Astec Industries, Inc. — FY 2020 Form 10-K
Reporting period: Year ended December 31, 2020. Astec designs and manufactures road-building, asphalt and concrete equipment, as well as aggregate, mining, recycling and related products. The company reorganized its reporting structure into Infrastructure Solutions and Materials Solutions, plus Corporate.
Financial performance and liquidity
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Net sales | $1,024.4 million | $1,169.6 million |
| Gross profit / margin | $240.1 million / 23.4% | $239.4 million / 20.5% |
| Income from operations | $43.0 million | $25.1 million |
| Net income attributable to Astec | $46.9 million | $22.3 million |
| Diluted EPS | $2.05 | $0.98 |
| Net cash from operating activities | $141.5 million | $112.6 million |
- Sales declined 12.4%; excluding a $20.0 million wood-pellet plant sale recorded in 2019, the decline was 10.9%. Domestic sales fell 10.1% and international sales fell 20.6%.
- Gross profit was nearly flat in dollars, but margin improved. Management cited a more favorable sales mix and the non-recurrence of $32.6 million in 2019 inventory write-downs; comparison is also affected by the prior-year wood-pellet plant sale.
- Cash and cash equivalents were $158.6 million at year-end, up from $48.9 million. Current assets were $565.8 million and current liabilities $170.3 million.
- No borrowings were outstanding on the $150.0 million revolving credit facility; $7.6 million of letters of credit left $142.4 million available. Reported short- and long-term debt totaled approximately $2.0 million.
- Capital expenditures were $15.4 million. Investing cash outflow was $20.9 million, including $32.5 million for acquisitions, partly offset by asset-sale proceeds. Dividends paid were $10.0 million.
- Year-end backlog was $360.5 million, up 36.7% from $263.7 million. Infrastructure Solutions backlog was $218.2 million; Materials Solutions backlog was $142.3 million.
Material changes and unusual items
- Infrastructure Solutions sales decreased 8.1% to $702.8 million; segment profit increased to $53.8 million from $33.8 million. Materials Solutions sales decreased 20.6% to $321.6 million; segment profit increased to $32.1 million from $22.8 million.
- Sales and profits were negatively affected by COVID-19, including temporary shutdowns at the Northern Ireland and South Africa sites. The company said U.S. operations remained open as essential businesses.
- SG&A declined to $166.9 million from $183.9 million, and R&D declined to $22.1 million from $27.2 million. The company attributed reductions partly to lower consulting, travel and employee-related costs, COVID-related constraints and restructuring.
- The 2020 income tax benefit was $1.2 million, versus a $3.0 million expense in 2019. The 2020 result included a $9.5 million benefit from carrying back a 2018 net operating loss under the CARES Act; it also included $4.0 million of expense related to unrecognized tax benefits.
- Net restructuring, impairment and other asset charges were $8.1 million, including $9.9 million of restructuring charges and $4.4 million of impairments, offset by a $6.2 million net gain on property sales. A $1.6 million goodwill impairment was recorded for mobile asphalt equipment.
- The company acquired CON-E-CO and BMH Systems, broadening its concrete equipment business, and purchased Grathwol Automation assets for telematics and remote diagnostics capabilities. It closed or exited several operations/product lines; Tacoma closure was announced in January 2021.
- Fourth-quarter 2020 net sales were $238.9 million and net income attributable to controlling interest was $15.4 million; diluted EPS was $0.67.
Outlook, risks and contingencies
- No specific earnings or sales guidance is provided. Management expected to fill the year-end backlog during 2021 and noted that steel prices were expected to strengthen and oil prices could rise as industrial activity recovered.
- The FAST Act highway-funding program was extended through September 30, 2021. Management said multi-year infrastructure funding would help customers plan equipment purchases, while future funding levels remained uncertain.
- Key risks include COVID-19 and supply-chain disruption, cyclical construction and infrastructure demand, uncertain government funding, steel and component costs, foreign exchange and international trade exposure, competition, and execution of the OneASTEC restructuring and acquisition strategy.
- Management reported compliance with credit covenants. It believes current legal proceedings are not expected to have a material adverse effect, but noted outcomes are uncertain. A shareholder class action was dismissed with prejudice in February 2021; separate GEFCO-related litigation remained unresolved, with potential loss not estimable.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management reported that previously identified material weaknesses were remediated; the acquired CON-E-CO and BMH Systems businesses were excluded from the 2020 internal-control assessment.
Important facts for investors to verify
- How much of the earnings improvement persists after the CARES Act tax benefit, cost reductions and nonrecurring gains are excluded.
- Whether backlog converts to revenue and cash on schedule, particularly given its concentration in Materials Solutions growth and the company’s 2021 delivery expectation.
- Whether COVID-related demand and international operations recover, and whether steel, logistics and supplier costs pressure margins.
- Progress and costs of site closures, product-line exits, Tacoma consolidation and integration of the 2020 acquisitions.
- Developments in the GEFCO litigation, customer-financing guarantees and other letters of credit and contingencies.