Astec Reports Second Quarter 2020 Results

Rhea-AI Summary

Astec Industries reported a 13.0% decrease in net sales for Q2 2020, totaling $265.3 million, impacted by COVID-19 disruptions. Adjusted net sales fell 6.8%. Gross margin decreased to 22.5%, while adjusted gross margin rose 100 bps. EPS was $0.41, down from $1.03 a year ago, but adjusted EPS increased 81.1% to $0.67. Backlog declined 26.1% to $182.0 million. The company is consolidating operations, shutting down its Mequon facility, and focuses on enhancing liquidity with a net cash position of $119.8 million.

Positive

• Adjusted EPS rose 81.1% to $0.67, highlighting effective cost management.
• Adjusted EBITDA increased 46.9% to $25.3 million, reflecting operational improvement.
• SG&A expenses decreased by 19.0%, indicating successful cost-reduction strategies.
• The acquisition of CON-E-CO and BMH strengthens Infrastructure Solutions group.
• Maintained liquidity with $119.8 million net cash and over $270.6 million available liquidity.

Negative

• Net sales decreased 13.0% due to COVID-19 related disruptions.
• Backlog declined 26.1% due to lower orders in Materials and Infrastructure Solutions.
• Operating income fell 64.4% to $10.9 million, reflecting operational challenges.
• Closure of Mequon facility indicates potential loss of production capacity.

Second Quarter 2020 Highlights (all comparisons are made to the prior year second quarter):

• Net Sales decreased 13.0% to $265.3M; Adjusted Net Sales decreased just 6.8% due to $20.0M included in 2019 sale of a wood pellet plant
• Gross margin of 22.5% decreased 480 bps; Adjusted Gross margin increased 100 bps
• EPS of $0.41 compared to $1.03 a year ago; adjusted EPS of $0.67 increased 81.1%
• EBITDA decreased 53.2% to $17.4M; adjusted EBITDA of $25.3M increased 46.9% from $17.2M a year ago; adjusted EBITDA margin of 9.5% increased 350 bps
• Announced the closure of our Mequon, Wisconsin facility; in-line with global footprint consolidation strategy

CHATTANOOGA, Tenn., Aug. 05, 2020 (GLOBE NEWSWIRE) --  Astec Industries, Inc. (Nasdaq: ASTE) announced today its financial results for second quarter 2020 ending June 30, 2020.

Second quarter of 2020 net sales of $265.3 million decreased 13.0% compared to $304.8 million for the second quarter of 2019. Domestic sales decreased $24.7 million or 10.0% and international sales decreased $14.8 million or 25.3% due to COVID-19 related business disruptions in the second quarter versus last year. Excluding the impact of foreign currency, net sales decreased 11.4%.

Backlog as of June 30, 2020 of $182.0 million decreased by $64.1 million, or 26.1% compared to the backlog of $246.1 million a year ago driven by lower Materials and Infrastructure Solutions orders, which were down 17.3% and 30.9%, respectively. Domestic backlog decreased by 20.6% to $128.3 million while International backlog decreased by 36.6% to $53.6 million. Lower orders were driven by COVID-19 uncertainties.

Operating income of $10.9 million in the second quarter of 2020 decreased 64.4% compare to $30.5 million in the second quarter 2019. In relation to the company’s efforts to simplify the organization, the company incurred a $7.9 million pre-tax restructuring charge or $0.26 per share net of taxes related to asset impairment, inventory write-down, reduction in labor force and the closing of our Mequon, Wisconsin facility. Second quarter of 2020 adjusted operating income of $18.8 million, increased 77.8% compared to $10.5 million a year ago. Adjusted operating margin of 7.1% increased 340 basis points from 3.7% in second quarter 2019 largely driven by our transformation initiatives put in place beginning in late 2019. SG&A expenses declined 19.0% on a dollar basis driven by reductions in consulting fees, travel and employee expenses.

Adjusted EBITDA of $25.3 million increased 46.9% compared to $17.2 million a year ago.  Adjusted EBITDA margin of 9.5% increased 350 basis points from 6.0% in second quarter 2019.

