Transcript of

Astec Industries, Inc. (ASTE)

Third Quarter 2008 Results Conference Call

October 21, 2008

 

 

Participants

J. Don Brock, Chairman and Chief Executive Officer

F. McKamy Hall, Vice President and Chief Financial Officer

Stephen C. Anderson, Corporate Secretary and Director of Investor Relations

 

Presentation

 

Operator

Greetings, ladies and gentlemen and welcome to the Astec Industries’ Third Quarter 2008 Results.  At this time all participants are on a listen-only mode.  A brief question and answer session will follow the formal presentation.  If anyone should require operator assistance during the conference, please press *0 on your telephone keypad.  As a reminder, this conference is being recorded.

 

It is now my pleasure to introduce your host, Mr. Steve Anderson, Director of Investor Relations for Astec Industries.  Thank you Mr. Anderson, you may begin.

 

Stephen C. Anderson – Astec Industries, Inc. – Corporate Secretary and Director of Investor Relations

Thank you, Rob.  Good morning and welcome to the Astec Industries conference call for the third quarter of 2008.  As Rob mentioned, my name is Steve Anderson and I am the Corporate Secretary and Director of Investor Relations for the company.  Also on today’s call are Dr. J. Don Brock, our Chairman and Chief Executive Officer and McKamy Hall, Vice President and Chief Financial Officer.

 

In just a moment I will turn the call over to McKamy to summarize our financial results and then to Don to discuss our business environment and business operations.

 

In the way of disclosures I’ll note this morning that our discussion may contain forward-looking statements that relate to the future performance of the company. And these statements are intended to qualify for the Safe Harbor liability established by the Private Securities Litigation Reform Act.  Any such statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions, and other factors, some of which are beyond the company’s control.  Some of those factors that could influence our results are highlighted in today’s financial news release and others are contained in our Annual Report and our quarterly and annual filings with the SEC.  As usual, we urge you to familiarize yourself with those factors.

 

At this point, I’ll turn the call over to McKamy to summarize our financial results.

 

F. McKamy Hall – Astec Industries, Inc. – Vice President and Chief Financial Officer

Thanks, Steve.  We appreciate each of you joining us this morning.

 

The company generated a 37.9% improvement in net income and we look forward to starting the fourth quarter with a backlog of $255.7 million.  Net sales for the quarter were $237.4 million for an increase of 15.1%.  International sales increased 37% and were 43% of the third quarter sales.  Increases internationally came in the Middle East, Central America, Asia, South America, Africa, Europe, and Canada.  Domestic sales were up 2.7% for the quarter.  Parts sales were at $49.2 million or an 11.6% increase and composed 23.1% of the quarterly sales in 2008.

 

The breakdown of our sales as far as looking at the pie concept is concerned, aggregate sales were 38%, asphalt sales are at 23.9% of the pie, underground is at 17% of the pie and mobile is 11.8% of the pie with other at 9.3% and those breakdowns are attached to your press release for your convenience.

 

The consolidated gross profit for the quarter was at $58.8 million up from $48.6 million, a $10.2 million increase or 21.1%.  The gross profit percentage increased to 130 basis points for the quarter to 24.8% from 23.5% and we are certainly very pleased to accomplish this with all of the cost increases that we have incurred over this year.

 

SG&A and engineering was at $34.3 million or 14.4% versus 15.5% of sales last year.  Income from operations was at $24.5 million versus $16.6 million; that’s an increase of $7.9 million over the prior year.  Income by segment is also attached to your press release for your convenience.

 

The net income is at $16 million that is versus $11.6 million for the quarter last year; that’s an increase of 37.9%.  The diluted earnings per share are at $0.71 per share versus $0.51 per share or an increase of 39.2% increase in the earnings per share.  The backlog which is also attached to our release for your convenience is at $255.7 million or up 6.6% and that backlog is broken down for your reference by segment.

 

The balance sheet is very strong.  Our receivables are at 36.4 days versus 37.4 last year.  Our inventory turns are at 3.2 turns versus 3.5 turns last year. We currently owe nothing on our Wachovia credit facility of $100 million.  We are utilizing that for $10.1 million of letters of credit.

