Astec Industries, Inc. announced Tuesday its financial results for the second quarter of 2022.
Second quarter of 2022 net sales of $318.2 million increased 14.6 percent compared to $277.6 million for the second quarter of 2021, an increase of $40.6 million or 14.6 percent. The increase in net sales was driven by volume, pricing and mix in equipment and parts sales. Domestic sales increased $47.0 million or 23.3 percent mainly due to increases in equipment and parts sales in both the Infrastructure and Materials Solutions groups. International sales decreased $6.4 million or 8.4 percent primarily due to lower equipment sales partially offset by increased parts and component sales. Sales declines in Europe and Mexico were partially offset by higher sales in South America, Brazil and Canada.
Backlog as of June 30, of $837.4 million increased by $401.3 million, or 92.0 percent compared to the backlog of $436.1 million on June 30, 2021. Domestic backlog increased by 108.1 percent to $705.1 million while international backlog increased by 36.0 percent to $132.3 million.
The company sustained an operating loss of $4.0 million in the second quarter of 2022 compared to operating income of $10.3 million in the second quarter of 2021 representing a decrease of 138.8 percent. Negative operating margin of 1.3 percent decreased 500 basis points from 3.7 percent in the second quarter 2021. The variance was largely driven by inflation which outpaced sales volume, price and mix combined with foreign exchange loss of $2.3 million, which declined $2.7 million from a gain of $0.4 million in the prior year quarter. In addition, we incurred $7.1 million of higher costs associated with our transformation program and certain asset impairment charges in the current quarter. Second quarter of 2022 adjusted operating income of $6.6 million decreased 50.0 percent compared to $13.2 million for the second quarter of 2021. Adjusted operating margin of 2.1 percent decreased 270 basis points from 4.8 percent in second quarter 2021. Adjusted selling, general and administrative expenses, as a percentage of sales, excluding research and development expenses, declined to 14.6 percent in the second quarter of 2022 from 16.5 percent in the second quarter of 2021.
The effective income tax rate for the quarter was 17.0 percent compared to 20.2 percent in the prior year mainly due to lower earnings from operations. The adjusted tax rate for the quarter was 27.1 percent compared to 21.1 percent in the second quarter of 2021 primarily due to the relative weighting of jurisdictional income.
Net loss of $3.9 million compared to net income of $8.3 million in the second quarter of 2021 decreased $12.2 million, while diluted EPS of $(0.17) decreased from $0.36 in the second quarter of 2021. Adjusted net income of $4.3 million decreased 59.0% compared to the prior year period, while Adjusted EPS of $0.19 decreased 58.7 percent compared to $0.46 for the second quarter of 2021. Adjusted Net Income and Adjusted EPS excludes $8.2 million and $0.36, respectively, of incremental costs, net of tax, primarily driven by our transformation program further described in the Business Operations Update section of this news release. Such costs are from initiatives to optimize the company for long term value creation.
EBITDA of $2.6 million decreased $15.3 million, or 85.5%, compared to the prior year EBITDA of $17.9 million. Adjusted EBITDA of $13.2 million decreased 36.5 percent compared to $20.8 million a year ago. Adjusted EBITDA margin declined 340 basis points from 7.5 percent in the second quarter of 2021 to 4.1 percent in the second quarter of 2022.
"Demand for Astec products continued and our backlog remained at record levels" said Barry Ruffalo, chief executive officer of Astec. "However, financial results were negatively impacted by lingering supply chain disruptions. We will continue to realize prior pricing actions as we ship our backlog and, if necessary, take additional pricing actions to combat new inflationary pressures. Our procurement team is laser-focused on sourcing purchased components and mitigating inbound deliveries and increased costs while all of Astec focuses on meeting customer expectations. Despite these challenges in the quarter, we remain well- positioned to execute our Simplify, Focus and Grow strategy with a strong balance sheet, continued focus on operational excellence and a tailwind in demand provided by the long-term federal infrastructure bill. Ongoing investments in our people and operations will help ensure we are able to meet growing demand."
Business Operations Update
Acquisition of MINDS Automation Group, Inc. - In April 2022, we acquired Canada-headquartered MINDS Automation Group, Inc., a leader in plant automation control systems and cloud-based data management in the asphalt industry. The acquisition provides us a broader line of controls and automation products designed to deliver enhanced productivity through improved equipment performance for our customers.
