A month has gone by since the last earnings report for Astec Industries (ASTE). Shares have lost about 5.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Astec Industries due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Astec's Earnings and Revenues Lag Estimates in Q1
Astec Industries reported first-quarter 2019 earnings per share of 63 cents, missing the Zacks Consensus Estimate of 82 cents. Further, the figure was down 28% from the prior-year quarter. Astec’s segments experienced pricing pressure from competitors in a tighter market and temporary weather related shutdowns at seven of the company’s subsidiaries, which impacted its ability to build and ship equipment. This in turn affected the company’s top and bottom line in the reported quarter.
Astec reported adjusted revenues of $326 million in the quarter, up 0.1% from the year-ago quarter. The top line lagged the Zacks Consensus Estimate of $339 million. The company’s domestic sales decreased 2.7% year over year to $263 million. International sales increased 14% year over year to $63 million.
Cost of sales inched up 0.7% year over year to $249 million. Gross profit came in at $77 million, down 2% from the year-ago quarter. Gross margin contracted 50 basis points to 23.5%. Lower-than-expected volumes impacted gross margin.
Selling, general, administrative and engineering (SG&A) expenses surged 12% year over year to $58 million. The company’s SG&A expenses are currently at higher levels due to Astec’s ongoing strategic sourcing project. The company reported operating profit of $18 million, declining 30% from $26 million recorded in the prior-year quarter.
Revenues for the Infrastructure Group segment rose 5% to $155 million from $147 million in the year-ago quarter. The segment reported an operating profit of $15.2 million, up 3% from $14.8 million witnessed in the year-ago quarter.
Total revenues for the Aggregate and Mining Group segment went down 10.5% year over year to $107 million. Operating profit declined 34% year over year to $8.7 million.
The Energy Group segment’s total revenues increased 8% year over year to $64 million. The segment reported operating profit of $3.4 million, down 26% from $4.6 million in the year-ago quarter.
Astec reported cash and cash equivalents of $28.6 million at the end of the first quarter of 2019, down from $41.9 million witnessed at the end of the prior-year quarter. Receivables declined to $137 million as of Mar 31, 2019, from $154 million as of Mar31, 2018. Inventories were at $367 million as of first quarter 2019-end, compared with $411 million as of first quarter 2018-end.
The company’s total backlog declined around 38% to $380 million as of Mar 31, 2019, from Mar 31, 2018. Backlog plunged 52%, 31% and 25% the Infrastructure Group, Energy group and Aggregate and Mining Group, respectively. Domestic backlog plunged 53% year over year to $162 million as of first-quarter 2019-end, and international backlog declined 28% year over year to $75 million at the end of the reported quarter. The company had witnessed historically high backlog levels in the prior-year quarter.
The company has been witnessing positive developments in orders subsequent to quarter end. Astec’s strategic purchasing initiatives are likely to positively impact gross margins in the second half of 2019. The company also expects lower SG&A expenses in the second half of 2019.
For the second quarter, Astec anticipates a 5-15% year-over-year decline in revenues. The company had reported revenues of $347 million in second-quarter 2018. The company expects gross margins in the second quarter 2019 at 22-23% and operating margins at 3.5% to 5.5%. Earnings per share is expected in the band of 40 -50 cents.
For 2019, revenues will be flat to up 3% from adjusted revenues of a $1.246 billion in 2018. For 2019, gross margins are projected in the range of 23% to 24% and operating margins at 5-7%. Earnings per share for 2019 is expected to lie between $2.25 and $2.55.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -51.53% due to these changes.
At this time, Astec Industries has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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