 

Our capital expenditures for the quarter are at $5.4 million.  We expect those to approach $42 million for the year.  Our depreciation for the quarter is $4.4 million and our depreciation for the year to be around $18.5 million.  The cash flow will be attached to the 10-Q filing and we will discuss 2009 expectations during our upcoming year-end conference call.

 

That concludes my prepared remarks on the financials.  Now certainly, I’ll be glad to answer any questions you have later.  Thank you and we appreciate your interest in Astec.

 

Stephen C. Anderson – Astec Industries, Inc. – Corporate Secretary and Director of Investor Relations

Thank you, McKamy.  Dr. Don Brock will now discuss Astec’s business operations for the third quarter of 2008.  Don?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Thank you, Steve.  As McKamy mentioned, our revenues were up from $206 million to $237 million or 15% for the quarter.  Our gross margins increased 120 basis points.  This was helped by product mix out of pre-buying of some of our cost components and the volume of business.  Net income was up 38%.  Our domestic sales were up 3% while international was up 37%.  Parts sales continued to grow and were up 12%.  Our backlog is up to $255 million versus $239 or 7%.  We have seen continuous growth in the energy side of our business with American Augers, Astec Underground, Heatec, and Peterson.

 

Looking forward to the fourth quarter and somewhat into ’09, we’ve seen tremendous changes.  As all of you know in the last few weeks, the oil prices have dropped down to $75 a barrel, which reduces cost to our customers.  States are allowing more recycle in their mixes as steel has softened somewhat, but both steel and asphalt prices have not caught up yet with the… I’d say they haven’t decreased nearly as much nearly as they have increased.

 

Although most states are short on income, we are seeing some beginning to have increases in funding for roads as a stimulus.  A number of states are putting more money into roads.  The leadership in Congress is certainly talking about a stimulus package that will have more funding for the infrastructure and that would be very important to us particularly in ’09.

 

Our backlog for the fourth quarter remains strong and most of the company’s we expect to finish the year in the middle to the upper end of our previous guidance of $2.80 to $2.95.  At this time, there are too many factors that exist to give much light on where’09 will be.  By the end of the year, we should have a better view before we think it will be.  We will know a little more about what stimulus package has occurred and we’ll plan on giving you guidance at that time.

 

With that I’ll stop and be glad to answer any questions.

 

Operator

Thank you.  Ladies and gentlemen, we will now be conducting a question and answer session.  If you would like to ask a question, please press *1 on your telephone keypad.  A confirmation tone will indicate your line is in the question queue.  You may press *2 if you would like to remove your question from the queue.  For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * keys.  One moment please while we poll for questions.

 

Our first question today is coming from the line of Arnie Ursaner with CJS Securities.  Please go ahead with your question.

 

Arnie Ursaner – CJS Securities

Hi, good morning.  Congratulations on a pretty good quarter.  Can you expand a little bit on your backlog and give us a feel for the percent that is international and your best view of the timing of this backlog, how far out does it run, does it move pretty well into the beginning part of next season?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Arnie, McKamy is looking up the percentage there for you that he can give you in just a second.  It depends on the business.  We’re running out in the next season on oil drilling rigs.  On the Heatec heaters particularly for oil and gas is running out into next year.  So anything related to the energy business is out there and we’re pretty fortunate on asphalt plants at this period of time that we are backlogged still pretty good there.  What’s the percentage, McKamy?

 

F. McKamy Hall – Astec Industries, Inc. – Vice President and Chief Financial Officer

Arnie, the percentage of backlog from international is consistent with our percentage for the quarter.

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Yes.

 

F. McKamy Hall – Astec Industries, Inc. – Vice President and Chief Financial Officer

44%.

 

Arnie Ursaner – CJS Securities

Okay.  My second general question relates to margin improvement in the quarter, obviously you have had extremely attractive steel contracts that ran through June.  We know that you tried to build up some inventory.  I'm trying to get a feel for how much of the margin improvement this quarter might have been impacted by mix, how much might have been impacted by lower cost steel, and how we should think about margin for the balance of the year?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Arnie, I guess I was a little surprised that our margins came in as strong as they did.  It's more product mix than it is anything.  We had some good orders in the Underground side of the business and their margins were improved somewhat over what they have been in the past.  Steel has not…it’s affected us, but we did buy a lot ahead and that didn’t come in or hadn’t come into our cost as quickly as frankly expected.  To answer your questions, I think we probably will be somewhere in the 22% to 24% gross margin in the fourth quarter.  That’s the best I can tell at this point.  I pretty well told you in the last call, we thought we would see an erosion of margins, we just haven’t seen as much as we thought.  In fact I guess, as I said, I have been a little surprised that we’ve held it as well as we have.