Excluding restructuring charges mentioned above, adjusted net income of $15.3 million increased 81.6% compared to the prior year period, while adjusted EPS of $0.67 increased 81.1% compared to $0.37 for second quarter 2019.

“During the second quarter, we continued to make significant progress against our initiatives to Simply, Focus and Grow our business. In the quarter, we announced the closure of our Mequon, Wisconsin location, which is where we built our Telsmith products. This closure will enable us to leverage our footprint more efficiently as these products are transferred to different Astec facilities,” said Barry Ruffalo, CEO of Astec. “In addition, supporting our Grow strategic pillar, we recently announced the acquisition of two premier full-line concrete batch plant manufacturers, CON-E-CO and BMH, both of which will significantly strengthen our Infrastructure Solutions group and provide our customers with access to the most robust line of concrete products in the infrastructure industry. We continue to look for ways to grow regionally in attractive markets that build upon our strong foundational product lines.”

“Second quarter results also demonstrated traction on our strategic transformation with Adjusted EBITDA and 350 bps expansion in Adjusted EBITDA margin, despite the decrease in net sales, a direct result of the restructuring initiatives taken in 2019 and 2020. While we remain cautious given the global pandemic, we are well positioned to navigate the economic challenges ahead of us with a more efficient and streamlined organizational structure, a strong balance sheet and ample liquidity.”

We have provided a spreadsheet recasting two years of historical segment financials that have been made available under the Investor Relations section of the Astec Industries, Inc. website.

COVID-19 Business Continuity and Operations Update 
We continue to execute on COVID-19 measures we announced in our April 1, 2020 COVID-19 Business Update and our first quarter 2020 earnings call. These measures were taken in order to ensure the health and wellbeing of our employees, their families and communities in which we operate, while continuing to serve our customers’ critical needs.  Below is a COVID-related update by category:

Balance Sheet and Liquidity
The Company remains focused on liquidity and cash preservation. We ended the quarter with a net cash position of $119.8 million with total debt of $1.4 million. The Company has available liquidity in excess of $270.6 million as of June 30, 2020.

Operations
During the second quarter of 2020, we experienced a temporary suspension of operations at two of our facilities, Johannesburg, South Africa, and Omagh, Northern Ireland, in observance of government mandates. These two facilities were closed for approximately one month and both resumed operations during the month of May.

All of our facilities are now operational and able to meet current demand levels. We continue to manufacture our products to building and maintaining the infrastructure used to move goods to market, facilitate the transportation needs of communities and for public health and safety.

Supply Chain
We have not experienced any interruption to our supply chain and are able to source the necessary materials needed to meet our customers’ needs.  We are closely monitoring our supply chain and are ready to take proactive actions as needed to mitigate any potential disruptions. We have increased the frequency of communications with our suppliers and customers to ensure business continuity, anticipate, and prepare for any new developments.

Cost Management
We have implemented additional actions to help mitigate the financial and operations impacts of COVID-19, including reducing expenses and conserving cash. These actions include:

• Overall headcount reduction of 15% since 2Q19
• Suspension of all hiring, except for critical positions
• Discretionary spending​ reductions
• Working capital management to ensure efficient accounts receivable processing with our customers      

Mr. Ruffalo continued, “I am very proud of how our team members have embraced and adapted to the COVID-19 situation as an organization and how we have managed through this challenging environment. At the onset of the pandemic, we immediately took proactive measures to ensure the safety and wellbeing of our employees, suppliers and customers, while we continued to execute on our strategy and drive profitable growth in the quarter. We remain well-positioned to navigate the economic challenges ahead of us with our more efficient and streamlined organizational structure, a strong balance sheet and ample liquidity. I am confident that we will come out of the COVID-19 pandemic a stronger and more resilient organization.”

Investor Conference Call and Web Simulcast
Astec will conduct a conference call and live webcast today, August 5^th, 2020, at 10:00 A.M. Eastern Time, to review its second quarter 2020 results as well as current business conditions. The number to call for this interactive teleconference is (877) 407-9210 (at least 10 minutes prior to the scheduled time for the call). International callers should dial (201) 689-8049.  You may also access a live webcast of the call by visiting www.webcaster4.com/Webcast/Page/2146/36087. You will need to give your name and company affiliation and reference Astec Industries. An archived webcast will be available for ninety days at www.astecindustries.com.

