period a year earlier comparing similar businesses, Astec earned $17.7 million, or 76 cents per share , on sales of $297.8 million.

"Our core business continues to perform well," Brock said. "Our backlog remains historically strong. Our domestic customers continue to experience strong end-markets and are optimistic for the rest of this year and 2019, which has us optimistic on our outlook as a whole."

The company's backlog on June 30, 2018 was $302.9 million, a decrease of $57.6 million, or 16 percent, from a year ago. But excluding all wood pellet plant backlogs, Astec's backlog was up 2.5 percent from a year earlier.

Astec said it recently retained Maine Pointe, a global consulting firm, to assist management in conducting a comprehensive strategic sourcing review to streamline procurement operations and improve the quality of the company's products and services while reducing costs.

Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-340.


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