 

 

 

 

Arnie Ursaner – CJS Securities

Two very quick ones for McKamy, if I can?  Could you just repeat your CapEx number for the year, please?

 

F. McKamy Hall – Astec Industries, Inc. – Vice President and Chief Financial Officer

$42 million.

 

Arnie Ursaner – CJS Securities

Okay.  And the final question I have relates to your stock price is down, and I know 123(R) is impacted by where the stock is.  Did that benefit the SG&A line this quarter?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

On the S.E.R.P.? 

 

Arnie Ursaner – CJS Securities

On the S.E.R.P., yes.

 

F. McKamy Hall – Astec Industries, Inc. – Vice President and Chief Financial Officer

Let me look, but it was insignificant.

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

They’re obvious.

 

F. McKamy Hall – Astec Industries, Inc. – Vice President and Chief Financial Officer

No, it did not.

 

Arnie Ursaner – CJS Securities

Okay, thanks very much.

 

Operator

Thank you.  Our next question is coming from the line of Mike Cox of Piper Jaffray.  Please go ahead with your question.

 

Michael Cox – Piper Jaffray

Hi.  Good morning, guys and congratulations on a very nice quarter.

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Thank you.

 

Michael Cox – Piper Jaffray

On the international side of the business, I know that the strength has been in some of the commodity rich countries, I was just wondering if you could comment on the order flow now that some of these commodity prices have fallen.  Any change you're seeing from the buying behavior from some of these international markets?

 

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Michael, we haven’t seen a lot at this point, but frankly this thing has been so volatile so quick, it’s probably a little too early to tell.  I guess that the question mark I have looking forward is the exchange rates between the dollar and Australian dollar and some of these others certainly if they stay at the rate that we’ve seen a softening and a re-adjusting back down a weakening of the dollar back against those currencies, but the way it jumped up about a week or two ago was not very attractive and that would certainly hurt us if it stayed up.  The Australian dollar got up to $1.55 Australian to the US dollar, so back in the $1.43 now.  We’d like to see it back now in the $1.20 something, but we haven’t seen the effect yet, but we will if it doesn’t drop back off and stabilize a little better.

 

Michael Cox – Piper Jaffray

Okay, that’s helpful.  On the price increase side, I believe in the last conference call, you had noted a couple of additional price increases you had planned in the second half of the year, have those been pushed through or are you getting pushed back from customers now that the headlines around steel are going in the other direction?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

We are beginning to get pushed back.  We’ve had some of them that we put in place going forward.  Going forward, if steel goes back down, we will have to make some adjustments.  Customers are very aware of what’s happening there and they are more aggressive on negotiating now due to the current situation.

 

Michael Cox – Piper Jaffray

Okay, thanks.  And my last question on the Mobile Paving business was a little bit lower than we had expected and any read through there on that business segment?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

That business segment has experienced probably the most severe downturn in September.  Things slowed down considerably in that area.  It always does in September, but it’s more severe than normal.  We have had a lay-off in that division, had a cut back.

 

Michael Cox – Piper Jaffray

Okay.  Thank you very much.

 

Operator

Thank you.  Our next question will be coming from the line of Jack Kasprzak with BB&T.  Please go ahead with your question.

 

Jack Kasprzak – BB&T

Thanks.  Good morning, Don

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Hi, Jack.

