Transcript of
Astec Industries, Inc. (ASTE)
First
Quarter 2010 Earnings Release
April 20, 2010
Stephen Anderson,
Director of Investor Relations
Dr. J. Don Brock, Chairman and Chief Executive
Officer
F. McKamy Hall, Chief Financial Officer
Operator
Greetings and welcome
to Astec Industries First Quarter 2010 Earnings Release. At this time all
participants are in 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 Anderson – Astec
Industries, Inc. – Director of Investor Relations
Thank you Jackie.
Good morning and welcome to the Astec Industries conference call for the first
quarter, ended March 31, 2010. As Jackie 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, our 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 review our business activity during the first quarter.
Before we begin, I
remind you that our discussion this morning may contain forward-looking
statements that relate to the future performance of the company. 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 and assumptions. Factors that could influence our results are
highlighted in today’s financial news release and others are contained in our
annual report and our filings with the SEC. As usual, we ask that you
familiarize yourself with those factors.
At this point, I’ll
turn things over to McKamy to summarize our financial results for the first
quarter. McKamy.
McKamy Hall – Astec
Industries, Inc. – CFO
Thanks
Steve. We appreciate each of you joining us this morning. For the first
quarter our sales were 193.5 million versus 205.3 million for 2009, or a
decrease of 11.8 million. Now Don is going to share with you some insight on
the market in his comments. On international sales, our sales were at 64
million versus 73.8 million or a decrease of 9.4 million. International sales
were 33.1% of the first quarter sales in 2010; they were 35.7% of the sales in
2009. International sales are being assisted by the stimulus programs in the
foreign countries which are focused more on roads than our domestic stimulus
package. The domestic sales were 129.5 million versus 131.9 million. Part
sales increased to 50.3 million from 45.6 million in the prior year for a 10.3%
increase. Aggregate and mining group had the largest increase followed by the
asphalt group and the mobile asphalt paving group. Increases in parts sales
certainly have a positive impact on our gross margin. As far as the sales by
segment as a piece of the total sales pie, asphalt is at 36.2%, aggregate at
30.5, mobile at 21.8, other at 6.9 and underground at 4.6. The aggregate and mobile
segments had increases in their two segments.
On the gross profit,
our consolidated gross profit was at 46.1 million versus 43.7 million or an
increase of 2.4 million or 5.5%. The gross profit percentage increased 260
basis points for the quarter to 23.9 from 21.3 in 2009. The segments, gross
profit for each segment, asphalt group was at 28.8, mobile asphalt paving at
25, aggregate and mining at 22.4, other at 19.3 and underground group at -4.0.
In summary, our parts sales increased, our variable manufacturing overhead has
been adjusted to the volumes needed and we benefited from equipment orders with
some nice margins.
The SG&A in
engineering was at 32.7 million or 16.9% versus 31.4 million or 15.3%. The
company had increases in healthcare costs, personnel related costs and travel
expenses. We have basically not made reductions in sales and engineering as we
have discussed in previous calls. Our income from operations was at 13.4
million versus 12.3 million. The primary source of other income is investment
income by our Captive Insurance Company. Our effective tax rate is at 35.9%
versus 38.7 and the reason for that rate being lowered is that the domestic
production activity deduction significantly lowered that percentage because the
DPAD (Domestic Production Activity Deduction) was a higher deduction because of
the increased profitability and because of the increase in the volume of
manufactured products of the company and the rate allowed for that went from 6%
in 2009 to 9% in 2010. The net income attributable to controlling interest was
at 8.8 million versus 7.4 million for the quarter our income per diluted share
was $0.39 versus $0.33 in 2009. Our backlog is at 134.8 million versus 140.1
million, which is basically flat. Our international backlog is at 57.4 million
compared to 61.1 for a slight decrease, and our domestic backlog is at 77.4
million, decreasing from 79 million. The mobile asphalt paving and other
segment had the only increase in backlog over the prior year. Our balance
sheet continues to be very strong, our days outstanding and receivables are at
39 days versus 35.4 days. Our inventory, is decreased 31.6 million and we have
had decreases in raw material, purchase products and finished goods inventory.
Our working process is up which is a positive sign in terms of the production
going through for orders.
