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Astec Industries Inc (ASTE) Q3 2018 Earnings Conference Call Transcript


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Astec Industries Inc (NASDAQ: ASTE)
Q3 2018 Earnings Conference Call
Oct. 23, 2018 , 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to Astec Industries' Third Quarter 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to turn the conference over to your host Mr. Stephen Anderson, Vice President, Director of Investor Relations. Thank you. You may begin.

Stephen Anderson -- Vice President, Director of Investor Relations

Thank you, Rob. Good morning, and welcome to the Astec Industries conference call for the third quarter that ended September 30, 2018. As Rob said my name's Stephen Anderson, and also on today's call are Ben Brock, our President and Chief Executive Officer; Rick Dorris, Vice President and Chief Operating Officer; David Silvious, our Chief Financial Officer. In a moment I'll turn the call over to David to summarize our financial results and then to Ben to review our business activity during the third quarter.

Before we begin I'll remind you that our discussions this morning may contain forward-looking statements that relate to the future performance of the company. These statements are intended to qualify for the safe harbor liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions. Factors that could influence our results are highlighted in today's financial news release and others are contained in our annual report and our filings with the SEC. As usual, we ask that you familiarize yourself with those factors.

At this point, I'll turn the call over to David to summarize our financial results for the third quarter.

David Silvious -- CFO

All right. Thanks, Steve, and we appreciate each of you joining us this morning. I'm first going to discuss the results for the quarter and year-to-date ended September 30, and then I'll recap the results without the impact of pellet plant activity toward the end of my comments. Net sales for the quarter were $256.6 million in Q3, compared to $252.1 million in Q3 of '17, an increase of 1.8% or $4.5 million. International sales were $62.4 million this quarter compared to $55.6 million last quarter Q3 '17, the increase of 12.2% or $6.8 million. The increase in international sales Q versus Q is primarily in Canada, in Australasia and South America and the Middle East. Those increases were offset by decreases in Asia and in the post-Soviet states. For the quarter, international sales increased in the aggregate mining group and in the infrastructure group and decrease in the energy group. International sales were 24.3% of Q3 '18 sales, compared to 22% of Q3 2017 sales. Domestic sales were $194.2 million in Q3, compared to $196.5 million Q3 last year, decrease of 1.2% or $2.3 million decrease. Domestic sales were 75.7% of Q3 sales this year, compared to 78% of Q3 '17 sales. For the quarter, domestic sales decrease in the infrastructure group in the aggregate mining group, an increase in the energy group. Part sales were $69.4 million in Q3, compared to $64.3 million in Q3 last year, an increase of $5.1 million or 7.9%. Part sales were 27.1% of quarterly sales this year, compared to 25.5% quarterly sales in Q3 last year. And for the quarter part sales increased in each of our groups. Foreign exchange translation had a negative impact on sales for the quarter of $1.7 million that is the rates this year were equal to last year's rates, sales would have been $1.7 million higher. On a year-to-date basis, sales were $854.6 million, compared to $872.4 million for the nine months ended September 30 last year, that's a decrease of 2% or $17.8 million. International sales year-to-date were $187 million compared to $185.5 million at the same time last year, that's an increase of 0.8% or $1.5 million. The year-to-date increase in international sales were primarily in South America, in the Middle East, in Canada and Africa. And these increases were offset by decreases in Russia, Asia and the post-Soviet states. International sales represented 21.9% of year-to-date sales this year compared to 21.3% of last year's year-to-date sales. For the year international sales increased in our aggregate mining and our energy group and decreased in the infrastructure group. Domestic sales for the year-to-date period this year were $667.6 million compared to $686.9 million for the year-to-date last year, a decrease of $19.3 million or 2.8%. Year-to-date domestic sales this year are 78.1% of total sales compared to 78.7% last year at this same time. Part sales year-to-date this year were $236.2 million compared to $214.1 million for the first nine months last year, that's a 10.3% increase for $22.1 million increase in part sales. Part sales represented 27.6% of year-to-date sales this year compared to 24.5% of year-to-date sales last year. Foreign exchange translation had a positive impact on sales for the year-to-date period, that is $1.6 million, that is if rates this year were -- the last year's rate sales would have been $1.6 million lower. Gross profit for the quarter was $58.3 million compared to $39.1 million in Q3 of '17, an increase of $19.2 million or 49.1%. The gross profit percentage this year was 22.7% for the quarter compared to 15.5% for Q3 of '17. The absorption variance in the quarter was $4.1 million under absorbed variance compared to Q3 2017 variance of $200,000 under absorbed, it's a negative change in the absorption variance of $3.9 million. For the year-to-date period gross profit was $137.4 million compared to $180.4 million for the first nine months last year, a decrease of $43 million or 23.8%. Gross profit percentage this year year-to-date was 16.1%, compared to 20.7% for the year-to-date period last year. And on a year-to-date basis the absorption variance this year is $7.8 million under absorbed, compared to $2.5 million of over absorbed overhead in the first nine months of 2017 at $10.3 million change.

SGA&E for the quarter was $51.1 million or 19.9% of sales compared to $45.5 million or 18% of sales for the third quarter of '17, an increase of $5.6 million in dollar terms and an increase of 190 basis points as a percentage of sales. SG&A was impacted by additional payroll and a wholly benefit related expenses quarter-over-quarter, professional fees and consulting fees were up, as well as recall that we added RexCon in the 1st of October last year, so they were included in one quarter last year, that would be the fourth quarter and they are in the third quarter this year, so they added about a $1 million.