 

Jack Kasprzak – BB&T

I wanted to ask about state finances and state budgets.  You mentioned you’re seeing some states push through some funding in an effort to stimulate their economies.  Overall though the state budget picture looks pretty bad and it seems to be deteriorating so versus 4 or 5 years ago when state budget deficits were really problematic for the highway business.  What’s different today?  Is it bonding and toll roads and maybe you guys have taken a little market share with some new products?  Could you maybe just talk about that?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Jack, I think States like Louisiana, Texas, Southern Mississippi and that area is quite strong.  Indiana has gotten money from that toll road that they sold and it’s a strong market.  Florida just released, I guess, $1.4 billion funds ahead to really try to stimulate things, but it is a mixed bag as you said.  California obviously is suffering greatly right now.  But there’s a mixture around.  Western Canada is still strong.  Australia basically own road programs and a lot of that is privatized over there is quite strong.  But typically, the funding for the roads is on a gas tax but they do have creative ways of reaching to get it.  It’s normally supposed to be dedicated funds and we are beginning to see that again as we have in the past.  But, I guess overall I guess Florida moving some of their work forward is the first that we’ve seen of kind of a stimulus and I do think there is more of an awareness that infrastructure spending will make and create jobs and that’s what’s needed and I see more awareness than that than we’ve seen in the past recessions.

 

Jack Kasprzak – BB&T

Right.  Okay.  And with regard to, I guess the potential for a federal stimulus, it obviously depends somewhat on the election, perhaps solely on the election, but I mean what you guys have been pretty well in touch with what’s happening in terms of discussions about potential programs on Capitol Hill.  Are there any details right now?  What kind of plans are floating around out there in terms of dollars?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Yes, Pelosi is supposed to have hearings I guess right after the elections and they’re talking about $18.5 billion for stimulus for roads and bridges is what we’re hearing.  There also are suggestions I guess that various ones are making is that it’s got to go out fast to do any good. The other suggestions we’ve heard is it didn’t have to have matching funds from states and it does have to be new work, it can’t be jobs they just pull forward and use that money just to build something rather than using their own money to do it.  All of that said I guess the encouragement it gives us is that, with that happening one other suggestion was it came out that it has to be let… the jobs have to be let by March and finished by next year.  To do that you're primarily going to see maintenance and overlay which is very helpful to asphalt.  And so, that’s kind of the things that we are hearing and there seems to be more and more people getting on board, that infrastructure will have to stimulate the economy.

 

Jack Kasprzak – BB&T

Alright Okay, Great. Thank you.

 

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Thank you, Jack.

 

Operator

Thank you.  Ladies and gentlemen, as a reminder, if you'd like to ask a question, you may press *1 on your telephone keypad.

 

Our next question is coming from the line of Rich Wesolowski with Sidoti & Company.  Please go ahead with your question.

 

Richard Wesolowski – Sidoti & Company

Thanks a lot.  Good morning.

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Hi, Rich.

 

Richard Wesolowski – Sidoti & Company

Hi, Don.  Can you give us an idea to what degree does your internal forecast swing on whether or not we get the kick from a federal component or infrastructure components of a federal stimulus bill?  Is it that ’09 is going to be great if we get one and okay if we don’t or something in that nature?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Rich, I wish I could tell you that better.  I think we will struggle for ‘09 to be flat.  If we get the stimulus, it would probably be flat.  The thing that makes it a little hard is the energy side of the business is very strong and growing which tends to temper what we do on the infrastructure side.  Mining seems to still be holding up and we’re growing in that area.  But without the stimulus I think you are going to see… everybody can tell you there’s going to be a downturn in the market.  There is no question.  It’s just a matter of how deep it is.  We’re fortunately in a good position to take care of that, but I’ve tried to write down all of the different scenarios and the pluses and minuses.  I guess the first one real quickly is the $8 billion for the Highway Trust Fund means we’re going to spend a lot federally next year.  It’s a matter of the states matching it and the state funding.  The state revenue, as everybody said, in general is weaker, but oil prices going down will help their revenues and it will help them on the cost side, so that’s probably temporary and the oil prices getting down to $75 a barrel sure helps.  The stimulus would certainly make a difference.  Oil drilling as long as we stay in the $70 to $80 range I think is okay.  The other big question mark, if the dollar stays strong, it’s going to hurt our international business; commodity prices going down; it’s probably going to hurt mining.  Credit on buying equipment is a negative because there are not too many people financing it.  And then just the psychological effect of all of this that’s going on is going to hurt.