A replay of the conference call will be available through August 19, 2020 by dialing (877) 481-4010 or (919) 882-2331 for international callers, Conference ID # 36087.  A transcript of the conference call will be made available under the Investor Relations section of the Astec Industries, Inc. website within five business days after the call.

About Astec
Astec, (www.astecindustries.com), is a manufacturer of specialized equipment for asphalt road building, aggregate processing and concrete production. Astec’s manufacturing operations are divided into two primary business segments: Infrastructure Solutions that includes road building, asphalt and concrete plant, thermal and storage solutions; and Materials Solutions that include our aggregate processing and mining equipment.

Forward-Looking Statements
The information contained in this presentation and discussion contains “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the future performance of the Company, including statements about the effects on the Company from (i) restructuring initiatives, (ii)  changes in the business segments (iii) the effect of changes in backlog (iv) the acquisition of CON-E-CO and BMH, (v) the closure of our Mequon, Wisconsin location and associated efficiencies, (vi) the impact of the COVID-19 pandemic on the global demand for the Company’s products, and (vii) the impacts of the COVID-19 pandemic on the Company’s financial condition and business operations. These forward-looking statements reflect management’s expectations and are based upon currently available information, and the Company undertakes no obligation to update or revise such statements. These statements are not guarantees of performance and are inherently subject to risks and uncertainties, many of which cannot be predicted or anticipated. Future events and actual results, financial or otherwise, could differ materially from those expressed in or implied by the forward-looking statements. Important factors that could cause future events or actual results to differ materially include: general uncertainty in the economy, oil, gas and liquid asphalt prices, rising steel prices, decreased funding for highway projects, the relative strength/weakness of the dollar to foreign currencies, production capacity, general business conditions in the industry, demand for the Company’s products, seasonality and cyclicality in operating results, seasonality of sales volumes or lower than expected sales volumes, lower than expected margins on custom equipment orders, competitive activity, tax rates and the impact of future legislation thereon, and those other factors listed from time to time in the Company’s reports filed with the Securities and Exchange Commission, including but not limited to the Company’s annual report on Form 10-K for the year ended December 31, 2019.

For Additional Information Contact:
Steve Anderson 
Senior Vice President of Administration and Investor Relations, Secretary 
Phone: (423) 899-5898 
Fax: (423) 899-4456 
E-mail: sanderson@astecindustries.com

Astec Industries Inc.
Condensed Consolidated Statements of Income
(In millions, except share and per share amounts; unaudited)
				Three Months Ended								Year To Date
				June 30,								June 30,
					2020				2019				2020				2019
Net sales				$	265.3			$	304.8			$	554.1			$	630.6
Cost of sales					205.7				221.5				420.5				470.4
Gross profit					59.6				83.3				133.6				160.2
Operating expenses:
	Selling, general and administrative				42.7				52.8				98.9				110.9
	Restructuring and asset impairment charges				6.0				0.0				8.7				0.6
		Total operating expenses			48.7				52.8				107.6				111.5
Operating income					10.9				30.5				26.0				48.7
Other income (expense):
	Interest expense				(0.1	)			(0.5	)			(0.2	)			(1.1	)
	Miscellaneous, net				0.3				0.4				0.8				0.8
Income before income taxes					11.1				30.4				26.6				48.4
Provision (benefit) from income taxes					1.8				7.0				(3.3	)			10.7
Net income attributable to controlling interest				$	9.3			$	23.4			$	29.9			$	37.7
Earnings per common share
	Basic			$	0.41			$	1.04			$	1.33			$	1.67
	Diluted				0.41				1.03				1.32				1.66
Weighted-average shares outstanding
	Basic				22,584				22,509				22,567				22,503
	Diluted				22,711				22,667				22,715				22,656
			EPS *	$	0.41			$	1.03			$	1.32			$	1.66
			Restructuring and unusual		0.35				(0.88	)			0.39				(0.86	)
			Goodwill impairment										0.07
			Provision of income taxes		(0.09	)			0.22				(0.11	)			0.22
			Adjusted EPS *	$	0.67			$	0.37			$	1.67			$	1.02
			* Diluted EPS