For the year, SGA&E is $154.4 million or 18.1% of sales compared to $142.8 million or 16.4% of sales for the first nine months last year, that's an increase of $11.6 million or an increase of 170 basis points as a percentage of sales. Recall -- Conex by last year early in 2017 was about $4.4 million, and the SG&A this year is impacted by payroll and related expenses, consulting fees and professional fees, our RexCon is in the three months this year or three quarters this year for the year-to-date period and accounting phase are up as well.

Income from operations were $7.2 million in Q3 of '18 versus a loss of $6.4 million in Q3 of '17, an increase of $13.6 million. On a year-to-date basis operating loss this year was $17 million compared to operating income last year of $37.5 million, that's a decrease year-over-year $54.5 million. The effective tax rate for the year -- for the quarter is 2.5% versus 50.7% in Q3 of last year, and it's 14.4% for the year-to-date period versus 31.1% in the year-to-date 2017. The decrease in the tax rate quarter versus quarter is a mixture of the reduction of the corporate federal income tax rate combined with the pellet plant settlement costs that were incurred in Q2, and their impact on the full-year rate. The rate was also impacted by tax planning work that was done in the quarter related to research and development credits. The year-to-date rate is near where we expected the rate to be, which was in the mid to lower teens. And we expect the consolidated tax rate for the full-year of 2018 to be in the low to mid-single digits, and that's a downward adjustment from our previously announced expected effective tax rate for the full-year of 2018, due to this tax planning work that had an impact on Q3.

Net income was $7 million in Q3 of 2018 versus a net loss of $2.7 million in Q3 of '17, an increase of $9.7 million. Income per diluted share for the third quarter was $0.30, compared to a loss per share of $0.12 in Q3 of '17, an increase of $0.42 per share. On the year-to-date basis, the net loss was $13.4 million this year compared to $26.9 million of net income last year, a decrease of $40.3 million. And on a year-to-date basis the loss per share is $0.58, compared to earnings per diluted share of $1.16 for the year-to-date 2017, a decrease of $1.74 per share.

Our EBITDA for the quarter was $13.9 million or 5.4% of sales, compared to the third quarter of '17 EBITDA $400,000 or 0.2% of sales, an increase of $13.5 million. Year-to-date EBITDA was $4.7 million or 0.6% of sales compared to last year's year-to-date EBITDA of $57.7 million or 6.6% of sales, that's a $53 million decrease.

Download the following comments or recast for the third quarter of '17, and the year-to-date periods ended September 30, 2018 and 2017, removing the impact of pellet plant activity for those periods. The third quarter of 2018 was not materially impacted by pellet plant activity, and so it is not recast. Excluding the impact of pellet plant activity during the third quarter of '17, revenues were $256.6 million in 2018, compared to $265.5 million in 2017, a decrease of $8.9 million or 3.3%. Domestic sales decreased 7.5% to $194.2 million in Q3 this year compared to $209.9 million for Q3 of '17. This would also make the infrastructure sales for Q3 of '18, $87.1 million compared to $112.1 million for Q3 of '17, a decrease of $25 million or 22.3% ex-pellets.

During the first nine months of 2018 and '17 revenues were $929.4 million in 2018 compared to $870 million in 2017, an increase of $59.4 million or 6.8%. Domestic sales increased 8.5% for the year-to-date basis to $742.4 million this year compared to $684.5 million for the first nine months of '17. And therefore the infrastructure sales for the first nine months of '18 is $392.1 million compared to $409.4 million for the first nine months of '17. The decrease was $17.3 million or 4.2%. Again, excluding pellet activity, the consolidated gross margin for the quarter is 22.7% compared to 23.3% for the quarter last year. The gross margin for the infrastructure group excluding pellets is 21.4% this year compared to 21.9% for 2017, and excluding pellets, the consolidated gross margin for the first nine months of this year is 23.9% compared to the same number 23.9% for the first nine months of 2017. The gross margin for the infrastructure group for the year is 22.6% this year compared to 23.1% for the same period in '17.

In operating income this year was $7.2 million for the quarter compared to $16.3 million for Q3 of '17, a $9.1 million or 55.7% decrease. And year-to-date, operating income was $67.3 million this year compared to $64.6 million for the year-to-date period last year, an increase of $2.7 million or 4.2%.

Net income was $7 million this quarter compared to $0.30 per diluted share compared to net income of $12.1 million or $0.52 per diluted share in Q3 of '17, a decrease of $5.1 million or 42% in net income and $0.22 per share. Excluding pellets, again, on a year-to-date basis, net income for the first nine months of 2018 is $53.9 million or $2.33 per diluted share compared to net income of $44.5 million or $1.93 per diluted share for the first nine months of '17, an increase of $9.4 million or $0.40 per diluted share.

Q3 '18 EBITDA was $13.9 million or 5.4% of sales compared to $23.1 million for Q3 of '17 or 8.7% of sales for that period, a decrease of $9.2 million or 39.8% decrease. And on a year-to-date basis EBITDA in 2018 was $89 million or 9.6% of sales, compared to $84.8 million for the nine months ended this September 30, '17, or 9.7% of sales for that period, that's an increase of $4.2 million or 5% increase in EBITDA.

