Astec Industries’ second-quarter financial report was bolstered by a $20 million sale of its wood pellet plant in Hazlehurst, Georgia.
Without the sale, however, the results were disappointing for the company, which reported weakened demand across all of its product segments, including its Roadtec and Carlson Paving brands and its aggregates, crushing and screening products, according to Rick Dorris, interim CEO.
During an earnings report conference call July 23, Dorris pointed to unusually wet weather in the first quarter of the year leading to delays on road construction projects around the country. And though some delayed projects have gotten underway, Dorris said, many road contractors are making do with existing equipment rather than buying new equipment midway through the season.
“We hear from our customers that they’re busy, and they have been busy, but it just hasn’t converted to orders,” Dorris said.
That weakened demand has also led the company to face more intense price competition, causing it to cut prices on its products, as competitors also respond to the weaker market. Astec has also laid off 402 workers over the past year – 161 of whom were during the second quarter – to reduce costs, Dorris said.
$20 million sale
A bright spot for the company was the $20 million pretax profit on the sale of the wood pellet plant. That means the company is now completely out of the wood pellet business, allowing it to focus on its traditional businesses and improve performance, Dorris said. The plant sale also boosted sales and earnings figures:
- Net sales for the second quarter of 2019 were $304.8 million, compared to $272.5 million for the second quarter of 2018 – an 11.8% increase.
- Net income was $23.4 million or $1.03 per diluted share, compared to a net loss of $40.7 million or $1.76 per diluted share for 2Q 2018.
- Net sales for the first half of 2019 were $630.6 million, compared to $598 million for the first half of 2018 – an increase of 5.5%.
- Net income for the first half of 2019 was $37.7 million or $1.66 per diluted share, compared to a net loss of $20.4 million or $0.89 per diluted share for the first half of 2018.
Weakened demand hurts sales, income
When removing the plant’s sale from the company’s second-quarter results, Astec reported the following:
- Net sales for the second quarter were $284.8 million, compared to $347.1 million for 2Q 2018 – a decrease of 17.9%.
- Earnings were $8.1 million or $0.36 per diluted share, compared to $24 million or $1.03 per diluted share for 2Q 2018 – a decrease in earnings per share of 65%.
- Net sales for the first half were $610.6 million, compared to $672.8 million for the first half of 2018 – a decrease of 9.2%.
- Earnings were $22.4 million or $0.99 per diluted share, compared to $46.9 million or $2.02 per diluted share for the first half of 2018 – a decrease in earnings per share of 51%.
New strategies, new products
Dorris said results for the remainder of the year are expected to follow a similar pattern. But he pointed to new strategic procurement and sales procedures and other cost-cutting measures that are expected to boost revenues and cut expenses.
“We have experienced reduced demand in the first half of this year, but our ongoing strategic procurement and operational excellence initiatives along with manpower reductions at our most affected subsidiaries will help us maintain and improve profitability even if market conditions do not improve in the short term,” he said.
The company also plans to introduce new or improved products before the end of the year for all of its market segments.
“Some of the products will fill gaps in our portfolio; some will make us more competitive internationally, and some will make us more competitive domestically,” Dorris said.
Dorris also pointed to the selection of the company’s new CEO. (Dorris will serve in his current role until Barry Ruffalo becomes the new CEO on August 12.)
“We believe that our current initiatives as well as the perspective of a new CEO will make us a stronger and more profitable company going forward,” Dorris said.