A month has gone by since the last earnings report for Astec Industries (ASTE). Shares have added about 13.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Astec Industries due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Astec Q1 Earnings Surpass Estimates, Improve Y/Y
Astec‘s first-quarter 2020 adjusted earnings per share of $1.00 beat the Zacks Consensus Estimate of 46 cents by a margin of 117%. The bottom line also improved 54% from the prior-year quarter. The better-than-expected results were driven by the company’s restructuring initiatives taken in 2019 and 2020, which offset the impact of lower revenues amid the coronavirus crisis.
Including one-time items, the company reported earnings per share of 91 cents in the reported quarter, up 44% from 63 cents in the year-ago quarter.
Astec reported revenues of $289 million in the quarter, down 11% from the year-ago quarter. Further, the top line missed the Zacks Consensus Estimate of $303 million. The company’s domestic sales decreased 11% year over year to $263 million as dealers were slow to convert rentals to retail sales. International sales declined 13% year over year to $55 million owing to COVID-19-related softness, the wildfires in Australia and the temporary shutdown of Johannesburg, South Africa and Omagh, Northern Ireland facilities in late-March.
Cost of sales declined 14% year over year to $215 million. Adjusted gross profit came in at $74 million, down from the year-ago quarter figure of $77 million. Gross margin was 25.6% in the reported quarter compared with the prior-year quarter’s 23.6%.
Selling, general, administrative and engineering (SG&A) decreased 3% year over year to $56 million primarily to the decline in sales, partially offset by cost savings related to the company’s strategic transformation. The company reported adjusted operating profit of $17.9 million, which declined 5% from the prior-year quarter’s $18.7 million. First-quarter 2020 adjusted operating margin was 6.2% compared with 5.7% in the prior-year quarter driven by improvement in gross margin courtesy of transformation initiatives put in place beginning in late 2019 and the start of this year.
Adjusted EBITDA came in at $24.3 million in the reported quarter, a decline of 4.7% from $25.5 million a year ago. Adjusted EBITDA margin was 8.4%, a 60 basis point expansion from 7.8% in first-quarter 2019. Despite lower sales, the company’s restructuring initiatives benefited margins in the quarter.
As part of the company’s continued transformation under its strategic pillars for profitable growth – Simplify, Focus and Grow, the company has simplified operations into two business segments: Infrastructure Solutions and Materials Solutions.
Infrastructure Solutions includes road building, asphalt and concrete plant equipment, thermal and storage solutions and wood grinding equipment. Revenues for the segment declined 8% to $203 million from the year-ago quarter. The segment reported an adjusted EBITDA of $24.9 million compared with the $23.7 million in the prior-year quarter.
Materials Solutions includes crushing and screening, washing and classifying, plants and systems and material handling equipment. The segment’s total revenues decreased 19%, year over year to $86 million. The segment reported an adjusted EBITDA of $8.4 million, reflecting year-over-year decline of 25%.
Astec reported cash and cash equivalents of $43.9 million as of Mar 31, 2020, up from $28.6 million as of Mar 31, 2019. As of first-quarter 2020, total debt was at $1.2 million. The company has available liquidity in excess of $186.0 million as of Mar 31, 2020.
Receivables were at $141 million at the end of first-quarter 2020 compared with $137 million as of the prior-year quarter end. Inventories were $295 million as of Mar 31, 2020 compared with $367 million as of Mar 31, 2019.
The company’s total backlog increased 4% year over year to $245 million as of Mar 31, 2020. Domestic backlog rose 14.4% year over year to $185 million while international backlog decreased 19% to $60.2 million.
Astec is taking actions to counter the financial and operations impacts of COVID-19, by reducing expenses and conserving cash. The company is suspending hiring, except for critical positions, lowering discretionary spending and reductions in work force as necessary.
How Have Estimates Been Moving Since Then?
Estimates review followed a downward path over the past two months. The consensus estimate has shifted 346.67% due to these changes.
Currently, Astec Industries has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Astec Industries has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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