The backlog was $308.6 million at 9/30 of this year, compared to $386.5 million at 9/30 of last year, recall that we always adjust the prior year for any acquisitions that occur, so prior years adjusted for RexCon. That changes a $77.9 million or 20.2% decrease in the backlog. The international backlog at September 30 was $85.4 compared to $76 million at 9/30 of last year, that's an increase of $9.4 million or 12.4% increase in the international backlog.

Domestic backlog this year was $223.2 million compared to $310.4 million at 9/30 of last year, decrease of $87.2 million or 28.1%. The 9/30/17 backlog was $310.9 million, excluding pellet plants back in the September 30, 2018 backlog, a decrease of $102.3 (ph) million or 0.7%. Again, excluding pellet plant backlog, the domestic backlog last year was $234.8 million, making this year's backlog a decrease of $11.6 million or 4.9% decrease, the domestic backlogs ex-pellets.

Infrastructure backlog ex-pellets in '17 was $173.3 million, and that makes the September 2018, infrastructure backlog a decrease of $43 million or 24.8%.

Foreign currency translation had an impact on the September 30, 2018 backlog, that is if rates this year were the same as last year backlog would have been $4 million higher.

Onto the balance sheet, our receivables were $127.5 million compared to $109.7 million last year at this time, a $17.8 million increase. Our days outstanding at 44.2 compared to 38.9 last year at the same time. Our inventories at $429.2 million compared to $399.3 million last year at September 30, an increase of $29.9 million. Our turns are at 2.4 this year versus 2.5 last year at the same time. We've got $25.6 million owed on our $100 million domestic credit facility, so we have 930 and at 930, we also have $25.7 million in cash and cash equivalents on the balance sheet.

We have letters of credit outstanding of $9.5 million that yields of borrowing availability on our line of credit at $64.9 million. We do have $1.7 million of debt currently in Brazil used to finance that company's building, fixtures and inventory. Our capital expenditures for the quarter were $8.7 million, and on a year-to-date basis CapEx of $17.8 million. And we believe, we'll hit about $23 million in CapEx for the full-year of 2018.

Depreciation was $5.4 million for the quarter and $16.5 million for the first nine months of '18. And we believe, again, that will be about $23 million forecasted for the full-year of 2018 for depreciation.

So that concludes my prepared remarks on the financials. I'll turn it back over to Steve.

Stephen Anderson -- Vice President, Director of Investor Relations

Thank you, David. This time Ben Brock's going to provide some comments regarding the third quarter of this year's operations, and some thoughts for fourth quarter in 2019 as well. Ben?

Benjamin Brock -- President and President and Chief Executive Officer

Thank you, Steve, and thank you to everyone joining us on our call today. As we commented in our release this morning, we were pleased to report our best third quarter earnings per share number was since 2012. As David noted, earnings per share were $0.30 per share versus a loss of $0.12 per share last year. While our best EPS since 2012, the EPS was below our expectations due to factors I'll cover during my comments this morning. Our third quarter EBITDA was $13.9 million, a year-to-date EBITDA was $4.7 million. As David mentioned, the year-to-date ex-pellets EBITDA was $89.05 million or about 9.6% of sales. Gross margin for the quarter was 22.7%, which was impacted mainly by volume and absorption. While we remain focused on our goal of delivering 25% gross margin in the fourth quarter this year, we will be challenged to do so given some of our product mix and competitive pressures from competitors not facing the same costs associated with higher steel prices. We remain focused on increasing our inventory turns to four plus by 2020, and I'll discuss our action with regards to this goal later in my comments. Our ex-pellets backlog at September 30, 2018 was down $2.3 million or 0.7% versus last year. Our backlog remains historically very good. Our infrastructure group backlog was down 47.7%. The group's ex-pellet plant backlog was down 24.8% or $43 million year-over-year. The group maintained strong coding activity, but lower intake during the quarter as our customers experienced high work levels and focused on their work. We are pleased to report significant increase or activity in this group. Since October 1, this group has added over $44 million in backlog. Our aggregate mining group backlog was up 39.1%, as the group experienced strong order intake mainly due to economic activity in the United States. Our Energy Group backlog was up 18.4%, as the group experienced good order intake for product serving customers in the industries of construction, industrial, oil and gas. We also experienced level coding activity for our oil and gas drilling products during the quarter. Our domestic backlog was down and our international backlog was up year-over-year. The main reason for the decrease in domestic backlog was an infrastructure group as explained earlier. Our domestic quote activity remains very good primarily due to the current long-term federal highway bill, steady state and local government infrastructure spending, and continuing private sector work levels for the majority of our customers. Our international backlog increases, due to increased activity primarily in Latin America and Africa. Our Astec do Brasil subsidiary continue to experience good coding activity.

Changing subjects to the Energy Group, we experienced good sales activity during the third quarter for products targeted in infrastructure, oil, chemical and food industries, which contributed to increased backlog in the group. Sales of wood chippers and grinders remained consistent for us during the quarter. Our concrete plants are built in Energy Group, sales and coding activity are good for these plants. We're optimistic on our outlook in the Energy Group. As a reminder, our new product development continues in all groups, however, at a more typical rate versus the high rates of R&D in 2016 and 2017.