There is nothing owed
on our $100 million credit facility. We also had $49.2 million in cash and
cash equivalents. Our letters of credit are $11.7 million, that’s outstanding
and deducted from our availability to give us borrowing availability of 88.3
million. Capital expenditure is 1.8 million, depreciation is 4.7 million and
our detailed cash flow will be attached to our 10Q filing. All of our
subsidiaries have attempted to right-size their operations and control their
costs and we certainly could utilize additional sales volumes to absorb the
overhead and utilize the capacity. That concludes my prepared remarks, I will
be available to answer any questions you may have later in the call.
Stephen Anderson –
Astec Industries, Inc. – Director of Investor Relations
Thank you McKamy.
Don Brock will now provide some comments about our operations for the first
quarter. Don?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Thank you Steve. Our
revenues were down as you saw from $205 million to $194 million or 5.3%. As
you know we acquired a dealership in Australia that is dedicated strictly to
our products and as a result we increased, during the quarter our intercompany
sales by about $8 million over last year. That’s products that were shipped
from here to the dealership but has not yet arrived and been invoiced over
there, so with that intercompany eliminated we were essentially flat with last
year. We continue to see very cautious buyers buying only what they need to
have for the jobs that they have available. We have right-sized many of our
businesses and as a result have been able to improve our gross margins as
compared to 09. Our earnings increased from 7.3 million as McKamy said in the
first quarter of 09 to 8.8 million in the first quarter of 2010, or an increase
of about 18.9%. EPS increased from $0.33 to to $0.39. Our strongest
businesses are the asphalt and mobile which is really all asphalt paving which
constitutes about 58% of our revenues for this quarter. Aggregate equipment
sales have improved only slightly however underground and the wood processing
equipment remain to be very weak. We have seen a pick-up in parts sales from
09 and basically we see this as supporting the pick-up in our customers’
business loads. Parts revenues increased from 45.6 million to 50.2 million.
Our backlog was down 3.7% year over year but was level at the end of the fourth
quarter. So basically we think we hit the bottom or down to the trough at the
end of the fourth quarter.
International sales
were stronger than international shipments. We expect the international sales
will be stronger in the second quarter and through the rest of the year. As
McKamy said, our SG&A was impacted by higher health care costs, higher
R&D costs and the SERP (Supplemental executive retirement plan) which is
affected by changes in stock price. While earnings could have been better in
this, based on this economy we’re not disappointed. Looking at the second
quarter, our volume continues to be our biggest challenge. Fear and
uncertainty along with an extremely competitive pricing for our customers
continue to paralyze their decisions. Domestically we see privately owned
companies continuing to be the predominance of our sales. Many of our private
customers are well financed companies and tend to be very methodical in equipment
replacement, keeping their fleets relatively new and up to date.
Internationally we see less of a down turn than we see in the US since many of the countries did not experience the bubble that we did here in the US. We’re beginning to receive orders on a number of our new products that we introduced
last year and believe that will continue to back fill some of our needs in
manufacturing. The highway extension through 12/31 along with the additional
stimulus money that is really just now getting spent, ensures that a continued
workload for our customers for this year. However, we need to see congress
pass that new six-year highway bill before customers can be confident to make
large expenditures. We see the predominance of our customers’ expenditures being
smaller volume, or smaller priced expenditures for equipment that they need for
the jobs they have right now, but not much long-term thinking in their
purchases. We see inflation lurking on every corner, steel prices are being
pushed up as well as oil and other prices. Substantial effort in our
engineering is being implemented this year to implement the tier four engine
replacement that is required in 2010.
In summary, we are
beginning to see a slight improvement in the US. For our customers to gain
confidence though, as said above and look at larger, long range expenditures,
we need to see a new highway. We believe that international sales along with
the growing mining and energy business will help us to make 2010 better than
2009. However it will probably be a couple of years before we return to 2008
revenue levels in our businesses. At this point we would be glad to answer any
questions anyone would have. I will open the floor for questions.
Operator
Thank you. 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 can 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.
Thank you, our first
question is coming from Jack Kasprzak of BB&T Capital Market.
<Q:> Thanks,
good morning everyone.
McKamy Hall – Astec
Industries, Inc. - CFO
Morning.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Morning Jack.
<Q:>
Congratulations on a very good quarter. My first question is on the gross
margins, I guess particularly the asphalt gross margin of 28% in the quarter.
Is that in particular benefited by the increase in parts and how sustainable [inaudible].