 

On a positive side, we’re seeing a back off in price increases.  We’re seeing steel back off some and probably has more to go.  I guess on the positive side, our products are very innovative.  They are cost reducing type products and we continue to sell a lot of products to increase the amount of recycle both milling machines, the sizing equipment, or processing equipment and more mix with the double barrels sure made a…  Most of the plants we’ve sold had been to upgrade not to necessarily increase volume but to reduce cost.

 

Richard Wesolowski – Sidoti & Company

Thank you very much, that’s very helpful.  Can you envision a scenario given all that where, whether or not we do get a stimulus package that the volume suffers a bit, but because the price you’ve already pushed through, steel coming down that your margins don’t come within spitting distance of the lows that we've seen in the prior cycle?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Yes, I think so, Rich.  To answer your question, I think a lot of the things you see in a time like this is people will switch more to portable equipment and I think we’re seeing a major retooling to try to do more recycle to reduce their cost and we have better margins in that area.  The other thing is we are pushing more in the rebuild to gain and grow our parts business if there’re better margins in that area.  So a lot of these, the product mix is a little better, so I don’t…  I think the other major thing in the last down cycle, we went into it with a $136 million in debt, we had about 25 million in recourse on the financing where we’d financed equipment.  We had about $8 million to $10 million in used inventory.  Today we don’t have any debt, we have cash. We don’t have any recourse or it’s less than $0.5 million dollars.  And frankly the unusual thing is we have practically very little used equipment.  So, we are a lot better positioned to not be paying a lot of interest and a lot of fees right now.

 

Richard Wesolowski – Sidoti & Company

Okay. And then finally, your comments that there are several other contractors have expressed some confidence in the mining strength that despite they we’re treating most of the commodity prices, how much visibility do you guys have into that general area, looking past the projects that have already been started?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

I think our international guys, which primarily in the mining still, are reasonably confident in that area.  Prices went up as the dollar going high, I was looking at copper there this morning, it was a dollar just not too many years ago or too long ago.  It went to $4 and is back down about $2.60.  It’s still way high compared to what it once was and same way on steel.  It was at $0.40 or $0.42 a pound the first of the year and went up to $0.85 and now we’re back in low $0.60s and we feel good about it.  But it’s still also awful darn high as compared in the increases that we've seen.  So, we havea lot of fall back to go… a lot of slippage to go before it gets too painful for them.

 

Richard Wesolowski – Sidoti & Company

Thanks a lot.

 

Operator

Thank you.  As a reminder, ladies and gentlemen, to ask a question you may press *1 from your telephone keypad.  Our next is coming from the line of Chris Weltzer with Robert Baird.  Please go ahead with your question.

 

 

Chris Weltzer – Robert Baird

Good morning, gentlemen.

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Good morning, Chris.

 

Chris Weltzer – Robert Baird

I just have a couple of questions on how your international contracts are structured, if you will.  Just want to confirm that there is still all priced in dollars and I'm just wondering when your customers typically actually pay you the cash?  Is it when they place the order or is it when the new piece of equipment is delivered?  And any visibility you have on whether they hedge that exposure or not?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

I guess, to the first question, is about 90% of them are in letters of credit or if they’re not in letters of credit, it is in cash before they ship.  We have certain countries and certain dealers that dollars are a problem and they send us cash to begin… the dealer send us cash to start building it and before we ship it, we get the rest of the cash.  That does have a little lumpiness because they don’t always get the dollars here when we are ready to ship.  So, that is not as good as a letter of credit.  Letter of credits basically are either on board ship or alongside ship, we try to be alongside, they want it on board.  And I guess your third question was what, Chris?

 

Chris Weltzer – Robert Baird

Do your customers typically hedge their…?.

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Yes, typically they do.  With the deals we have, I know though we've got a plant they're just putting up in South Africa and we hedge that through our South African company and most of them do hedge, yes.

 

Chris Weltzer – Robert Baird

Okay.  And when you think back to, I don’t know, maybe 1997 Asian financial crisis, I know international was a lot smaller part of your business then but what was your prior experience when there were sharp swings in the currency exchange rates?  Did you have order cancelations or anything like that?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

We didn't see as much cancelation, but we saw new orders slow down.  And that obviously will happen if…  I guess, I see this strengthening of the dollar was just to… everybody running to what they felt like was the safest of all of the currencies and I see it readjusting about like LIBOR and back to something reasonable before too long, but that remains to be seen that it is important that the dollar drop back more to something reasonable or it will hurt the international sales.

