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Astec (ASTE) Weighed Down By Weak Demand & Higher Costs

Zacks Equity Research

On Dec 3, we issued an updated research report on Astec Industries, Inc. ASTE. Although the company remains committed to developing new products, it is currently bearing the brunt of weakening of demand for equipment and parts in all of its segments, particularly in domestic markets. Moreover, input cost inflation owing to tariffs on imported steel will continue to hurt margins.

Weak Q3 Results, Backlog

Astec’s third-quarter 2019 earnings per share of 17 cents missed the Zacks Consensus Estimate of 31 cents by a margin of 45%. The figure also declined 43% from the prior-year quarter, thanks to softer market conditions. Revenues dipped 0.3% to $255.8 million in the quarter and lagged the Zacks Consensus Estimate of $263 million. The company’s domestic sales declined 2% year over year to $190 million while international sales improved 6% year over year to $66 million.

At third-quarter 2019-end, Astec’s total backlog declined around 21% year over year to $244 million as of Sep 30, 2019. Backlog plunged 29%, 27% and 12% in the Energy, Aggregate and Mining Group and Infrastructure Group, respectively. While domestic backlog slumped 29% year over year to $158 million as of third-quarter 2019-end, international backlog remained flat at $85.8 million. This indicates that fourth-quarter 2019 revenues are likely to be impacted.

Weak Domestic Markets to Hurt Top-Line

Astec had been witnessing sluggish demand for equipment and parts in all of its segments, particularly in domestic markets. This is likely to continue in the balance of 2019, which is concerning given that 80% of Astec’s sales are generated from domestic markets. Owing to the late start to the construction season, some of the customers are utilizing existing equipment for the remainder of the construction season. While the nearly drought-free conditions across the country have impacted demand for water well drilling equipment, low oil prices led to lower demand for high pressure pump trailers and process seeders utilized in oil and gas production. This will likely impact results in fiscal 2019.

Margin Pressures Continue

Astec utilizes steel as a major raw material to manufacture products. The company is facing input cost inflation, particularly of steel owing to the imposition of tariffs. This is denting the company’s margins. Given the competition, it might not be possible for Astec to raise prices to combat the raw material cost inflation. In addition to higher raw material prices, lower volume and competitive pricing pressures are also weighing on Astec’s margins.

Share Price Performance



Shares of Astec have gained 9.6% in the past year, compared with the industry’s rally of 7.3%.

Zacks Rank & Stocks to Consider

Astec currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the Industrial Products sector re Northwest Pipe Company NWPX, Tennant Company TNC and Sharps Compliance Corp SMED. All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.

Northwest Pipe has an expected earnings growth rate of 15.8% for the current year. The stock has appreciated 33% over the past year.

Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have rallied 17% over the past year.

Sharps Compliance has an outstanding estimated earnings growth rate of 500% for the ongoing year. In a year’s time, the company’s shares have gained 15%.

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Astec Industries, Inc. (ASTE) : Free Stock Analysis Report
 
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