Astec Industries, Inc. announced Wednesday its financial results for the second quarter ended June 30.
"We are pleased with the trajectory of our second quarter performance, specifically, the overall 5.9 percent increase in implied orders in spite of difficult market conditions for our Materials Solutions segment," said Jaco van der Merwe, chief executive officer. "Our Infrastructure Solutions segment not only experienced an 11.0 percent increase in sales during the quarter, but also saw a robust increase in implied orders, due to high demand across the construction industry, especially for asphalt and concrete plants. Our Materials Solutions segment experienced a decline in sales, driven by continued finance capacity constraints with contractors and dealers and longer product conversions, but saw positive movement in implied orders. We anticipate market dynamics to improve across both groups in the latter half of the year and anticipate benefits from our transformation programs in future operating results.
"Looking ahead, we are encouraged by the outlook for both interest rates and in the domestic road building market. Further, we are taking proactive steps to drive further cost efficiencies and these actions, coupled with pricing and operational enhancements, will support our continued focus on margin improvement."
|
GAAP |
|
Adjusted |
| (in millions, except per share and percentage data) |
2Q 2024 |
|
2Q 2023 |
|
Change |
|
2Q 2024 |
|
2Q 2023 |
|
Change |
| Net sales |
$ |
345.5 |
|
|
$ |
350.0 |
|
|
(1.3) % |
|
|
|
|
|
|
| Domestic sales |
|
272.1 |
|
|
|
286.4 |
|
|
(5.0)% |
|
|
|
|
|
|
| International sales |
|
73.4 |
|
|
|
63.6 |
|
|
15.4% |
|
|
|
|
|
|
| Backlog |
|
531.1 |
|
|
|
688.8 |
|
|
(22.9) % |
|
|
|
|
|
|
| Domestic backlog |
|
417.2 |
|
|
|
588.2 |
|
|
(29.1)% |
|
|
|
|
|
|
| International backlog |
|
113.9 |
|
|
|
100.6 |
|
|
13.2% |
|
|
|
|
|
|
| (Loss) income from operations |
|
(10.7 |
) |
|
|
17.3 |
|
|
(161.8) % |
|
21.4 |
|
|
26.2 |
|
|
(18.3) % |
| Operating margin |
|
(3.1 |
)% |
|
|
4.9 |
% |
|
(800) bps |
|
6.2 |
% |
|
7.5 |
% |
|
(130)bps |
| Effective tax rate |
|
(2.2 |
)% |
|
|
17.0 |
% |
|
(1,920) bps |
|
23.9 |
% |
|
19.4 |
% |
|
450 bps |
| Net (loss) income attributable to controlling interest |
|
(14.0 |
) |
|
|
13.1 |
|
|
(206.9) % |
|
14.0 |
|
|
19.9 |
|
|
(29.6) % |
| Diluted EPS |
|
(0.61 |
) |
|
|
0.58 |
|
|
(205.2) % |
|
0.61 |
|
|
0.87 |
|
|
(29.9) % |
| Adjusted EBITDA |
|
|
|
|
|
|
27.6 |
|
|
32.2 |
|
|
(14.3) % |
| Adjusted EBITDA margin |
|
|
|
|
|
|
8.0 |
% |
|
9.2 |
% |
|
(120)bps
|
All comparisons are made to the prior year second quarter:
Net sales decreased primarily due to softness in Materials Solutions this quarter, which saw lower equipment sales, attributable to finance capacity constraints with contractors and dealers, as well as longer product conversions.
International sales saw a strong increase of $9.8 million, up 15.4 percent year-over-year, given heightened activity in Canada, Mexico, Africa and Europe, partially offset by declines in Australia and Brazil.
Backlog continues to stabilize and approach its historical range, supported by strong performance in Infrastructure Solutions.
During the second quarter of 2024, the company performed a quantitative goodwill impairment test on the Materials Solutions reporting unit. Based on that test, it recognized a pre-tax non-cash goodwill impairment charge of $20.2 million to fully impair the goodwill allocated to the Materials Solutions reporting unit, which was a significant contributor to the $10.7 million loss from operations.