From our last earnings release to this earnings release, orders were down in the infrastructure group, as our customers focus on construction projects improving in aggregate mining group and improving in the energy group. Data order activity in infrastructure group since October 1, we remain optimistic on infrastructure. Bright spots for activity are hot mix asphalt, equipment code activity, concrete plant sales, industrial heating system sales, wood chippers and grinders, aggregate crushing and screening equipment coding activity, and international code activity.

Year-to-date, part sales were up 10.3% versus last year, part still remain a key piece of our business and we are focused on continuing to improve our part sales. As we mentioned on our last call, we're working collaboratively with our pellet plant customer in Georgia on the potential sale of the plant, as a reminder it's our first pellet plant delivered and the plant has been running for private side pellet customer orders, an agreements and $60 million loan, which is due in December remain in place. Non-disclosure agreements are in place with multiple prospects for this plant based on our discussions with prospective buyers, we believe the plant could be sold this year. We remain confident in the wood pellet industry's potential over a long-term and would sell proven equipment to customers as traditional equipment suppliers only.

Changing subjects to the strategic updates we announced last quarter, as a reminder we engage main point, a globally recognized consulting firm to undertake a strategic sourcing review along with our team to evaluate opportunities for gains in our procurement operations. Main point has particular expertise in industrial equipment supplier industry, and they work closely with our team to conduct the review. This review started July 9, and we're happy to provide an update on our progress as promised. The review itself ended the week of August 20, and the result showed we have opportunities for operational and financial gains with regards to our procurement and inventory management, as a result we moved ahead on an agreement with main point to start implementation of a new strategic sourcing initiative we are calling Astec strategic procurement, along with a second initiative related to improved inventory management. The two projects with main point will last approximately 3 July of 2019. As a result of these engagements, our SG&A will be higher during the period. The fee with main point is confidential between the companies, however, the expected return of savings to the fee is in the range of 6 to 1. Given the anticipated procurement savings of one-time cash release through improved inventory management in 2019, we expect positive gross margin impact of approximately 2% on our gross margin, and a one-time cash release of approximately $25 million through better inventory management practices.

Changing subjects to our capital allocation strategy, as we are working out to manage our cost structure, we are also working with our board in evaluating the company's capital allocation strategy to ensure capital is directed to the areas that will drive the greatest value for shareholders. As we mentioned in our last earnings release, we increased our dividend 10% indicating we feel the future outlook for our business is positive. We also announced a new share repurchase plan of up to $150 million worth of our shares reflecting our view that our shares are undervalued against our outlook. As David mentioned during his comments -- I'm not sure he didn't mention this -- I'm sorry, he was going to a bit. We did buyback approximately 297,000 shares for approximately $14 million during the quarter. The other two areas for capital allocation for us are acquisitions and capital expenditures. We are only spending time with potential strategic acquisitions of companies in the industries we serve today, otherwise we are focused on improving internally, which includes strategic investment back into the business through capital expenditures that meet an acceptable return on investment along with investing and consulting services through SG&A, like main point to improve our internal operations.

Looking ahead to the fourth quarter of 2018, we believe our revenue in the quarter will be in line with our fourth quarter 2017 revenues reported. With regards to earnings in the fourth quarter, we expect earnings per share to be slightly above our fourth quarter 2017 earnings per share as reported. Giving our third quarter result, our current outlook for the full-year of 2018 is core revenues up 1% to 3% versus last year with an improved ex-pellets net income for the year versus 2017.

As a first look toward 2019, we are optimistic on the first half of 2019, given our recent order activity backlog and discussions with our customers. We are cautiously optimistic on the second half of '19, as more than half of the states in the USA have mechanisms in place for stable infrastructure spending. The economic environment for our customers is strong and our international office plan has started with Latin America. Our focus is on producing even higher quality products than we already do for our customers, while focusing on operational excellence. Specifically, we are focused on executing our Astec strategic procurement and inventory management initiatives, combined with our quality and lean initiative led by our VP of Global Operational Excellence to help drive better financial results, as we then move into 2019 and beyond. Targets, our teams are focused on for 2019 or earning gross margin gains of approximately 2% through the Astec strategic procurement initiative gaining the one-time cash release of approximately $25 million through improved inventory management and inventory turns four plus by 2020.

In summary, our reported Q3 earnings per share of $0.30 per share was our best reported Q3 earnings per share number since 2012. Our ex-pellet backlog and our infrastructure group has recovered to essentially flat versus this year since October 1, both are historically have backlogs for the group. We are focused on operational improvement and increasing share of value through the initiatives mentioned, working toward the financial goals mentioned today. We believe in our future and have (inaudible) as such there were increased dividend and share repurchase program.

That is my comments on the quarter and what's in front of us. Thank you, again, for taking the time to be in our call and for your support as we move ahead. I'll now turn it back over to Steve Anderson.

Stephen Anderson -- Vice President, Director of Investor Relations

All right. Thank you, Ben. Rob, if you could open the lines up for questions, we'll be glad to answer any of those we can.

Questions and Answers:

Operator

Thank you. At this time we'll be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Stanley Elliott with Stifel. Please proceed with your question.

Stanley Elliott -- Stifel -- Analyst

Hi, guys. Good morning. Thank you for taking the question. Could you help us kind of understand what happened to the business and trends kind of at the end of July really -- where we are right now, did it seem like there's fairly market deceleration from that time?

