Astec Industries, Inc. — 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015. The filing also reports unaudited fourth-quarter results. Unless otherwise noted, dollar figures below are in millions.
Business context and reporting period
Astec designs, manufactures and sells equipment and replacement parts for road building, aggregate processing, mining, energy, drilling and wood processing. It reports Infrastructure, Aggregate and Mining, and Energy segments, plus Corporate. Results are cyclical and influenced by infrastructure funding, construction and mining activity, oil and steel prices, and foreign exchange rates.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Net sales | $983.2 | $975.6 |
| Gross profit / margin | $218.8 / 22.3% | $215.3 / 22.1% |
| Operating income | $50.0 | $51.7 |
| Net income | $32.0 | $34.2 |
| Net income attributable to controlling interest | $32.8 | $34.5 |
| Diluted EPS attributable to controlling interest | $1.42 | $1.49 |
| Cash from operating activities | $30.9 | $18.9 |
Annual sales rose 0.8%, while controlling-interest earnings declined 4.8%. Gross margin was broadly stable; SG&A and R&D increased, and the effective tax rate rose to 38.5% from 36.2%. Other income included $1.2 million from key-person life insurance policies following the death of the Chairman and former CEO.
Fourth quarter: Net sales were $215.0 million versus $239.5 million in Q4 2014; net income was $3.4 million versus $8.4 million; controlling-interest diluted EPS was $0.16 versus $0.37.
Liquidity and debt: Cash was $25.1 million and working capital $399.8 million at year-end; current assets were $541.8 million and current liabilities $142.0 million. No borrowings were outstanding under the $100 million Wells Fargo revolver, with $82.3 million available after letters of credit. Reported debt was $9.7 million, principally subsidiary borrowings in Brazil; Brazilian loan rates ranged from 3.5% to 20.8%. The company reported compliance with credit covenants.
Capital expenditures were $21.2 million in 2015. Approved 2016 capital expenditures total $30.1 million, including a planned $7.3 million Infrastructure Group facility expansion. Dividends were $0.10 per share quarterly, or $0.40 for the year.
Material changes versus the prior comparable period
- Domestic sales increased 10.4% to $722.3 million; international sales fell 18.8% to $260.9 million. International sales were 26.5% of total sales, down from 32.9%; management attributed the decline to the stronger U.S. dollar, weaker oil prices and mining-market weakness.
- Infrastructure Group sales increased 11.0% to $428.7 million and segment profit rose 15.0% to $33.9 million. Aggregate and Mining sales decreased 3.7% to $370.8 million and profit fell 6.7% to $30.7 million. Energy sales fell 10.2% to $183.6 million and profit declined 65.0% to $3.6 million, reflecting lower oil-and-gas demand and reduced margins.
- Year-end backlog declined 5.6% to $313.3 million. Domestic backlog rose 16.6%, while international backlog fell 50.7%. Infrastructure backlog increased 38.5%; Aggregate and Mining backlog decreased $15.3 million and Energy backlog decreased $60.1 million.
- Operating cash flow increased to $30.9 million from $18.9 million, while cash rose to $25.1 million from $13.0 million. Investing cash outflow narrowed substantially from 2014, which included the Telestack acquisition.
Outlook, commentary, risks and unusual items
- Management expected the year-end backlog to be filled in 2016, while noting that the first three-line pellet-plant order, included at $60.2 million in backlog, was financed and revenue recognition was deferred until customer payments. A separate $29.3 million pellet-plant order was largely shipped by year-end, with revenue expected in the first half of 2016.
- The FAST Act, enacted December 4, 2015, authorizes approximately $205 billion for highways and $48 billion for transit through September 2020. Management viewed multi-year funding as supportive of customer purchasing, but warned funding could be reduced, diverted or otherwise changed. It also expected the U.S. dollar to remain strong and anticipated seasonal steel-price increases in the first half of 2016.
- Major risks include cyclical construction and infrastructure spending, oil-price exposure across different segments, steel costs and availability, foreign exchange and international competition, customer financing, execution and cost overruns on customized projects, and reliance on credit facilities. The Wells Fargo facility expires in April 2017.
- Astec Underground ceased operations in May 2015; its product lines moved to GEFCO and its facility was sold. The company recorded $1.5 million in closure costs, partly offset by $10.1 million of proceeds from property and equipment sales, primarily related to the closure.
- The company disclosed an unquantifiable potential EPA cleanup liability related to activities before its 1986 acquisition of Barber-Greene; no liability was recorded. It also had $1.9 million of contingent customer-financing guarantees, with a $0.1 million recorded liability, and up to $19.0 million of letters of credit and other guarantees outstanding.
- A $3.2 million prior-period tax-accounting error was corrected through reductions to retained earnings and 2014 prepaid expenses; it did not affect reported results or cash flows for 2013–2015. Management and the auditor concluded internal control over financial reporting was effective; the financial statements received an unqualified audit opinion.
Important facts for investors to verify
- Whether the FAST Act translates into sustained U.S. equipment orders and whether 2016 backlog converts to revenue on schedule, especially the financed pellet-plant orders.
- Whether international demand, currency effects, mining activity and oil-and-gas markets stabilize, and how segment profitability responds.
- The composition, terms and repayment schedule of subsidiary debt—particularly higher-rate Brazilian loans—and the status of the Wells Fargo facility before its April 2017 expiry.
- Cash generation relative to planned 2016 capital expenditures, and the continuing dividend’s affordability.
- Any developments in the EPA cleanup matter, customer guarantees, letters of credit and other legal contingencies.