Operating margin decreased 800 basis points due to the pre-tax non-cash goodwill impairment charge and higher selling, general and administrative expenses. Increased selling, general and administrative costs were largely driven by increased in technology support and certain professional service costs and higher provision for a credit loss partially offset by lower customer concessions and dealer commissions.
Adjusted net income of $14.0 million and Adjusted EPS of $0.61 exclude $28.0 million and $1.22, respectively, of incremental costs, net of tax, primarily driven by goodwill impairment, and transformation program costs.
Segments Results
The company's two reportable segments are comprised of sites based upon the nature of the products or services produced, the type of customer for the products, the similarity of economic characteristics, the manner in which management reviews results and the nature of the production process, among other considerations. Based on a review of these factors, the Australia and LatAm sites, which were previously reported in the Infrastructure Solutions segment have moved to the Materials Solutions segment and Astec Digital, which was previously included in the Corporate and Other category has moved to the Infrastructure Solutions segment, each beginning January 1, 2024. Prior periods have been revised to reflect the changes for the segment composition for comparability.
Infrastructure Solutions - Road building equipment, asphalt and concrete plants, thermal storage solutions and related aftermarket parts.
Net sales of $221.4 million increased 11.0 percent as the infrastructure construction market remains strong with healthy demand for asphalt and concrete plant deliveries anticipated through the beginning of 2025.
Segment Operating Adjusted EBITDA of $27.2 million compared to $25.7 million for the same period in the prior year. Segment Operating Adjusted EBITDA margin of 12.3 percent decreased 60 basis points, reflecting manufacturing inefficiencies at select sites. This, and higher selling, general and administrative costs, partially offset positive net volume, mix and pricing net of inflation as well as favorable other period costs.
Materials Solutions - Processing equipment to crush, screen and convey aggregates and related aftermarket parts.
Net sales of $124.1 million decreased by 17.7 percent primarily due to lower equipment sales attributable to finance capacity constraints with contractors and dealers resulting in fewer product conversions. Dealer quoting remains solid for future bookings and sales.
Segment Operating Adjusted EBITDA of $10.2 million decreased 44.3 percent and Segment Operating Adjusted EBITDA margin of 8.2 percent decreased 390 basis points, due to lower net volume and mix, manufacturing inefficiencies, and higher selling, general and administrative costs that were partially offset by pricing net of inflation and other period costs.
Balance Sheet, Cash Flow and Liquidity
The company's total liquidity was $175.8 million, consisting of $60.6 million of cash and cash equivalents available for operating purposes and $115.2 million available for additional borrowings under its revolving credit facility.
Net cash used by operating activities for the six months ended June 30 was $36.1 million to support the timing of collections of trade receivables and the payment of accounts payable.
Net cash consumed by investing activities for the six months ended June 30 was $12.6 million as compared to providing net cash of $2.6 million during the six months ended June 30, 2023, which included $20.1 million of proceeds from the sale of property and equipment. Capital expenditures decreased $3.7 million during the three months ended June 30, as compared to the same period in 2023.
Net cash provided by financing activities for the six months ended June 30 was $49.5 million primarily due to higher net borrowings on outstanding debt obligations.
Second Quarter Capital Allocation
Capital expenditure investments, primarily related to efficiency improvements, were $7.6 million.
Dividend payment of $0.13 per share.
Strategic Transformation Initiative Update
The company is undergoing a multi-year phased implementation of a standardized ERP system across the global organization, which is replacing much of the existing disparate core financial systems. To date, the company has launched the human capital resources module in locations in the United States and converted the operations of three manufacturing sites along with corporate, two of which occurred during the second quarter of 2024. The company is changing the pace of deployment of future site conversions in order to improve efficiencies and reduce business disruptions at each manufacturing site, which will have the effect of reducing the scope to exclude sites outside North America. With these modifications, it expects the project to conclude in 2027 with total approximate implementation costs anticipated to range from $180 to $200 million. Through the second quarter of 2024, the company has incurred total implementation costs of approximately $119 million. Annual costs are expected to peak in 2024 to a range of $40 to $45 million and decrease annually each year through the final implementations in 2027.