Benjamin Brock -- President and President and Chief Executive Officer

Stanley, this is Ben. I guess, if you're talking about the order activity or --

Stanley Elliott -- Stifel -- Analyst

Yes. We were kind of looking at 7% to 12% sort of an organic number, right? And I believe it's going to be at the lower end, and now we're looking at, I think you said 1% to 3%, just trying to get a better feel for maybe what was happening with conversations or tone of business or anything along those lines just to help us directionally?

Benjamin Brock -- President and President and Chief Executive Officer

Right. Okay. Thanks. It really goes back to what we said on the call last quarter. I mean, our customers were just head down working and it actually opened up a little later than I even thought, when we talked on that after that earnings release. And like we said, that's the $44 million plus since October 1, is a very strong opening, that was just delighted, was longer than we anticipated. Now the good news is that, it's open back up, but that delay and the slowness in infrastructure is what got us held back to saying that we feel like it's a 1% to 3% number.

Stanley Elliott -- Stifel -- Analyst

And the comments around the Hazlehurst plant, I mean, at one point I think we're waiting for them to get a contract and then there were talks about selling the plant. Could you remind us where we are with all of this in terms of closing that out this year?

Benjamin Brock -- President and President and Chief Executive Officer

Yes. Where we are right now is, we're investigating the sell of the plant. We have multiple prospects to sign non-disclosure agreements there. We know that the prospects are financially viable. We know with our data room that they are very active. We've met with them. So we feel like there's a pretty good chance the plant could sell this year.

Stanley Elliott -- Stifel -- Analyst

Perfect. And then last for me, can you talk about kind of some of the puts and takes with the two percentage points of gross margin in the next year, especially looking at kind of a higher input cost environment?

Benjamin Brock -- President and President and Chief Executive Officer

Sure. We have been very decentralized in our history. We're really a collection of many entrepreneurial companies that we've purchased, from the original founders, with the exception of about three or four of our companies, actually we started three and then we joint venture on Brazil, bringing our procurement into a centralized approach, where we're truly leveraging our spend, our total spend not just our top 75 items where we have buying agreements. It's a whole different world for us. The ability that the main point has brought to the table is an overlay software that looks into our system and we have a full year spend every single thing in every division, every invoice. And so, we're not centralizing the operation, we're center lead, so we have cross-functional teams at across divisional people that know what you're looking at, know what they're buying and leveraging that spin in a purposeful way, the opportunity is there for that number, what I would tell you is when we put a number out there, we want to be sure that we thought we can hit it, the opportunity potentially could be better, but we feel comfortable with the 2% number. And so, it's really the true leveraging of our combined spend across divisions that we had not done in the past. The one thing I would say is we've done a fairly nice job on our steel. There is opportunity there through the main point system, but they do this many, many times all over in the industrial space and they say we've done a pretty nice job on our steel price.

Stanley Elliott -- Stifel -- Analyst

Perfect. And then the uptick on the inventories, was that just higher material costs or was there anything else within that on a sequential basis?

Benjamin Brock -- President and President and Chief Executive Officer

There's really the biggest piece of that for us is the Roadtec, with the delay they do have some inventory there. They also as we've mentioned on previous calls that those inventory coming into the year, because they went live on the new ERP system in January. They had a little more inventory in place as a just in case thing to do, which was the right thing. Unfortunately, what we've built was the wrong thing in some cases, but it's sellable inventory.

Stanley Elliott -- Stifel -- Analyst

Perfect, guys. Thanks. Best of luck.

Benjamin Brock -- President and President and Chief Executive Officer

Thank you.

Operator

Our next question is from Mig Dobre with Robert W. Baird. Please proceed with your question.

Mig Dobre -- Robert W. Baird -- Analyst

Good morning, guys. I just want to make sure that I understand kind of what the messaging is here on infrastructure vis-a-vis orders, you said that backlog is up $40 million, since October?

Benjamin Brock -- President and President and Chief Executive Officer

That's correct.

Mig Dobre -- Robert W. Baird -- Analyst

The part that I'm struggling with whenever we're talking about backlog is that, I mean, the backlog is a function of the revenue that you recognizing and the orders that you're getting in the quarter. So, what I'm curious is how are the orders themselves trending or is that kind of -- when you're talking about backlog -- are you trying to communicate that orders are up $40 million year-over-year in the fourth quarter in infrastructure. Is that kind of what you're trying to say?

Benjamin Brock -- President and President and Chief Executive Officer

So Mig, hey, this is Ben, what we're saying is that we picked up over $44 million worth of orders in the infrastructure group since October 1, and that brings the backlog to essentially flat versus last year for the infrastructure group.

Mig Dobre -- Robert W. Baird -- Analyst

Excluding with pellet plant?

Benjamin Brock -- President and President and Chief Executive Officer

Correct.

Mig Dobre -- Robert W. Baird -- Analyst

Okay. I'm sorry that I'm still struggling with this, because I mean, theoretically speaking, if I'm looking at your orders in 3Q, you are essentially running right under $40 million, $37 (ph) million per month on average. So sequentially we're talking about an acceleration when you're looking on a year-over-year basis versus what you experience in 4Q '17, are you actually seeing the business pick-up in infrastructure?