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Jack I think if you
make a comparison, last year first quarter there was certainly a paralysis in
people spending on anything and we saw a slow down in parts, which we generally
don’t see so as a comparison year over year, I think it was more of last year’s
affect. This year was a good year for parts in the asphalt side of it. Â lot
of people had delayed updating or replacing parts, and/or equipment so it was
better, but I would say it’s back to more normal is what it amounts to.
We also as I
mentioned before, in the asphalt side and in the mobile, we have a number of
parts salesman in the field and we have spent more effort focusing on selling
parts than we have in the past.
<Q:> And
obviously the mobile business that you guys have discussed for the past few
quarters has been very good, it’s helped by I guess stimulus and paving
activity but how much is left to see there, how sustainable is that business
now that you know deadlines that obligate stimulus money is behind us and it
looks like the paving season will be good but you know without a new highway
bill, the risk, you know that business, the mobile business may be falling off
or having a tougher time if the stimulus goes away.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Jack truthfully,
we’re always looking over our shoulder in that area. It’s frankly better than
we expected. The thing we think we are gaining some market share in that
area. Secondly we do have a number of customers particularly that buy both
asphalt plants and pavers and mobile equipment from us that are well financed,
very methodical in their purchases and basically when they get 5,000-7,000
hours on equipment they trade it. And so that base of volume helps us a lot
and then some of our growth has been international in that area. I’m not sure
I can answer it. We’re very pleased with the performance in the mobile side of
it this year obviously and again on a year to year comparison, last year first
quarter, it absolutely stopped and Roadtec & Carlson have basically had a
nine month year, but I guess the other thing, just looking at history a little
bit is the average life of the highway type paver, while it’s much longer but
generally people update them in about five years or 5,000-7,000 hours, some
people run them much longer than that, but they are out on average to eight
years right now so a lot of this is just I think, a pent up demand.
<Q:> I mean,
you guys are out talking to customers all the time and how would, from those
conversations and what you’re hearing, how would you assess the paving season
2010? What would be your general expectation, would it be good, would stimulus
or bulk of the stimulus being spent this year and do you see a good volume
season but still price competition, how would you, what would you guys assess
it from what you’ve seen?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
From what we’ve seen,
the prices are extremely competitive. They were helped a lot last year while
it was competitive by lower asphalt prices. That does not exist this year so I
think you’re going to see margins for our customers really, really hurting this
year frankly Jack. They had the benefit last year of a surprise drop in
asphalt prices and it’s gone the other way this year so that part is negative.
I think the volume of business they’re doing is going to be okay in most
cases. So it’s a little bit like our steel prices. Steel prices went down for
us last year but under absorption offset the savings we had in the steel. I
think the volume that they’re seeing will certainly help to offset it a little
bit. The other thing, that we see an increase in the amount of recycle use
going from what was 2 or 3 years ago 15%, to 25-30% today and continuing to
increase, particularly on private work, we see a lot of our customers doing 50%
recycle now. So all of those tend to offset those increases in prices but it’s
a very competitive market for them.
<Q:> Very
good, thanks very much Don.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Thank you.
Operator
Thank you, our next question
if coming from Arnie Ursaner of CJS Securities.
<Q:> Hi good
morning Don.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Hey how are ya?
<Q:> You
mentioned in your prepared remarks that international sales are stronger than
shipments. What is causing that mismatch?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
I think it was just
the order flow of when it came in, number one Arnie, and the other side of the
coin is that when you go south of the equator, their season is opposite of
ours; Australia, New Zealand, South America, South Africa, all of those are
opposite seasons to ours so their buying pattern is 180 degrees to the US
buying pattern,
<Q:> So I’m a
little unclear, if they are giving you a sale now, wouldn’t it be giving you a
sale just before their winter season and wouldn’t it be something where they
would want delivery much later in the equation?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Typically, like on
asphalt plants, crushing plants and things like that they want to put it up
when they’re obviously not in the middle of their working season, so that’s the
reason that they’re buying now for delivery in June, July, August and that time
period so that by their spring of the year would be October, November so they
like to get it running and typically a lot of the larger purchases take from
the time it gets there 8-10 weeks to get them running.