 

Chris Weltzer – Robert Baird

Got you.  Okay, and then, I was wondering if you could tell us an estimate of what average price realization was in the quarter.

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

For the quarter itself?

 

Chris Weltzer – Robert Baird

Yes.

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Probably 2%.

 

Chris Weltzer – Robert Baird

Is that a net number of raw material costs or is that just gross pricing?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

I would say that it’s basically more of a gross and we've been behind on our price increases as compared to the others.  So I would say if you took costs versus net the only thing you do is look at the gross margin and it was improved, but I’d say, generally, our costs… our price increases were catching up kind of.  We saw the price increases coming up, getting some orders at new prices and our costs going down; this is the difference.

 

Chris Weltzer – Robert Baird

I see.

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

It was more of a catch-up and getting back where we were at the beginning of the year.

 

Chris Weltzer – Robert Baird

Okay.  And then, I know you don’t want to comment specifically on 2009 guidance, but I was wondering how you’re thinking about CapEx and tax rate in ‘09?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

We look for CapEx probably to be equal to depreciation in ’09 and that about where we…

 

F. McKamy Hall – Astec Industries, Inc. – Vice President and Chief Financial Officer

Probably 36% for tax rate.

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

For tax rate, yes, it would be about 36%.

 

Chris Weltzer – Robert Baird

Alright.  That’s very helpful.  Thanks you guys.

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Okay.

 

Operator

Thank you.  Our final question today will be coming from the line of David Fondrie of Heartland Funds.  Please proceed with your question.

 

David Fondrie – Heartland Funds

Yes, good morning.  Congratulations.

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Hi, David.

 

David Fondrie – Heartland Funds

Can you give us a little bit of an update how the capacity expansion is coming for the directional drilling business?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

The foundations are in.  They’re going to start setting steel next week, so it’s probably going to be February or March before we’re in the facility.

 

David Fondrie – Heartland Funds

And Don, is that business still as strong as it has been or the outlook as strong as it has been?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

Yes, it is.  We have some unique technology there that I think will hold up, David, in a down market.  A lot of offshore drilling and still some of that where people are looking at drilling onshore and turning the drill and going offshore.

 

David Fondrie – Heartland Funds

Yes.

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

So, there is a lot of interesting opportunities there.  So we’re still pretty optimistic about that.

 

David Fondrie – Heartland Funds

And then maybe a question for McKamy.  It appears that inventory has increased modestly on a sequential basis, i.e., from June 30^th to September 30^th and that strikes me as somewhat strange because you are going into a little bit slower time and in the December quarter.  Is that pre-buying of raw materials or could you maybe just comment on that please?

 

J. Don Brock – Astec Industries, Inc. – Chairman and Chief Executive Officer

I’m going through that one, David. I guess with our cash position we have not been quite as pressing I guess on inventory.  The people who are buying now, if they buy today they’ll want it tomorrow, particularly on mobile equipment.  And so, we have finished goods inventory that’s a little higher than we would normally have, but it’s again, reactionary buying as much more than planned buying from a customers and if you don’t have, you’re not going to get the deal.

 

David Fondrie – Heartland Funds

Okay.  Great.  Thank you very much.

 

Operator

Thank you.  There are no further questions at this time.  I would like to turn the floor back over to management for closing comments.

 

Stephen C. Anderson – Astec Industries, Inc. – Corporate Secretary and Director of Investor Relations

Okay.  Thank you, Rob.  We appreciate your participation on our third quarter conference call.  Thank you for your interest in Astec.  As our news release indicates, today’s conference call has been recorded.  A replay of the conference call will be available through November 4, 2008 and an archive webcast will be available for 90 days.  The transcript will be available under the Investor Relation section of the Astec Industries website within the next seven days.  All of that information is contained in the news release that was sent out earlier today.  We appreciate your participation.  Thank you.

 

Operator

Ladies and gentlemen, this concludes today’s teleconference.  You may disconnect your lines at this time.  Thank you for your participation.