Astec Industries, Inc. on Wednesday announced its financial results for the first quarter ended March 31.
“Despite a difficult first quarter, we remain optimistic for the year," said Jaco van der Merwe, chief executive officer. "We anticipate Materials Solutions softness to be offset by a strong Infrastructure Solutions market. Declines during the first quarter in the Materials Solutions segment were primarily due to longer product conversion cycles from rental to buy and finance capacity constraints attributable to the challenging interest rate environment. Infrastructure Solutions sales were affected by supply chain delays from a specific supplier and are expected to ship during the second quarter.
"We anticipate a continuation of challenging conditions in our Materials Solutions segment in the first half of the year, resulting in more conversions occurring towards the end of the year. In our Infrastructure Solutions segment, we continue to see strong demand for asphalt and concrete plants and project activity at the federal, state and local levels remains robust. As we navigate these near-term headwinds, we are focused on maintaining efficient operations and performing for our customers while deploying our long term strategy."
Mr. van der Merwe continued, "We see additional opportunity ahead supported by the expansion of our collaboration with dealers to develop best-in-class aftermarket practices in both Infrastructure Solutions and Materials Solutions and the rollout of new products in 2024, and we will remain focused on driving margin enhancement and working capital improvements."
All comparisons are made to the prior year first quarter:
Net sales decreased primarily due to fewer conversions in the Materials Solutions group, attributable to the challenging interest rate environment and finance capacity constraints coupled with specific supply chain delays for Infrastructure Solutions group. The company expects market conditions to improve as it moves through 2024, supported by continued strong demand for asphalt and concrete plants.
The backlog remains healthy and continues to stabilize, supported by improvement in parts backlog efficiency.
Operating margin decreased 310 basis points due to a slight decrease in gross margin and increased selling, general and administrative expenses mainly associated with personnel-related costs partially offset by lower exhibit costs associated with the ConExpo industry trade show held in 2023.
The adjusted earnings income tax expense for the three months ended March 31 was $2.7 million, reflecting a 26.0 percent effective tax rate. This compared to the prior three-month period adjusted earnings tax expense of $6.9 million, reflecting a 25.2 percent effective tax rate.
The company reached another milestone in its Oracle transformation to drive sustainable profitability. On April 1, it went live in two additional manufacturing sites, as well as with a transportation management system.
Adjusted net income and Adjusted EPS exclude $4.4 million and $0.19, respectively, of incremental costs, net of tax, primarily driven by the transformation program initiatives to optimize the company for long-term value creation.
Federal highway and pavement contract awards increased 11 percent year-over-year in February 2024, as funding for the Federal Highway Bill continues to be deployed. Total state budgets are up 12 percent year-over-year in fiscal year 2024 following an 11 percent increase in fiscal year 2023.
The 2024 World of Asphalt/Agg 1 trade show had record attendance with a 38 percent increase over the previous record set in 2022. The Astec booth was exceptionally busy and interest in its equipment and digital solutions was high.
Segments Results
The 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 Jan. 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 $202.2 million decreased 6.2 percent as lower equipment sales, service and equipment installation revenue were partially offset by increased parts sales.
Segment Operating Adjusted EBITDA of $25.6 million compared to $28.5 million for the same period in the prior year primarily due to a component delay with a specific supplier as well as manufacturing inefficiencies. Segment Operating Adjusted EBITDA margin of 12.7 percent decreased 50 basis points.
Materials Solutions - Processing equipment to crush, screen and convey aggregates and related aftermarket parts.
Net sales of $107.0 million decreased by 19.1 percent primarily due to lower equipment sales attributable to finance capacity constraints with contractors and dealers resulting in fewer product conversions.
Segment Operating Adjusted EBITDA of $5.3 million decreased 63.7 percent. The decrease between periods primarily resulted from lower net sales, manufacturing inefficiencies and higher inventory-related costs incurred during the period.
Segment Operating Adjusted EBITDA margin of 5.0 percent decreased 600 basis points.
Balance Sheet, Cash Flow and Liquidity
The total liquidity was $170.5 million, consisting of $55.3 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 quarter ended March 31 was $47.0 million to support the timing of collections of trade receivables and inventory purchases.
Net cash consumed by investing activities for the three months ended March 31 was $5.9 million as compared to providing net cash of $11.8 million during the three months ended March 31, 2023. The change was primarily due to the cash inflows from the sale of the Tacoma facility for $19.9 million in the first quarter of 2023. Capital expenditures decreased $2.2 million during the three months ended March 31, 2024 as compared to the same period in 2023.
Net cash provided by financing activities for the three months ended March 31 was $48.4 million as opposed to a net cash use of $16.2 million during the three months ended March 31, 2023, primarily due to increased borrowings net of repayments of $63.6 million.
First Quarter Capital Allocation
Capital expenditure investments to increase capacity and improve efficiency were $5.8 million.
Dividend payment of $0.13 per share.