Astec Industries, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. This unaudited filing covers the three and nine months ended September 30, 2021. Astec designs and manufactures equipment and components primarily for road building and related construction, with Infrastructure Solutions and Materials Solutions as its reportable segments. Unless noted otherwise, amounts below are in millions of dollars.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $267.0 | $231.4 | $829.4 | $785.5 |
| Gross profit / margin | $62.3 / 23.3% | $50.2 / 21.7% | $197.8 / 23.8% | $183.2 / 23.3% |
| Operating income (loss) | $6.7 | $(0.9) | $27.7 | $25.1 |
| Net income attributable to controlling interest | $9.3 | $1.6 | $27.0 | $31.5 |
| Diluted EPS | $0.41 | $0.07 | $1.18 | $1.38 |
- Cash flow: Nine-month operating cash flow was $27.3, down from $102.1. The filing attributes the decrease primarily to working-capital timing, including inventory, receivables and taxes; increases in payables and customer deposits partly offset these uses. Investing cash outflow was $9.2 and financing cash outflow was $11.4.
- Liquidity and debt: Cash and cash equivalents were $164.6 at September 30, 2021, versus $158.6 at December 31, 2020; $28.0 was held by foreign subsidiaries. The $150.0 revolving facility had no borrowings; $144.7 remained available after letters of credit. Reported current and long-term debt, including short-term debt, totaled approximately $0.9. Astec reported compliance with facility covenants.
- Balance sheet: Current assets were $644.8 and current liabilities $212.0. Inventories rose to $282.8 from $249.7; trade receivables and contract assets rose to $145.8 from $115.9.
Material changes versus comparable periods
- Q3 sales rose 15.4%; nine-month sales rose 5.6%. Q3 growth reflected higher equipment and parts sales and acquired businesses. For nine months, acquisitions and stronger international sales contributed, while exited Enid oil-and-gas products and lower domestic throughput weighed on results.
- Q3 gross margin improved 160 basis points. Management cited pricing, sales volume and mix, and manufacturing efficiencies, partly offset by inflation. Nine-month gross margin increased 50 basis points.
- Q3 net income increased to $9.3 from $1.6. Nine-month net income attributable to controlling interest declined to $27.0 from $31.5, in part reflecting the prior-year $9.5 CARES Act-related tax benefit and higher corporate costs in 2021.
- Backlog increased to $620.5 at September 30, 2021, from $218.5 a year earlier, up 184.0%. Both segments grew. Management cautioned that labor shortages and longer material and component lead times slowed production and could delay fulfillment.
- Segment sales increased year over year in Q3 and for the first nine months in both Infrastructure Solutions and Materials Solutions. Nine-month corporate loss widened to $47.5 from $28.2, primarily due to transformation and centralization costs, including software costs and a $1.5 out-of-period licensing expense.
Outlook, commentary, risks and unusual items
- No full-year revenue or earnings guidance is provided. Management estimated 2021 capital expenditures of $15–$20 and said available cash, future operating cash flow and credit capacity should meet working-capital and capital expenditure needs for at least 12 months.
- Management described ongoing COVID-19-related uncertainty, inflation in steel and other materials, supply-chain constraints, shipping delays, production labor shortages and higher labor costs. The company said competitive conditions and long order-to-delivery cycles limit its ability to pass cost increases through promptly.
- Management expects the Tacoma facility to cease operations by year-end 2021, with product lines transferred to other facilities by early 2022. The broader Simplify, Focus and Grow initiative includes site consolidation and a multi-year ERP implementation; $7.7 of related costs was recorded in SG&A during the first nine months.
- In October 2021, Astec settled its fully funded defined-benefit pension plan through $5.5 of lump-sum payments and $12.2 of annuity purchases. Management estimated a fourth-quarter non-cash pretax income and excise tax charge of $4.5–$5.5.
- Contingencies include customer-financing guarantees and letters of credit. A shareholder class action dismissal is under appeal. A separate GEFCO equipment lawsuit remains unresolved; Astec said it cannot estimate any potential loss. The company is also under IRS audit for tax year 2018 and other tax audits.
- The quarter included a $3.5 discrete tax benefit from releasing a valuation allowance associated with the Brazilian subsidiary. Nine-month 2020 results included a $9.5 discrete CARES Act tax benefit. These items affect period-to-period earnings comparisons.
Important facts for investors to verify
- Whether the unusually large backlog can be converted to sales on schedule despite production labor, materials and logistics constraints, and whether backlog orders remain firm.
- Whether pricing and efficiency gains can offset continued input-cost inflation without materially impairing demand or margins.
- How working-capital needs—especially inventory and receivables—affect cash generation as production and backlog fulfillment evolve.
- The expected timing, costs and operational effects of Tacoma’s closure, the transformation program and the ERP implementation.
- The final pension settlement charge, and developments in the pending GEFCO litigation, shareholder appeal and tax audits.