Astec Industries, Inc. — FY 2021 Form 10-K
Business context and reporting period. Annual report for the fiscal year ended December 31, 2021; comparisons are primarily with FY 2020. Astec designs and manufactures equipment and replacement parts for road construction and related markets. Its reportable segments are Infrastructure Solutions and Materials Solutions.
Key financial results
Amounts are in millions of dollars, except per-share data and percentages.
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Net sales | $1,097.2 | $1,024.4 | +7.1% |
| Gross profit / margin | $251.7 / 22.9% | $240.1 / 23.4% | +4.8%; margin down 0.5 pts |
| Operating income / margin | $22.1 / 2.0% | $43.0 / 4.2% | Down $20.9 |
| Net income attributable to Astec | $17.8 | $46.9 | Down 62.0% |
| Diluted EPS | $0.78 | $2.05 | Down 62.0% |
| Cash from operations | $7.4 | $141.5 | Down $134.1 |
| Capital expenditures | $20.1 | $15.4 | Up $4.7 |
| Cash, cash equivalents and restricted cash | $134.4 | $158.6 | Down $24.2 |
| Total assets / total liabilities | $911.3 / $256.5 | $848.2 / $205.2 | Liabilities increased |
- Revenue mix: Domestic sales were $842.1 million, up 3.1%; international sales were $255.1 million, up 23.0% and 23.3% of total sales. Equipment and parts sales increased; used equipment, service and installation revenue declined. Acquisitions added $33.1 million of sales, partly offset by $25.0 million of sales lost from exiting Enid oil and gas drilling product lines.
- Segments: Infrastructure Solutions revenue was $748.0 million (+6.4%) and segment profit was $53.0 million (down 1.5%). Materials Solutions revenue was $349.2 million (+8.6%) and segment profit was $29.3 million (down 8.7%). Corporate expense rose to $64.8 million from $40.1 million.
- Margins and expenses: Higher volume, pricing, mix and manufacturing efficiencies supported gross profit, but $53.5 million of consolidated materials, labor and overhead inflation more than offset much of that benefit. SG&A rose 20.2% to $200.6 million, including centralization/transformation costs, higher software costs and acquisition expenses.
- Liquidity and debt: Cash available for operating purposes was $134.1 million, including $21.7 million held by foreign subsidiaries. The $150 million revolving facility had no borrowings and $147.5 million of availability after letters of credit. Short-term debt was $2.6 million; current and long-term debt maturities totaled approximately $0.3 million. The company reported compliance with credit-facility covenants.
- Working capital: Inventories rose to $303.0 million from $249.7 million; trade receivables and contract assets rose to $144.1 million from $115.9 million. Current assets were $641.7 million and current liabilities $225.3 million.
- Shareholder returns: Cash dividends were $10.2 million. The quarterly dividend increased by $0.01 to $0.12 per share for Q4 2021. No shares were repurchased during the year.
Material changes versus FY 2020
- Orders and backlog strengthened substantially: backlog reached $762.6 million at year-end, up 111.5% from $360.5 million. Infrastructure Solutions backlog was $449.3 million; Materials Solutions backlog was $313.3 million.
- Despite higher sales and gross profit, operating income fell by nearly half and attributable net income declined 62%, reflecting inflation, higher SG&A and corporate costs, and a pension settlement charge.
- Operating cash flow dropped to $7.4 million, primarily due to inventory growth, receivables and contract assets, taxes, and lower net income. Higher customer deposits and accounts payable partly offset these uses.
- International sales recovered from prior-year pandemic-related disruptions. Sales reported in U.S. dollars would have been $11.6 million lower absent foreign-exchange movements.
Outlook, risks and unusual items
- Management cited strong demand and anticipated infrastructure investment under the U.S. Infrastructure Investment and Jobs Act, enacted in November 2021. The filing does not provide a quantified revenue or earnings forecast. Estimated FY 2022 capital expenditures are $30–$40 million.
- Management expected supply-chain constraints, longer lead times, steel and other input-cost inflation, manufacturing labor shortages and higher labor costs to continue into 2022. The company said it could not pass all cost increases through to customers, particularly on orders with long fulfillment periods.
- COVID-19 effects remained uncertain, including potential disruptions from new variants, government measures, supplier constraints and workforce absences. Other key risks include cyclical construction and infrastructure spending, competition, international and foreign-exchange exposure, customer project execution, acquisition integration, cybersecurity and ERP implementation.
- The company’s multi-year OneASTEC transformation focuses on simplifying operations, improving efficiency and growing organically and through acquisitions. Tacoma ceased manufacturing at year-end 2021, with product transfers expected to finish in early 2022. ERP and other transformation costs included $13.4 million of FY 2021 SG&A that could not be capitalized.
- A $5.2 million pension settlement charge was recorded in Q4 2021 following settlement of the defined-benefit plan. The income-tax benefit was $1.4 million, including an $8.1 million net valuation-allowance release and $4.1 million of R&D tax credits; the effective tax rate was affected by discrete items.
- Legal matters include a pending appeal in a shareholder class action dismissed with prejudice at the district-court level, and product-related litigation for which the company could not estimate a possible loss or range. Management believes current matters are not expected to materially affect results, but acknowledges adverse outcomes are possible.
- The company disclosed $243.0 million of open purchase obligations, including $231.3 million expected to be fulfilled within one year. Vendor-hosted software arrangements involve $45.9 million of payments through September 2027, excluding separately contracted implementation costs. The filing also warns that a tax-law requirement to amortize R&D costs beginning in 2022 could materially reduce operating cash flows if not deferred, repealed or modified.
Important facts for investors to verify
- Whether backlog converts to revenue on schedule given labor and supply constraints, and how much of backlog is subject to customer changes or execution risk.
- Whether pricing and productivity improvements can offset steel, labor, logistics and other inflation without further margin erosion.
- Whether operating cash flow recovers as inventory and receivables are converted to cash; monitor working-capital requirements alongside backlog growth.
- Progress, total cost and timing of the ERP rollout, Tacoma product transfers and broader OneASTEC savings and growth initiatives.
- Potential cash-flow effects of the R&D tax-amortization provision, tax contingencies, customer-financing guarantees and ongoing litigation.
- FY 2021 financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2021.