David Silvious -- Chief Financial Officer

Mig, I would probably shy away from saying it's a big pick-up, it's very active, but I would say we had a historically higher backlog in infrastructure last year. I would say that it's as good -- I would -- I don't know that I would say significantly higher the activity is very good.

Mig Dobre -- Robert W. Baird -- Analyst

Okay. And then I was -- frankly a little bit confused on the tax rate guidance as well. Are you implying tax benefit or a negative tax rate in the fourth quarter, do I understand that correctly?

David Silvious -- CFO

That's a good possibility, Mig. With the taxes being a small number relative to a number that could happen in the fourth quarter whatever the number winds up being for net income or taxable income, that rate could flip, it could become a benefit, small benefit, it could be a benefit, it could be a very low tax, depending on income, we're calling for low-single digits.

Mig Dobre -- Robert W. Baird -- Analyst

Okay. I see. Because looking at your comments, right, you're saying that the fourth quarter revenue is going to be roughly flat year-over-year, but EPS is going to be up only slightly, but taxes are going to be a big tailwind versus 4Q '17. It would sort of imply to me that your expected gross margin in the fourth quarter is going to be considerably below that 25% target that you have. And if that's the case, I guess I'm wondering how should we be thinking about the front half of '19, because I do understand that you're expecting 200 basis points of benefit, but the way that benefit accrues is probably not going to be even through the year and the starting point we see -- quite a bit below what we were thinking initially on margin?

Benjamin Brock -- President and President and Chief Executive Officer

Hey, Mig. This is Ben, and I'll ask David to (inaudible) the third quarter our gross margin was 22.7%, which is obviously not where we want it to be. Absorption hurt us, it's -- we could done better job on that. The goal exiting the year was 25%, still we believe 24% to 25% is still achievable. Inflation is a real for us is starting to show up in the components, but the strategic sourcing is great timing, as we leverage our spend, but we've raised prices and we've got the things that you mentioned that coming in next year, we feel good about getting those savings. But I think, to your point I do think taxes should help us on top of that.

David Silvious -- CFO

SG&A is going to be up as well as Ben mentioned, we've got a little higher run rate right now with professional and consulting fees as we go through this project.

Mig Dobre -- Robert W. Baird -- Analyst

Okay. I understand. Then, I want to talk a little bit about inventories, as you pointed out on your remarks, your inventories picked up sequentially, they picked up year-over-year, and obviously the business itself softened a bit here. So I'm wondering why we continue to see this continued inventory build and how are you sort of looking at your cash generation at this point when you are sort of recognizing that you've cut back on your CapEx guidance yet at the same time you're accelerating or you picked up your share repurchase program. So how do we think about these moving pieces working capital and cash generation?

Benjamin Brock -- President and President and Chief Executive Officer

Well. We -- on the inventory side we did during the quarter slowed down a little bit, it was later (inaudible) quarter particularly Roadtec, we feel like we're in good position, for orders that we think are probably going to accelerate November and December for them, as customers get through the work and realize, most for our private customers are on a September 30 financial year. We think they'll see an uptick. But we have slowed down there and (inaudible) taking they had the orders when we slowed down there as well, but -- both places are starting to see the order releases we mentioned in the infrastructure. We will generate some cash, and we still our cashes at about $25 million today, even with the spend and on the share repurchase and on the settlement with Arkansas pellet plant. And so, capital allocation is going to be important, of course we increased our dividend as well this year, we still have the stock buyback in place of $250 (ph) million, but as David mentioned, we're going to have some -- a little higher SG&A as we invest in the efforts with the consulting firm and some of our quality lean effort, but the quality lean will probably mostly be in CapEx, so next year potentially a CapEx in the $30 to $35 million range. We have not done our budget or had approved by the board. So that subject to change of course, that's just kind of an early look at it, but we're analyzing all of this options consistently now as we always do with our board, but we will have to consider that, because we feel like we will generate quite a bit of cash next year.

Mig Dobre -- Robert W. Baird -- Analyst

Last question for me on Hazlehurst, you gave us a few comments on this, you do expect this plant to sell. I guess, what I'm curious is assuming that the sale does not happen in the fourth quarter, what should be investors expecting at that point of time?

Benjamin Brock -- President and President and Chief Executive Officer

If the plant doesn't sell, in the background that's where we're working on different scenarios that what if it doesn't sell, what does that mean. And I think that would be too early to call. As people have asked in the background, what do you think what's the absolute worst case scenario, as we said years ago in our deal was that we -- potentially we're in the pellet plant business, which we don't want to be in, it's not our business, but where the plant is today and how it's operating, we feel like it would be a profitable venture. So if it didn't sell today, it would sell down the road, but if it's making money, it would be a business of less than 5% of our sales and would probably be OK, but not our first choice.

Mig Dobre -- Robert W. Baird -- Analyst

Okay. Thank you for taking my questions.

Benjamin Brock -- President and President and Chief Executive Officer

Okay. Thank you.

Operator

Our next question comes from Larry De Maria with William Blair. Please proceed with your question.

Larry De Maria -- William Blair -- Analyst

Thanks. Good morning. A couple of things, first it's just a little bit of confused, but what's the update on the loan repayment color on that please?