<Q:> I’d like
to focus 2 or 3 questions related to the much better than expected gross
margin. You mentioned that you bought your dealership in Australia. I’m assuming you’re now capturing the retailing margin as well versus, in
addition to just the manufacturing. Your parts were 26% of sales versus 22,
and obviously you’re getting a little more usage of your facilities and lower
steel prices. Can you walk us through the various components of your margin
and maybe put some quantification around where the dramatic improvement is
coming from?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Well obviously when
you get a $5 million increase in parts margins and you’re in the 35-40% margin
there, that’s the biggest single factor. Australia helps it some, but a lot of
their sales, as I said were intercompany that really will flow in later in the
year. Their selling season is a little opposite to what we see here in the
States but the largest single component Arnie is in parts and as I mentioned
to Jack a while ago, it’s last year we saw some of the larger companies thatdidn’t
even do winter repairs so our parts margin was unusually hurt last year, force
the revenues where this is back to more normal revenues for the parts and it’s
a certain amount of pent up demand. But we could see, we believe we’ll
continue to see parts be okay, be good this year because of the amount of work
that they’re doing.
<Q:> Don, do
you plan to update your views for the full year which you had given earlier?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Well I’m still
cautious Arnie. I think the only thing I’d say is that I’m very confident that
2010 will be better than 09 but let’s not get too carried away. It’s still, if
you look at our backlog, even with what it was at the beginning of the year and
we’re basically shipping each quarter about what we’re selling. Domestic
continues to be a challenging market. International is less predictable but so
far is very good in the predominance of our prospects for larger equipment is
international. I think you’ll see the mix shift more towards international in
the back half than you do now.
<Q:> Thank you
very much.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Thank you.
Operator
Thank you. Our next
question is coming from Chris Weltzer of Robert W. Baird.
<Q:> Morning
guys.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Good morning Chris.
<Q:> Normally
if you look seasonably at your business in the last several years, you’d see a
sequential uptake in EPS in the second quarter over the first quarter but now
you’ve got maybe the international mix is a little bit stronger and you know
this might not be a normal year. Can you talk about how you expect the year to
play out seasonably?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Chris historically,
we were about 60% of our volume, the first six months and 40 the last six
months as we have strengthened our international sales, that has been more
level. Historically the second quarter is our best quarter. I frankly expect
it to be similar to the first quarter. You know, maybe a tad better but it’s
probably going to be similar to the first quarter.
<Q:> Okay
that’s very helpful. Can you talk a little bit about the oil and gas, the
drill rig side of the business has there been any movement there, what’s the
order outlook look like?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
It’s still pretty
slow. We have sold one rig this year and that’s better than last year, we were
working on backlog last year but it’s still a weak side of the business, there
is a lot more quoting going on but a little reluctance, they have to put some
of the rigs that are idle to work before they buy any more, so that’s still
very weak. Same way on the distribution side of it. The pipelines and the
drills, again a lot of quoting but a reluctance, that’s by far our weakest
segment as you can see.
<Q:> Yeah,
were there any inventory liquidations this quarter like there were last
quarter?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Not as bad. We
continue to liquidate the small trencher line and our sales there are up from
last year but up from being very low and we can continue to be under absorbed
there because we’re trying not to build until we get inventory back in line and
so that’s the only place that we are liquidating inventory. In the asphalt
side of it we really don’t have any inventory problems. In the aggregate side
we did have quite a few crushers up ahead, we pretty well liquidated that.
We’re increasing the hours in our plants; I’ll put it that way. The
liquidation is such that we are now starting to build what we sell in every
place except at the underground.
<Q:> That’s
very helpful. Any predictions or estimates of when you can start producing the
retail demand on the underground business?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
I think it’ll take
the rest of this year. We just need to pick up in the market, you know and the
home buildings; where we had problems there is basically related, you know
utility and home building type work. As that comes, it’s not zero but it’s way
down from what it was at its peak.
<Q:> Gotcha.
And then can you talk a little bit about when higher steel prices start to flow
through the income statement and I mean what your strategy is, are you going to
be out there trying to get price or is it just not worth it at this point? Can
you just talk a little bit about how the steel cost issue, when that’ll impact
you?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
We’re trying to buy
out as long as we can, in some places we’re pretty well covered through the end
of the year. And that’s not on everything but it’s on steel plates, some things
we can’t cover on but you know it, like oil, it went too darn low and is coming
back. It’s really more back to the prices that it was at the beginning of 08
and late 07 so it probably needed to come up some, our question is just how
aggressive are they going to get. Iron ore process has gone up and it’s, the
demand is certainly not there to justify it, but they’re pushing the prices
up. But we’re alright through the rest of the year to answer your question.
