Astec Industries, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; balance-sheet comparisons are to December 31, 2012. Financial statements are unaudited. Astec manufactures equipment for road building, aggregate processing, drilling, and related markets.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net sales | $247.8 million | $252.0 million |
| Gross profit / margin | $58.6 million / 23.6% | $58.6 million / 23.3% |
| Operating income | $18.2 million | $18.5 million |
| Net income attributable to controlling interest | $13.2 million | $12.2 million |
| Diluted EPS attributable to controlling interest | $0.57 | $0.53 |
| Operating cash flow | $0.8 million | $(11.5) million |
- Sales declined 1.6%; the 2012 comparative sales figure excludes American Augers, sold in November 2012. Net income attributable to controlling interest rose 7.6%, helped in part by a lower effective tax rate: 29.8% versus 37.6%.
- At March 31, cash was $73.2 million, current assets $526.5 million, and current liabilities $160.9 million (current ratio approximately 3.3). Total assets were $753.6 million and total equity was $560.7 million.
- No borrowings were outstanding on the parent’s $100 million revolving facility; $89.7 million remained available after letters of credit. South African subsidiary Osborn had $0.9 million in borrowings. Interest expense was $0.07 million.
- Operating cash flow improved year over year but remained modest, as receivables, inventory, and prepaid expenses absorbed cash. Capital expenditures were $9.3 million; investing cash outflow was $9.3 million. Cash declined $7.8 million during the quarter.
Material changes and operating trends
- Domestic sales increased 4.4% to $161.9 million, while international sales fell 11.4% to $85.9 million; management cited economic uncertainty abroad and a stronger U.S. dollar. Parts sales decreased 6.6% to $68.0 million.
- Mobile Asphalt Paving sales rose 12.6% to $47.3 million, supported by domestic demand, market-share gains, and MAP-21 funding. Asphalt Group sales rose 4.2% to $71.5 million, and segment profit increased 50.7% to $11.1 million.
- Underground Group sales fell 33.3% to $14.7 million, and its segment loss widened to $2.4 million, primarily due to GEFCO manufacturing reorganization costs and inefficiencies. Aggregate and Mining sales were nearly flat; segment profit declined 5.4% to $9.1 million.
- Backlog was $276.5 million, essentially unchanged from a year earlier. Domestic backlog increased 4.8%; international backlog decreased.
Outlook, risks, and notable items
- Management forecast 2013 capital expenditures of $31.5 million, excluding Brazil, and approximately $20 million for a planned Brazilian manufacturing facility. The facility groundbreaking was scheduled for May 2013; management expects local bank borrowings to fund its plant and equipment. Management said available cash, operating cash flows, and credit capacity should cover working capital and capital expenditure needs through March 31, 2014.
- The company expects to begin quarterly dividends of $0.10 per share in Q2 2013; the board approved the first payment for eligible shareholders, subject to the stated payment schedule. Future dividends remain subject to the company’s financial position and board discretion.
- Management noted dependence on infrastructure spending and customer confidence, cyclical markets, oil and steel price movements, interest rates, foreign-exchange fluctuations, and international economic conditions. MAP-21 authorizes federal highway and transit funding through fiscal 2014, but management said longer-term funding remains uncertain. Steel prices began declining in late March; management expected possible further weakening in Q2.
- Potential obligations include customer financing guarantees of $2.0 million (with $0.2 million recorded as a liability) and letters of credit and other guarantees with maximum potential payments of $13.4 million. Management said existing litigation was not expected to have a material adverse effect, while noting unfavorable outcomes remain possible. A legacy EPA cleanup matter remains unquantified and no liability was recorded.
- The American Augers divestiture was completed in 2012; the company recorded a $0.5 million sale-price adjustment in current liabilities, subject to review and potential negotiation. Q1 2012 included $0.2 million of discontinued-operations income. The filing states that typically 24%–28% of annual revenue occurs in Q1, so quarterly results may not indicate full-year performance.
Important facts for investors to verify
- Whether domestic infrastructure demand and MAP-21-related orders translate into sustained sales and backlog growth.
- Whether international sales, parts sales, and the Underground Group recover, and whether GEFCO’s operational restructuring improves margins.
- Cash conversion and working-capital requirements, especially receivables, inventory, and prepaid expenses, alongside planned capital spending in the U.S. and Brazil.
- Availability under the revolving facility, compliance with its financial covenants, and exposure under letters of credit, guarantees, and contingent claims.
- Whether the announced quarterly dividend can be maintained while funding capital investment and working capital.