Benjamin Brock -- President and President and Chief Executive Officer

Hey Larry, it's Ben. Kind of back to the previous question, it's due in December, and if it doesn't sell, the question is what's the worst case scenario, and it goes back to not our first choice, but we could be in pellet business. And if we are -- we feel like it can make money, it would be less than again less than 5% of our business, probably more like 4% range, it'd be additional company that we might sell later, but if it's making money we will hold onto that. We have the people that could run it if we wanted to do that or if we ended up that way that's not our first choice.

Larry De Maria -- William Blair -- Analyst

Okay. I understand, I was confused about that, so the buying back stock and potential of having to not getting being in the business and not getting repay the loan, I guess, is that the right decision at this point, or you think you generate enough cash that it doesn't matter?

Benjamin Brock -- President and President and Chief Executive Officer

We believe we're going to generate enough cash. We really did.

Larry De Maria -- William Blair -- Analyst

Okay. Secondly, you mentioned the consulting fees and they obviously get paid back on the material costs, et cetera, sourcing, can you just give us a hint on what's the run rate and timing for those fees, I wish you put it in your models?

Benjamin Brock -- President and President and Chief Executive Officer

Through the middle of next year we -- unfortunately the fee is confidential in our agreement, but return was, it's going to be in the range of 6 to 1 savings versus fee.

Larry De Maria -- William Blair -- Analyst

6 to 1 savings and you guys have said -- OK, got it, 200 basis points was the savings, correct?

Benjamin Brock -- President and President and Chief Executive Officer

Yes. And again like I said earlier, we put a number out, we want to make sure we're going to hit it, there would be some upside, but that's why we feel comfortable saying we're going do right now.

Larry De Maria -- William Blair -- Analyst

Okay. And then we all respect that, and obviously it's been a challenging time the last few years, the upcycle that we have seen, hasn't really paid out in terms of shareholder value. Dorris, where does the board, where's the boards head out now, what kind of changes are they thinking about having or are they actively engaged or just curious about some of the bigger picture given that really uneven performance last couple of years, how the board is thinking about the business management, et cetera?

Benjamin Brock -- President and President and Chief Executive Officer

Well, the -- really the focus is now that we feel like we're near the -- I wouldn't say the end of the pellet business, but we are probably near the end of the pellet business as we knew it today, and we're -- that's why in our press release we provided not only a table of where we are quarter in year- to-date ex-pellets, but we also provided historical perspective on no pellets at all in our business in the last table with our earnings release today, because we're -- you hate to say that we're kind of getting back to the old Astec pre-2012 pre-pellets, but just bigger, I mean, because we've grown in our core. And so, we feel like now it's execute on the core, internally focused operational excellence, and do our best and move into the top quartile performance against our peers, and that's a direction that we've had. And that's what we're focused on, and I think the things that we've mentioned on the call and announced last earnings with the initiatives that reflects our boards desire for us to perform better, and then of course focus on good capital allocation as we move ahead.

Larry De Maria -- William Blair -- Analyst

Okay. So the board more or less wants to continue the things you've talked about, and I believe there's some activists involved as well, are there any kind of big changes we should think about or that are being agitated for?

Benjamin Brock -- President and President and Chief Executive Officer

We will listen to all investors, and we take everything in consideration, I think the things that we're working on now will bring very good results for us, and I think we're very pleased with where we are by the middle of next year.

Larry De Maria -- William Blair -- Analyst

Okay. Thank you.

Operator

Our next question comes from Brian Sponheimer with Gabelli & Company. Please proceed with your question.

Brian Sponheimer -- Gabelli & Company -- Analyst

Hi. Good morning.

Benjamin Brock -- President and President and Chief Executive Officer

Good morning.

Brian Sponheimer -- Gabelli & Company -- Analyst

You explain the competitive pressures that you saw in the infrastructure group in the quarter, you've mentioned competitors that don't have to deal with the steel issues, talk about that?

Benjamin Brock -- President and President and Chief Executive Officer

Sure. Many of our competitors coming from other parts of the world, don't have steel tariffs, and so there is some pricing pressure. Good news is we don't feel like it's affected our market share, we feel like we're holding our own in a very good way there. But it is putting pressure on us on some of our deals.

Brian Sponheimer -- Gabelli & Company -- Analyst

Okay. So you're still winning the deals just at a lower price point?

Benjamin Brock -- President and President and Chief Executive Officer

Yes. And I wouldn't say all of them, because we do have excellent technology, so we were able to sell the value long-term that certainly we need to do a good job of doing that to get the price that we felt like we're worth.

Brian Sponheimer -- Gabelli & Company -- Analyst

All right. If I'm looking at the numbers you provided excluding the wood pellets, obviously on the growth side, it's not quite as good as it was and on the SGA&E side similar, your decentralized business, how do you enforce a sense of urgency to help improve this business in a time frame that is appropriate?

Benjamin Brock -- President and President and Chief Executive Officer

Great question. We have been rolling out these initiatives, me, personally in the last two and a half weeks and company wide meetings and third quarter reviews in front of all of our employees and our presidents and department heads and each subsidiary driving the message and this is change, this is going to happen. We are committing to doing this and to be honest, I've been refreshed by the response, lot of our people love the idea (inaudible) decentralized as we are, I'm not sure that I would have expected such an overwhelming, that's sounds great, let's go. It is a center led approach, it's not completely centralized -- what's been great is that the main point piece, where they've dealt with both heavily centralized and decentralized companies the feedback from them as their management actually a lot of what they're doing has been a little bit easier from the people side, people are just absolutely willing to get on board and move. Now on the flip side, we are on schedule with their plan, but there's been some superhuman effort in that, because our systems, we have 10 different ERP systems, and so looking into those systems and making sure that we're characterizing everything in the same way has been a challenge, but we're there that is just taking superhuman to get there to be able to use their overlay software looking into the system. So actually encourage that we can do that. That is a great question from where we've been.

