Astec Industries, Inc. (Nasdaq: ASTE) reported results for its second quarter ended June 30, including a net loss related to the company's exit from a contract with a firm operating a wood pellet plant in Arkansas.
Net sales for the second quarter of 2018 were $272.5 million compared to $301.9 million for the second quarter of 2017, a 9.7 percent decrease.
Domestic sales decreased 14.1 percent to $203.4 million for the second quarter of 2018 from $236.9 million for the second quarter of 2017. International sales increased 6.4 percent to $69.1 million for the second quarter of 2018 from $65million for the second quarter of 2017.
The net loss for the second quarter of 2018 was $40.7 million or $1.76 per share, compared to earnings of $14.4 million or $0.62 per diluted share for the second quarter of 2017, a decrease in earnings per share of 143.5 percent.
Net sales for the first half of 2018 were $598 million compared to $620.3 million for the first half of 2017, a decrease of 3.6 percent. Domestic sales decreased 3.5 percent to $473.5 million for the first half of 2018 from $490.4 million for the first half of 2017. International sales decreased 4.1 percent to $124.5 million for the first half of 2018 from $129.9 million for the first half of 2017.
The net loss for the first half of 2018 was $20.4 million or $0.89 per share, compared to earnings of $29.5 million or $1.27 per diluted share for the first half of 2017, a decrease in earnings per share of 170.0 percent.
Officials said without all of the impact of wood pellet plant activity on the company’s results during those periods, net sales for the second quarter of 2018 were $347 million compared to $297.8 million for the second quarter of 2017, an increase of $49.2 million or 16.5 percent. Domestic sales increased 19.4 percent to $277.9 million for the second quarter of 2018 from $232.8 million for the second quarter of 2017.
Earnings for the second quarter of 2018 were $240 million or $1.03 per diluted share, compared to $17.7 million or $0.76 per diluted share for the second quarter of 2017, an increase in earnings per share of 35.5%.
Net sales for the first half of 2018 were $672.8 million compared to $604.5 million for the first half of 2017, an increase of $68.3 million or 11.3 percent. Domestic sales increased 15.5 percent to $548.2 for the first half of 2018 from $474.6 million for the first half of 2017.
Earnings for the first half of 2018 were $46.9 million or $2.02 per diluted share, compared to $32.4 million or $1.40 per diluted share for the first half of 2017, an increase in earnings per share of 45.4%.
Commenting on the quarterly results, Benjamin G. Brock, chief executive officer, stated, “Our core business continues to perform well. Our EPS, ex-pellet plant impact, was $1.03 per share which is our third best ever quarterly EPS. Our backlog remains historically strong. Our domestic customers continue to experience strong end-markets and are optimistic for the rest of this year and 2019, which has us optimistic on our outlook as a whole.”
The company’s backlog at June 30, 2018 was $302.9 million, a decrease of $57.6 million or 16.0% compared to the June 30, 2017 backlog of $360.5 million. Domestic backlog decreased 23.3% to $217.9 million at June 30, 2018 from $284.1 million at June 30, 2017. The international backlog at June 30, 2018 was $85.0 million compared to $76.4 million at June 30, 2017, an increase of 11.3%. Excluding all wood pellet plant backlogs, the company’s June 30, 2018 backlog increased $7.5 million or 2.5 percent compared to June 30, 2017. Prior year backlogs have been recast to include the backlog of RexCon, Inc., acquired during the third quarter of 2017.
During the second quarter, after careful consideration in partnership with Highland, its wood pellet plant customer in Arkansas, the company and Highland decided it was in both parties’ best interest to restructure the company’s obligations related to Highland’s wood pellet plant and exit the company’s obligations regarding the plant. The decision was driven by unresolved issues, which inhibited the plant’s ability to meet contractual provisions by the date required by the company’s sales contract with Highland. Under the terms of the agreement to exit the contract, which was effective on July 20, 2018, the company agreed to pay $68 million in cash in the aggregate over the course of the next 120 days and forgive approximately $7 million in receivables. In exchange, Highland agreed to release the company from all contractual obligations related to the Arkansas wood pellet plant. The company will remain available for onsite and telephonic technical advice.
In connection with the agreement to exit the contract with Highland, and in consideration of the historical impact of the wood pellet business on the company’s overall results, the company has redefined its wood pellet plant strategy to limit its participation in the wood pellet plant market to offering proven technology for sale as an equipment supplier, not as an Engineer, Procure, Construct (EPC) organization or a participating lender on wood pellet plant projects. The company will continue to offer for sale after-market parts and service support for wood pellet plants.
Astec recently retained Maine Pointe, a globally recognized operations consulting firm, to assist management in conducting a comprehensive strategic sourcing review. Maine Pointe will coordinate with the company’s director of procurement and recently hired VP of operational excellence to streamline procurement operations to improve the quality of the company’s products and services while reducing costs. Also, as a function of a comprehensive strategic plan review, the company’s management team and Board of Directors are evaluating the company’s capital allocation strategy to ensure capital is directed to the areas that will drive the greatest value for shareholders.
Commenting on the wood pellet plant business and other strategic initiatives, Mr. Brock stated, “The board and management team are taking a number of steps that we believe will support our long-term goals of increasing operational efficiency, reducing costs and improving profitability. We are pleased that our core businesses continue to perform well, as demonstrated by our historically strong backlog and we are focused on achieving our core business profitability targets for 2018. In order to further capitalize on the strengths of our core businesses, we have exited our contractual obligations with regard to the Highland wood pellet plant and have redefined our wood pellet plant business. At the same time, we are engaging in a strategic sourcing review to streamline our procurement process. As we optimize our cost structure, our Board is also considering capital allocation options. All of these actions are designed to position the company well for 2019 and beyond.”