Astec Industries Inc.
Segment Revenues and Profits
(In thousands; unaudited)
				Three Months Ended June 30																	Year To Date Ended June 30
				Infrastructure Solutions				Material Solutions				Corporate				Total					Infrastructure Solutions				Material Solutions				Corporate				Total
2020 Revenues				$	181,851			$	83,448				--			$	265,299				$	384,469			$	169,678							$	554,147
2019 Revenues					197,965				106,837				--				304,802					417,214				213,368								630,582
Change $					(16,114	)			(23,389	)			--				(39,503	)				(32,745	)			(43,690	)							(76,435	)
Change %					(8.1	%)			(21.9	%)							(13.0	%)				(7.8	%)			(20.5	%)							(12.1	%)
2020 Gross profit					38,289				21,214				112				59,615					91,213				42,219				204				133,636
2020 Gross profit %					21.1	%			25.4	%							22.5	%				23.7	%			24.9	%							24.1	%
2019 Gross profit					57,743				25,493				81				83,317					109,053				51,038				76				160,167
2019 Gross profit %					29.2	%			23.9	%							27.3	%				26.1	%			23.9	%							25.4	%
Change %					(19,454	)			(4,279	)			31				(23,702	)				(17,840	)			(8,819	)			128				(26,531	)
2020 Profit / (loss)					14,215				8,469				(13,604	)			9,080					31,435				14,504				(16,528	)			29,411
2019 Profit / (loss)					26,926				8,489				(12,563	)			22,852					44,996				17,166				(25,471	)			36,691
Change $					(12,711	)			(20	)			(1,041	)			(13,772	)				(13,561	)			(2,662	)			8,943				(7,280	)
Change %					(47.2	%)			(0.2	%)			(8.3	%)			(60.3	%)				(30.1	%)			(15.5	%)			(35.1	%)			(19.8	%)
Segment revenues are reported net of intersegment revenues. Segment gross profit is net of profit on intersegment
revenues. A reconciliation of total segment profits to the Company's net income attributable to controlling interest is as follows (in thousands):
								Three Months Ended June 30,																	Year To Date Ended June 30,
									2020				2019			Change $										2020				2019			Change $
Total profit for all segments								$	9,080			$	22,852			$	(13,772	)							$	29,411			$	36,691			$	(7,280	)
Recapture of intersegment profit									226				509				(283	)								378				888				(510	)
Net loss attributable to non-controlling interest									(48	)			16				(64	)								113				72				41
Net income attributable to controlling interest								$	9,258			$	23,377			$	(14,119	)							$	29,902			$	37,651			$	(7,749	)

Astec Industries Inc.
Condensed Consolidated Balance Sheets
(In millions; unaudited)
				June 30,			June 30,
					2020			2019
Assets
Current assets:
	Cash and cash equivalents			$	119.8		$	24.9
	Investments				2.9			1.2
	Receivables, net				118.7			139.2
	Inventories, net				263.2			360.9
	Other current assets				25.8			31.3
		Total current assets			530.4			557.5
Property, plant and equipment, net					177.8			191.9
Other long-term assets					85.6			99.2
Total assets				$	793.8		$	848.6
Liabilities
Current liabilities:
	Accounts payable			$	48.2		$	70.3
	Other current liabilities				95.8			103.6
		Total current liabilities			144.0			173.9
Long-term debt					0.4			28.9
Other long-term liabilities					27.6			25.2
Total equity					621.8			620.6
Total liabilities and equity				$	793.8		$	848.6