Simplify, Focus and Grow Strategic Transformation - We continue to execute on our strategic transformation initiative focused on implementing new business strategies and a new operating structure. SFG is an ongoing, multi-year program with the primary goals of optimizing our manufacturing footprint and centralizing our business into common platforms and operating models to reduce complexity and cost, improving productivity and embedding continuous improvement in our processes. These efforts are considered critical to enabling us to operate competitively and support future growth, which are expected to broadly benefit our customers, partners, employees and shareholders. Currently, we have two elements of the SFG program in operation, which include the implementation of a standardized enterprise resource planning system and a gross margin- generating lean manufacturing initiative at one of our largest sites. The manufacturing initiative is intended to serve as the optimal blueprint for our other manufacturing facilities.
Our multi-year phased implementation of a standardized ERP system across our global organization will replace much of our existing disparate core financial systems. The upgraded ERP will initially convert our internal operations, manufacturing, finance, human capital resources management and customer relationship systems to cloud-based platforms. This new ERP system will provide for standardized processes and integrated technology solutions that enable us to better leverage automation and process efficiency. An implementation of this scale is a major financial undertaking and has required and will continue to require substantial time and attention of management and key employees. We expect to complete the ERP global design in 2022 and convert the operations of one site in 2023 to set the foundation before accelerating the implementation at additional sites. We anticipate incurring total costs associated with the ERP implementation in the range of $125 million to $150 million, with an estimated $25 million to $30 million incurred per year beginning in 2022.
Costs incurred during the three months ended June 30 were $6.4 million which represent costs directly associated with the SFG initiative and which cannot be capitalized in accordance with U.S. GAAP. These costs are included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations. Additionally, at June 30, the company has capitalized $6.8 million in deferred implementation costs associated with the ERP implementation that will be amortized ratably over the remaining contract term once the ERP is ready for use, which are recorded in "Other long-term assets" in the Consolidated Balance Sheets.
Supply Chain - While we actively manage our global supply chain for constraints and volatility, we continued to experience supply chain disruptions in the second quarter. Our vendors and logistics partners have increased lead times for certain components used in our manufacturing process. We have increased the frequency of communications with our suppliers and customers to ensure business continuity as well as anticipate and prepare for any new developments.
Labor - In certain manufacturing locations, we have experienced a shortage of necessary production personnel and increasing labor costs to attract staff in our manufacturing operations resulting in a variety of challenges in running our operations efficiently to meet strong customer demand. We continue to adjust our production schedules and manufacturing workload distribution, outsource components, implement efficiency improvements and actively modify our recruitment process and compensation and benefits to attract and retain production personnel in our manufacturing facilities.
Steel - Steel is a major component of our equipment. Steel prices began increasing in the latter part of 2020. We experienced further increases in steel pricing in 2021 and as we entered 2022 but has stabilized at this higher run rate more recently. Global supply chain disruptions caused by the Russia Ukraine conflict have added further pressure on steel prices particularly in the international markets where our manufacturing facilities are located. We continue to utilize strategies that include forward-looking contracts and advanced steel purchases to ensure supply and minimize the impact of price volatility. Potential ongoing constraints in the supply of steel products will continue pressuring availability of other components used in our manufacturing process, and thus have adversely impacted our gross margins and may continue to do so.
Highway Funding - Federal funding provides a significant portion of all highway, street, roadway and parking construction in the United States. We believe federal funding influences the purchasing decisions of our customers, who are typically more amenable to making capital equipment purchases with long-term federal legislation in place. In November 2021, the U.S. government enacted the Infrastructure Investment and Jobs Act ("IIJA"), which allocates $548 billion in government spending to new infrastructure over a five-year period, with certain amounts specifically allocated to fund highway and bridge projects. We believe that multi-year highway programs (such as the IIJA) will have the greatest positive impact on the road construction industry and allow our customers to plan and execute longer-term projects.
COVID-19 - Business has been significantly affected by the contributory effects of the COVID-19 pandemic such as fluctuations in demand for our products, material price increases, increased shipping costs and lead times from production materials, supplies and parts, labor shortages and increased labor costs. The COVID-19 pandemic and its contributory effect on the economy may continue to negatively disrupt our business and results of operations in the future. The ongoing impact of the COVID-19 pandemic on our operations and the markets we serve remains uncertain due to constantly evolving developments and cannot be accurately predicted.