On Nov 22, we downgraded our recommendation on leading road
building equipment manufacturer and marketer,
Astec Industries Inc.
), to Underperform. Our view reflects the company's weak
third-quarter 2013 results.
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Why the Downgrade?
On Oct 22, Astec reported third-quarter 2013 earnings of 28 cents
per share, down 3.4% year over year. The earnings fell short of
the Zacks Consensus Estimate of 37 cents. Total revenue also fell
2% year over year to $213.2 million, missing the Zacks Consensus
Estimate of $236 million. The decline was primarily due to
adverse weather and weak demand in the aggregate and mining
Astec's domestic sales dropped 1% year over year to $132.4
million. International sales also went down 4% year over year to
$80.8 million. Astec continues to experience narrowed
international business, particularly in Canada.
More than 60% of Astec's sales are driven by the global highway
construction and reconstruction market. The uncertain future of
highway funding made customers cautious regarding major equipment
purchases, which will affect its performance.
In addition, gross margin contracted 20 basis points (bps) year
over year to 21.5% in the quarter, affected by decreased overhead
absorption. With a soft demand environment, gross margin will
continue to be impacted by underabsorption.
Astec's total backlog as of Sep 30, 2013, dipped 1% year over
year to $228.5 million. Weaker backlog and uneven end-markets
will hurt Astec's performance. Headwinds also include adverse
weather conditions, rising competition and ongoing economic
Following the release of the company's third-quarter results, the
respective Zacks Consensus Estimate for 2013 and 2014 decreased
11.8% to $1.65 and 12.1% to $1.96 a share. With earnings
estimates for both 2013 and 2014 moving downward, Astec now holds
a Zacks Rank #5 (Strong Sell).
Other Stocks to Consider
Other stocks in the industrial products sector with a favorable
Zacks Rank are
) with a Zacks Rank #1 (Strong Buy) as well as
Alamo Group, Inc.
H&E Equipment Services Inc.
) with a Zacks Rank #2 (Buy).