Astec Industries, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited consolidated results. Astec designs and manufactures equipment and components primarily for road building and related construction, operating through Infrastructure Solutions and Materials Solutions.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $284.4 million | $288.8 million | Down 1.5% |
| Gross profit / margin | $68.5 million / 24.1% | $73.4 million / 25.4% | Profit down 6.7%; margin down 1.3 percentage points |
| Operating income / margin | $9.8 million / 3.4% | $15.1 million / 5.2% | Down $5.3 million |
| Net income attributable to controlling interest | $8.7 million | $20.6 million | Down 57.8% |
| Diluted EPS | $0.38 | $0.91 | Down 58.2% |
| Operating cash flow | $14.6 million | $5.4 million | Up $9.2 million |
Lower gross profit reflected reduced sales volume and higher production costs, including reduced manufacturing efficiency. SG&A rose 4.0% to $51.7 million, or 18.2% of sales, including higher transformation, software, acquisition and amortization costs. The 2020 comparison benefited from a $9.5 million discrete tax benefit under the CARES Act; Q1 2021 recorded $0.9 million of tax expense versus a $5.1 million benefit in Q1 2020.
Segments and demand
- Infrastructure Solutions: Revenue was $201.5 million, down 0.5%; segment profit increased to $21.0 million from $17.2 million. Acquisitions contributed to sales, partly offset by the exited Enid oil and gas product lines and lower used-equipment sales.
- Materials Solutions: Revenue was $82.9 million, down 3.8%; segment profit increased to $6.5 million from $6.0 million. Lower international equipment and parts sales weighed on revenue.
- Parts and component sales increased 1.9% to $90.4 million and represented 31.8% of sales, compared with 30.7%.
- Order backlog rose 71.5% to $420.8 million from $245.4 million a year earlier, with increases in both segments. Management attributed growth to pent-up demand and slower production cycles amid labor shortages.
Cash, debt and liquidity
Cash and cash equivalents were $164.6 million at March 31, 2021, up from $158.6 million at December 31, 2020; $25.0 million was held by foreign subsidiaries. Operating cash flow was $14.6 million; investing cash flow was negative $3.0 million and financing cash flow was negative $5.6 million. The operating cash flow increase included higher accounts payable and lower inventory, partly offset by lower net income and increased receivables and contract assets.
Balance-sheet debt included $0.2 million of current maturities, $1.2 million of short-term debt and $0.3 million of long-term debt. There were no borrowings under the $150 million revolving credit facility; $144.5 million remained available after letters of credit. The company reported compliance with its financial covenants. Current assets were $592.0 million and current liabilities were $185.1 million at quarter-end.
Outlook, risks and unusual items
- Management estimated 2021 capital expenditures of $25–$30 million and said available cash, operating cash flow and credit capacity should meet working-capital and capital needs for at least 12 months. No earnings or revenue guidance was provided.
- Management reported continued COVID-19-related uncertainty, material-price increases and manufacturing labor shortages. Steel costs and component availability may remain pressured; labor constraints have challenged production efficiency and fulfillment.
- The Tacoma facility is expected to cease operations in Q4 2021, with product lines to be transferred to other facilities. Q1 restructuring charges were $0.7 million net, including $0.4 million each for Mequon and Tacoma actions, offset in part by a property-sale gain.
- Q1 SG&A included a $1.5 million out-of-period expense for software licensing costs incurred in Q4 2020. Vendor-hosted software agreements involve $42.0 million of payments through September 2027.
- A GEFCO equipment-related lawsuit and a related suit against Astec remain pending; the company disputes the claims and said it could not estimate a possible loss or range. Management believes current claims will not materially affect results, but acknowledges an unfavorable ruling could do so.
- Customer financing guarantees, letters of credit and other guarantees create contingent exposure. The filing reports $2.6 million of contingent customer debt and $5.5 million of letters of credit under the revolving facility.
Most important facts for investors to verify
- Whether the large backlog converts to sales and earnings, given labor-related production delays.
- Whether gross margins recover as material, component and labor costs change and pricing catches up.
- How much of Q1 earnings pressure reflects recurring costs versus the $1.5 million software expense and prior-year tax benefit comparison.
- Progress, costs and expected savings from the Tacoma closure and broader transformation initiatives, including the multiyear software commitments.
- Updates on COVID-19 impacts, contingent guarantees and the GEFCO litigation, for which the potential loss is not estimable in the filing.