Astec Industries Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
				Three Months Ended
				June 30,
					2020				2019
Cash flows from operating activities:
Net income				$	29,788			$	37,579
Adjustments to reconcile net income to net cash provided
	by operating activities:
	Depreciation and amortization				12,601				13,139
	Provision for doubtful accounts				780				806
	Provision for warranties				5,137				4,496
	Deferred compensation expense				193				144
	Stock-based compensation				2,987				1,739
	Deferred income tax provision				13,428				8,412
	(Gain) loss on disposition of fixed assets				(730	)			176
	Asset impairment charge				4,146				--
Distributions to SERP participants					(434	)			(1,007	)
Change in operating assets and liabilities:
	Sale (purchase) of trading securities, net				(9	)			50
	Trade and other receivables				5,445				(6,719	)
	Inventories				31,365				(5,240	)
	Prepaid expenses and other assets				2,681				911
	Accounts payable				(7,714	)			(2,006	)
	Accrued payroll and related expenses				(2,869	)			(2,807	)
	Accrued product warranty				(4,538	)			(5,287	)
	Customer deposits				(20,053	)			(13,025	)
	Prepaid and income taxes payable, net				10,622				7,669
	Other				2,015				3,841
Net cash provided by operating activities					84,841				42,871
Cash flows from investing activities:
Expenditures for property and equipment					(7,407	)			(8,657	)
Proceeds from sale of property and equipment					1,987				136
Other					(205	)			433
Net cash used by investing activities					(5,625	)			(8,088	)
Cash flows from financing activities:
Payment of dividends					(4,971	)			(4,956	)
Bank loan repayments, net					(188	)			(31,014	)
Sale of Company shares held by SERP					125				222
Withholding tax paid upon vesting of restricted stock units					(565	)			(160	)
Net cash used by financing activities					(5,599	)			(35,908	)
Effect of exchange rates on cash					(2,677	)			209
Net change in cash and cash equivalents					70,940				(916	)
Cash and cash equivalents, beginning of period					48,857				25,821
Cash and cash equivalents at end of period				$	119,797			$	24,905

Appendix
In its earnings release, Astec refers to various GAAP (U.S. generally accepted accounting principles) and non-GAAP financial measures. These non-GAAP measures may not be comparable to similarly titled measures being disclosed by other companies. Non-GAAP financial measures should be considered in addition to, and not in lieu of, GAAP financial measures. Nonetheless, this non-GAAP information can be useful in understanding the Company's operating results and the performance of its core businesses.
The amounts described below are unaudited, reported in thousands of U.S. Dollars (Except Share data), and as of or for the periods indicated.
2Q20 GAAP to Non-GAAP Reconciliation Table											YTD2Q20 GAAP to Non-GAAP Reconciliation Table
	As Reported			Restructuring			As Adjusted					As Reported			Restructuring			As Adjusted
	(GAAP)			Charges			(Non-GAAP)					(GAAP)			Charges			(Non-GAAP)
Consolidated											Consolidated
Net sales	$	265,299		$	-		$	265,299			Net sales	$	554,147		$	-		$	554,147
GP		59,615			1,908			61,523			GP		133,636			1,908			135,544
GP%		22.5	%					23.2	%		GP%		24.1	%					24.5	%
Operating income		10,860			7,900			18,760			Operating income		26,003			10,612			36,615
Provision (benefit) from income taxes		1,868			1,906			3,774			Provision (benefit) from income taxes		(3,275	)		2,543			(732	)
Net income attributable to controlling interest		9,258			5,994			15,252			Net income attributable to controlling interest		29,902			8,069			37,971
EPS		0.41			0.26			0.67			EPS		1.32			0.35			1.67
EBITDA		17,365			7,900			25,265			EBITDA		38,913			10,612			49,525
Infrastructure Solutions											Infrastructure Solutions
Net sales		181,851			-			181,851			Net sales		384,469			-			384,469
GP		38,289			1,908			40,197			GP		91,213			1,908			93,121
GP%		21.1	%					22.1	%		GP%		23.7	%					24.2	%
EBITDA		18,980			3,611			22,591			EBITDA		41,221			6,290			47,511
Materials Solutions											Materials Solutions
Net sales		83,448			-			83,448			Net sales		169,678			-			169,678
GP		21,214			-			21,214			GP		42,219			-			42,219
GP%		25.4	%					25.4	%		GP%		24.9	%					24.9	%
EBITDA		10,562			1,550			12,112			EBITDA		18,922			1,582			20,504
2Q19 GAAP to Non-GAAP Reconciliation Table											YTD 2Q19 GAAP to Non-GAAP Reconciliation Table
	As Reported			Restructuring			As Adjusted					As Reported			Restructuring			As Adjusted
	(GAAP)			Charges			(Non-GAAP)					(GAAP)			Charges			(Non-GAAP)
Consolidated											Consolidated
Net sales	$	304,802		$	(20,000	)	$	284,802			Net sales	$	630,582		$	(20,000	)	$	610,582
GP		83,317			(19,974	)		63,343			GP		160,167			(19,974	)		140,193
GP%		27.3	%					22.2	%		GP%		25.4	%					23.0	%
Operating income		30,481			(19,932	)		10,549			Operating income		48,660			(19,420	)		29,240
Provision (benefit) from income taxes		7,008			(4,953	)		2,055			Provision (benefit) from income taxes		10,789			(4,955	)		5,834
Net income attributable to controlling interest		23,377			(14,979	)		8,398			Net income attributable to controlling interest		37,651			(14,465	)		23,186
EPS		1.03			(0.66	)		0.37			EPS		1.66			(0.64	)		1.02
EBITDA		37,128			(19,932	)		17,196			EBITDA		62,067			(19,421	)		42,646
																(14,465	)
Infrastructure Solutions											Infrastructure Solutions
Net sales		197,965			(20,000	)		177,965			Net sales		417,214			(20,000	)		397,214
GP		57,743			(19,974	)		37,769			GP		109,053			(19,974	)		89,079
GP%		29.2	%					21.2	%		GP%		26.1	%					22.4	%
EBITDA		32,431			(19,932	)		12,499			EBITDA		55,575			(19,420	)		36,155
Materials Solutions											Materials Solutions
Net sales		106,837			-			106,837			Net sales		213,368			-			213,368
GP		25,493			-			25,493			GP		51,038			-			51,038
GP%		23.9	%					23.9	%		GP%		23.9	%					23.9	%
EBITDA		11,315			-			11,315			EBITDA		22,499			-			22,499

