Astec faces coronavirus challenges with strong cash position, customer work backlogs, CEO says

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Updated May 15, 2020
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Astec Industries, whose subsidiaries include roadbuilding equipment manufacturers Roadtec and Carlson Paving, reported an 11 percent drop in sales in the first quarter compared to the same period last year.

The company foresees further sales declines due to the coronavirus pandemic; however, it also sees a customer base with strong work backlogs throughout the year, said CEO Barry Ruffalo during a conference call May 11.

Barry RuffaloBarry Ruffalo

“Although some of our customers have discussed postponing cap-ex decisions and delaying shipments to future quarters, the majority are continuing to work and require critical Astec solutions,” Ruffalo said. He said the company’s factories remain open, and it has not seen any disruption in its supply chain so far.

“In the first quarter, we saw limited impact from COVID-19,” Ruffalo said. “However, we do expect to see some order reductions to the remainder of 2020 due to customers delaying receivable orders, and potential contract postponement.

“With that said, many of our customers are set for 2020 to be as strong as or stronger than 2019, with many having a backlog of work that will take them through the end of this year.”

Uncertainty remains for the market, as well as whether Congress will come through with increased funding for infrastructure. The FAST Act, designed to provide long-term highway and other transportation funding to states, is also set to expire in September. All of those issues will weigh on contractors’ equipment purchase decisions, he said.

“The speed of market recovery and the potential of a federally funded infrastructure bill are all things that they will use as a basis for timing their buying decisions,” Ruffalo said. “As you know, the situation remains fluid for the remainder of 2020. But fundamental market drivers are just as strong as they’ve ever been.”

Astec says it is prepared to weather the pandemic, with a large amount of cash and low debt. The company reports a net cash position of $44 million at the end of the first quarter and only $1 million in debt. It says it has available liquidity of $186 million as of March 31.

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It also expects a $26 million tax refund related to the CARES Act passed by Congress to help companies weather the pandemic. It is deferring the payments of its employees’ portion of Social Security taxes, also allowed under the CARES Act, which is expected to add another $5 million to $8 million in cash this year, said Chief Financial Officer Becky Weyenberg.

The company had already been undergoing major restructuring due to a new corporate strategy being implemented before the pandemic. The company now has two main segments:

  • The Infrastructure Solutions division includes roadbuilding, asphalt and concrete plant equipment.
  • The Materials Solution division includes crushing, screening, washing and material handling equipment.

“While we remain cautious given the global pandemic, we are well positioned to navigate the economic challenges ahead of us with a more efficient organizational structure, a strong balance sheet and ample liquidity,” Ruffalo says.

Measures to hold down costs and preserve cash include a hiring freeze except for critical positions, reductions in discretionary spending, focusing on accounts receivable and “reductions in force as appropriate,” the company says.

Some other highlights from Astec’s first-quarter financial report:

  • Domestic sales of $233.9 million decreased 11%. (About 80 percent of the company’s sales are in the North American market.)
  • Backlog as of March 31 of $245.4 million, up $8.9 million from 1Q 2019. “The backlog increase was driven by Infrastructure Solutions orders, which were up 19 percent compared to the same period a year ago,” Weyenberg said.
  • Operating income of $15.1 million decreased 16.7% compared to $18.2 million in the first quarter of 2019.
  • Equipment sales decreased 18% in the quarter, while part sales fell 4%.