<Q:> Okay
that’s very helpful. And then last one, tax rate for the full year?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
I’ll
let McKamy answer that.
McKamy Hall – Astec
Industries, Inc. – CFO
Around
36%.
<Q:> 36%?
Thank you.
Operator
Thank you. Our next
question is coming from David Wells of Thompson Research Group.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Morning David.
<Q:> Good
morning. First off, just in terms of the outlook for 2010, you said you
expected it to be better than 2009. Is that, are you referring to topline or
EPS or both with that thought?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Both. You know, not
a great deal topline but I think our bottom will be better because we’re, you
know we’ve made a lot of adjustments and we’ve kind of right-sized most of the
businesses so I think we’re, you know and the other thing, our inventories are
in pretty reasonable shape and I think that we will be building, we’ll be able
to put more man hours back in our plants so that should help bottom line.
<Q:> Okay and
then, I know in the past, you know on the fourth quarter call and maybe the third
quarter call, as you thought about 2010, you hadn’t been including you know new
product orders in your expectations and budgeting process. From what it sounds
like, you are starting to see some orders for those new products flow through,
are those going to be incremental to that expectation or is that kind of
included as well as those parts contributing somewhat to the outlook for the
full year?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
I think it’s them
including to the outlook for the full year David. You know the market is still
very weak so it means we’ve got to touch more markets and that’s what we’re
trying to do.
<Q:> And then
if you look at the first quarter relative to the fourth quarter, how much under
absorption was occurring, was is only in the underground business and have you
gotten to a better place in the other segments or was there still some under
absorption occurring in the quarter, kind of any thoughts on that would be
helpful as well.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
We were over absorbed
obviously in the asphalt companies but under absorbed in the others. I think
the under absorption was about 2 million less than last year first quarter so
you know we’ve certainly improved but we have a ways to go yet.
<Q:> Thanks
helpful and then you know maybe lastly, there was some comments in the prepared
remarks about selling some equipment with nice margins, I guess they’d gone in
the backlog, any color with regards to that, is it, you know are you seeing new
capacity editions that are coming online or is that new products and any
comments on that would be helpful as well.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Well as I said
earlier, the parts margins obviously help you. In the oil and gas side of it,
the big heaters that we build, those units, their backlog is extremely good in
that it’s not a big company. You know, a $50 million or so but their backlog
is very good and the margins are a little higher in that business than it is in
some of the others.
<Q:> And then
last question, I guess, looking at the backlogs in the underground business, it
certainly picked up somewhat sequentially and would you expect some of that to
move through to Q2 from a topline perspective or what is the kind of duration
of that backlog look like?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
I think we’re seeing
a slight pick up but it’s from a low level most of that backlog, all of that
will go out in Q2 but their prospects and their sales are a tad better than
they were a year ago and better than they were in the fourth quarter.
<Q:> Alright, great thank you very much.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Okay, thank you.
Operator
Thank you. Our next
question is coming from Rich Wesolowski of Sidoti & Company.
<Q:> Thanks,
good morning.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Morning Rich.
<Q:> My
question is, my first question is on the disconnect between the mobile business
and the parts business which were great versus the asphalt plants and the
aggregates which are still slow. In your experience, are the former two
typically a precursor for improvement of the big ticket stuff or can we go for
an extended period of time with good business in mobile and depressed activity
in asphalt and aggregates?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Well I guess the way
I read that is this, our asphalt customers have a lot of work right now, but
they cannot see beyond the end of the year. A lot of them, particularly the
privately owned companies are a little driven by their purchasing or driven a
little bit different from a public company. Number one, a lot of them do not
like to pay taxes. Number two a lot of them like new equipment and they’re
ready to spend some money but they’re not wanting to spend too much. So if
you’ve got a choice of upgrading, do I upgrade a $4 million asphalt plant or do
I buy a $300,000-400,000 paper or milling machine, that’s kind of where they’re
leaning towards more of the mobile side. And in the past what we’ve seen Rich
is that when the mobiles have the best year, it’s usually that asphalt plants
are down a little bit. When asphalt plants are up, mobile is generally down.
It’s not a lot of difference but it’s, you know they’re usually out of phase a
year or so.
<Q:> Okay.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
I think there’s a pent
up demand for people replacing new asphalt plants to do higher recycle, there’s
a lot of them in place but there’s a lot that are needed but that is going to
take a new highway bill to kick that off of dead center.