Astec Industries Inc.
GAAP vs Non-GAAP Adj. ESP Reconciliations
(In thousands, except share and per share amounts; unaudited)
				Three Months Ended								Year To Date Ended
				June 30,								June 30,
					2020				2019				2020				2019
Net income attributable to controlling interest				$	9,258			$	23,377			$	29,902			$	37,651
Plus: Restructuring and unusual					7,900				(19,932	)		$	8,966			$	(19,420	)
Plus: Goodwill impairment					--				--			$	1,646
Less: Provision from income taxes					(1,906	)			4,953			$	(2,543	)		$	4,955
Adjusted net income attributable to controlling interest				$	15,252			$	8,398			$	37,971			$	23,186
Diluted EPS				$	0.41			$	1.03			$	1.32			$	1.66
Plus: Restructuring and unusual					0.35				(0.88	)			0.39				(0.86	)
Plus: Goodwill impairment					--				--				0.07				--
Less: Provision from income taxes					(0.09	)			0.22				(0.11	)			0.22
Adjusted EPS				$	0.67			$	0.37			$	1.67			$	1.02

FAQ

What were Astec Industries' Q2 2020 financial results?

Astec Industries reported a net sales decrease of 13.0% to $265.3 million in Q2 2020, with adjusted EPS rising by 81.1% to $0.67.

How did COVID-19 affect Astec Industries' sales?

COVID-19 disruptions led to a 10.0% drop in domestic sales and a 25.3% decline in international sales.

What is the status of Astec Industries' backlog as of June 30, 2020?

Astec Industries' backlog dropped 26.1% to $182.0 million due to lower orders in key segments.

What strategic changes did Astec Industries announce?

Astec announced the closure of its Mequon, Wisconsin facility as part of its global footprint consolidation strategy.

What liquidity position does Astec Industries hold?

As of June 30, 2020, Astec maintains a net cash position of $119.8 million and available liquidity exceeding $270.6 million.