Shares of Astec Industries, Inc. ASTE have declined 16% so far this year owing to several headwinds. In fact, the company has fared worse than its industry's drop of 10%.
Let's delve deeper and analyze what is dragging the shares of this leading manufacturer and marketer of road building equipment down.
Mixed Q2 Results
Astec's adjusted earnings improved year over year in second-quarter 2018 and beat the Zacks Consensus Estimate. The company reported total revenues of $273 million in the June-end quarter, down 9.7% from year-ago quarter figure of $302 million, primarily impacted by fall in domestic sales. Additionally, the revenue figure missed the Zacks Consensus Estimate of $331 million. The company's total backlog declined around 16% to $302.9 million as of Jun 30, 2018, from $360.5 million as of Jun 30, 2017.
Exiting Arkansas Wood-Pellet Plant Agreements to Weigh on Results
During the second quarter, Highland Pellets - Astec's wood pellet plant customer in Arkansas and Astec decided to exit the Arkansas wood-pellet plant agreements. The company has redefined its wood pellet plant strategy and plans to serve as an equipment supplier to the pellet industry, but will no longer finance plants or act as an Engineer, Procure, Construct (EPC) contractor. The company's exit from the Arkansas wood-pellet plant agreements is likely to hinder its performance.
Steel Tariffs a Woe
Astec uses steel as a major raw material to manufacture products. Consequently, the imposition of the steel tariffs is likely to inflate its material costs. It might not be always feasible to pass on higher costs to customers in the form of price increases, given the competitive environment.
Stronger U.S Dollar and Other Headwinds
From mid-2012 through 2017, the strong U.S. dollar has dampened pricing in certain foreign markets the company serves. Astec expects the U.S. dollar to remain strong compared with historical rates in the near term, relative to most foreign currencies. Escalating domestic interest rates or weakening economic conditions abroad might cause the U.S. dollar to strengthen further, which will impact Astec's international sales.
Adverse weather conditions, increasing pricing pressure and competition are the other headwinds. The company is also slowing down its R&D activities. These factors are likely to drag down Astec's performance in future.
The bleak scenario is also evident from the company's Zacks Rank #4 (Sell). The negative sentiment surrounding the stock is further highlighted by the Zacks Consensus Estimate for current-quarter earnings being revised 2% downward over the past 60 days. Moreover, the same for full-year 2018 and 2019 earnings have moved south 2% and 5% respectively, in the last 60 days.
Investors interested in the industrial products sector may consider better-ranked stocks like W.W. Grainger, Inc. GWW , iRobot Corporation IRBT and Atkore International Group Inc. ATKR . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Grainger has a long-term earnings growth rate of 12.5%. Its shares have appreciated a whopping 130%, over the past year.
iRobot Corporation has a long-term earnings growth rate of 19.5%. The company's shares have gained 27% in a year's time.
Atkore International has a long-term earnings growth rate of 10%. The stock has rallied 69% in a year's time.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Atkore International Group Inc. (ATKR): Free Stock Analysis Report iRobot Corporation (IRBT): Free Stock Analysis Report Astec Industries, Inc. (ASTE): Free Stock Analysis Report W.W. Grainger, Inc. (GWW): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research