<Q:> The
25-30%, kind of off-hand remark you made on the percentage of recycle was
higher than what we’ve heard in the past. Are there states that have raised
the limit or is it just private customers doing more of it.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
No the states have, I
would say the average in the whole country, the states are up 10-15%.
<Q:> Over the
past year or two?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
In the past year or
two. I think in about a four year period I gave over 120 speeches on how to
increase the recycle and I think probably the real thing that’s pushed it off a
bit sooner is the warm mix technology where we can run high percentages of
wrap, keep the asphalt softer and the combination of it seems to give them the
inspiration to go to warm mix and high recycle and that’s green and that’s
sustainable and environmentally friendly so, the combination of both of those
is kind of really kicked in and it varies with all 50 states but we’ve got some
states that are now allowing it that I never would have believed but Texas is
very aggressive and Missouri is very aggressive, Missouri used to be the most
conservative state in the Nation and now they’re very, very open-minded; they have
a new, a very progressive highway director out there. North Carolina is
allowing more. All of them have gone up, some of them have gone up more than
others.
<Q:>
Previously you have stated a goal of about 1 double barrel green sale or
shipment a day over the course of the year; have you reached that goal?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Yeah we’re there. We’ve
now come out with a system for batch plants and there’s a lot of old batch
plants and we’re beginning to sell those so yeah it’s been a good little
addition for us.
<Q:> Do you
have a sense of how many comparable warm mix plant the leader competitor has
sold?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
My guess is probably
70% market share but they’re in the foaming package we’re offering there’s
about 9 competitors now so they’re all out there.
<Q:>
Separately I was hoping to get a little more detail on the inflation topic and
steel. What are the steel prices, if you could put a blanket statement around
it that will be reflected in your 2010 numbers versus what would it cost you if
you bought the material in the spot market today?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Oh I would guess
we’re 20% below spot.
<Q:> Okay.
And then lastly, which of the new products can you envision really moving the
needle say in 2011?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Probably the pellet
plants, the wood pellet plants, just because of their sheer size. I mean a
complete pellet plant is going to be in the $8-12 million range. And it pulls
products out of about five of the different companies and that’s probably the
one that would move the needle the most. The concrete plants, while we’ve only
sold one, there have only been about three sold in the whole United States last
year, so it’s still, the technology is very exciting of what we can do there,
compared to what’s out there right now. So we’re excited that that could be a
good product. The pellet presses, as we get those going there’ll be a lot more
of those sold than there will be the complete pellet plants but they’re a half
million product and so we see that as a pretty good product. We see a real
opportunity to grow in the mining business and we’ve hired a great guy we
think, it’ll be to head up the mining sales, who’s had a lot of experience in
that field so we think we can grow a lot in that area.
<Q:> Okay. Thank
you for the detail.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Thank you.
Operator
Thank you. Our next
question is coming from Walt Liptak of Barrington Research.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Morning Walt.
<Q:> Thanks,
good morning. I wanted to ask about the outlook, you mentioned the mix of
international sales higher. Which products are you seeing sold
internationally?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Well basically over
50% of our aggregate sales in the first quarter was international and about 45%
or so of the underground sales were international. The asphalt and mobile was
only about 14-15% in the first quarter and we see that being much higher in the
second, third and fourth quarters. So we see the opportunity is more going to
countries around the world that have stimulus programs so the biggest part of
our asphalt plant orders looking forward into the third quarter, will probably
be international.
<Q:> Okay. Then
going back to the gross margin question given the pick up that you’re seeing
internationally and that being in the backlog and your comments about the gross
margin, are you expecting gross margin to be similar throughout the year as to
what it was in the first quarter?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Uh, I need to hedge
on that, I can’t give you a good read. You know we had an inordinate, we had a
strong parts first quarter, I expect that to be similar in the second but
probably weaker in the third and fourth and that certainly helps the margins
but in that area, it’s just not going to vary a whole lot. It certainly helps
the margin when we get more absorption through these plants too.
<Q:> Okay
right, because of inventory.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Right.
<Q:> Okay and
then you know you’re still very cautious it sounds on your buyers, you talk
about the fear and the uncertainty in the highway bill, and I wonder about the
timing of the highway bill. What are you hearing about when there’s going to
be a new vote on a highway bill, will they bring it in 2011 and what does the
spending look like, are they still trying to increase the six-year highway bill
or do you think it will be flat with the last bill?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Walt, I guess my gut
feeling is and this is just, I don’t have the facts to back it up but just
based on what I’ve seen in the past, you know it will probably be a $400-450
billion dollar Bill when it passes. My feeling is that it will pass in the
lame duck session, the reason I say that; nobody wants to touch the gas tax and
you don’t have any other way of raising the money other than increasing the
user fee, it’s kind of a silly thing, all the other taxes are increasing, a
dime a gallon on gas tax will affect the normal person about $75 a year which
is about $6 a month but you know it touches everybody so they’re very, very
cautious about that but the only way we can get more money is to increase and
the only time I can see them increasing is you know, all the people who are
going to get kicked out voting for it in the fourth quarter so you know, in the
lame duck session and that’s about the best guidance I can give you there.
<Q:> Okay just
to be clear, the user fee you’re talking about, you think it will be a gas tax
increase as opposed to a kind of toll lane or something?
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Well it’s kind of
silly, I mean you pay one way or the other and the gas tax spreads it out to
everybody that drives a car and that’s probably the most equitable way to do
it. The tolling is just another way of saying we’re not increasing it but they
really are and its disproportionate to the others so I think the fairest way
is, you know what we got to go to is a vehicle mile travel, I mean that the
VTTM type of measuring the miles you travel because a lot of these fuel
efficient cars are getting a free ride and so I think that’s what’s going to
happen long range but right now, there is still enough uncertainty about how to
do that so this next bill is going to have to have a tax increase in order to
be able to fund it.
<Q:> Okay got
it. Thank you.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Thank you.
Operator
Thank you. Our next
question is coming from Ryan Reynolds of Canaccord Adams.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Morning Ryan.
<Q:> Hi, good
morning. I was actually wanting to know if you could give me some more color
on your new products, sort of specify what you’re talking about and sort of
what you could see, what you’re seeing sort of in expected volumes and margins
for them.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
The concrete plants
kind of depend on highway bill and things like that. It’s a parallel to, it
would be helped a lot by construction and home building, things like that and I
guess our look on it is this is a good time to develop it, perfect it and
probably we’ll see benefits of this in multiple years out. Next year, you
know, probably volumes in that business will probably be at best between 5 and
10 million, fairly low. Pellet plants consist of basically a lot of material
handling equipment where you dump truck loads of chips. It will consist of
Peterson chippers that take logs and make it into fine chips and then Peterson
rechippers consist of dryers and a huge hot oil heater where basically you’re
using a 40 million BTU hot oil heater to run a rotary tube dryer to dry the wood
chips and then multiple pellet presses that we build and that’s why you get
into something that is an $8-12 million plant. I can see that in the
foreseeable future and ‘11 and ‘12 as being from $30-50 million of additional
revenues. Number of other products, now the pellet presses themselves could
grow to be a $25-30 million business just in those things alone. A number of
other products are geothermal drill rigs could be a substantial part of the
underground business, those are $500-700 thousand dollar machines and we
believe you’ll see a continuing growth in that. Homes and buildings heated
with geothermal in the states are about 3% and in Europe it’s about 80% and we
see more and more of those wells being drilled and there’s a lot of tax
credits on that. A number of other pieces of equipment, we’re building for
more of the global market, we have a track mounted global crushing line that
we’ve come out with that we would sell all over the world. We have two models
of oil drilling rigs that we mentioned, at the time we got them developed, are
slow, so a number of products like that.
<Q:> Alright,
perfect. Thanks very much.
J. Don Brock – Astec
Industries, Inc. – Chairman & CEO
Okay.
Operator
Thank you, as a
reminder ladies and gentlemen if you would like to ask a question you many
press *1 on your telephone keypads at this time. Our next question is coming
from Chris Blackman of Empirical Capital.
<Q:> Thank
you, actually my question’s been answered. Thank you.
Operator
Thank you. That concludes
the question and answer session, I would like to hand the floor back over to
management for any closing comments.
Stephen Anderson –
Astec Industries, Inc. – Director of Investor Relations
Thank you Jackie. We
appreciate your participation on our first 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 May 04th 2010, and an archive webcast will be available for
90 days. A transcript will be available under the investor relations 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, have a good day.
Operator
This concludes
today’s teleconference. You may disconnect your lines at this time. Thank you
for your participation.