Brian Sponheimer -- Gabelli & Company -- Analyst

Okay. And I guess, last one for this call for me is the buyback program that you have an open market purchase program where it tend to be 51 (ph) plan?

Benjamin Brock -- President and President and Chief Executive Officer

Yes. It's tend to be 51.

Brian Sponheimer -- Gabelli & Company -- Analyst

All right. Okay. All right. Thank you very much.

Benjamin Brock -- President and President and Chief Executive Officer

Thank you.

Operator

Our next question is from Brian Rafn with Morgan Dempsey Capital Management. Please proceed with your question.

Brian Rafn -- Morgan Dempsey Capital Management -- Analyst

Good morning, guys.

Benjamin Brock -- President and President and Chief Executive Officer

Good morning.

Brian Rafn -- Morgan Dempsey Capital Management -- Analyst

Let me ask you, Ben, if you would go back say to last year or early this year has your longer-term kind of three to five year kind of macro vision for infrastructure changed at all if you go out. We haven't had really a Trump administration shovel ready stimulus for the business. We have had some talk about infrastructure bank. It seems like with the FAST Act the infrastructure business is pretty solid like you've said. Has your longer-term view beyond 2019 changed at all?

Benjamin Brock -- President and President and Chief Executive Officer

I would say, I think our industry needs a highway bill in the first half of next year. We're pretty good, '19 looks good, 2020 looks, it's a little bit far out, but looks, OK. But in the last year the highway bill which 2020 is that sometimes can be a challenge for us, so some of the things we're doing in the background to offset that our international work and some of the things we're doing with inventory management and that type of thing. But we're hearing that there is a plan, that's kind of coming together that could be released post election. It's kind of a wild card for us. Trump has been great on regulations and taxes with our customers and taxes for us for sure, but the tariffs have been painful and something we've had that work through. But I think right now it looks good for '19, OK for '20, but '20 is far enough out now that I think from a company standpoint our industry particularly in the United States really need I think at least to think a highway bill, or feel like it's coming and not a smoke and mirrors type bill in the aerospace and rail, real money in it.

Brian Rafn -- Morgan Dempsey Capital Management -- Analyst

Yeah. Let me ask you a last highway bill, I think was a 10 year 36, 38 extensions or if you see more of that polarization, are you getting any sense that the next bill beyond the FAST Act will be a little easier?

Benjamin Brock -- President and President and Chief Executive Officer

Sitting here today, personally I think that there will be a bill, I think that I do think that the President just based on what I hearing from some of our customers they are maybe closer to that then I am right now with him that he does want to do something, but I'm repeating a third-party thing, I have nothing behind that. So I just get the sense that they would like to get something done. In fact, my personal opinion is that might be the last thing that they could all get done together before their next big presidential election, as far as the big thing.

Brian Rafn -- Morgan Dempsey Capital Management -- Analyst

Right. No, I think that, that's good. I appreciate the color on that. You had a small comment about Roadtec and maybe orders in November and December, given how active your national and some of your regional road builders have been. Do you get a sense that you might have more off-seasonal orders, as winter comes in North in the Mason-Dixon line, things slowdown a little bit. Is your sense that off-season procurement might be fairly strong following the $44 million you picked up since October?

Benjamin Brock -- President and President and Chief Executive Officer

I think there's potential there. I think time will tell. But I think there is potential particularly before the end of the year as everybody is looking at, taxes and where they are. Time will tell if that's the right call. After the first year, I think it goes into kind of like the normal very good cycle we're in, but I think there's some potential here in the next 8 to 10 weeks.

Brian Rafn -- Morgan Dempsey Capital Management -- Analyst

Okay. All right. And then, maybe I missed it, did you highlighted any new product launches for 2018?

Benjamin Brock -- President and President and Chief Executive Officer

We have not necessarily, we've had some new products that we haven't on the call and we'll do maybe another update on that on the next call. We are working on some things for the Bauma show in April. We are not going to have 33 new products with that show. We will have a few new products that could raise some eyebrows, so stay tuned for that.

Brian Rafn -- Morgan Dempsey Capital Management -- Analyst

Okay. And then what's been kind of the sense of competitive bidding pricing, how competitive has it been say the last couple of quarters?

Benjamin Brock -- President and President and Chief Executive Officer

Our customers are (inaudible) buyers, they have multiple competitors on deals, even though maybe it's a smaller pool of competitors particularly maybe on asphalt plant side, we're rarely alone, and so just being competitive particularly with some of our competitors so that don't have the same steel tariffs that we have, some of those may be US competitors bringing in products from other parts of the world on top of that. But thankfully, we have a good value proposition and like I said, we've got to do our job and sell our value. So a little bit of pressure, but all in all I think we've held our own, OK. And to the point that we still feel like we can be in the 24%, 25% gross margin range in the fourth quarter.

Brian Rafn -- Morgan Dempsey Capital Management -- Analyst

Okay. On your -- kind of your supply chain procurement projects, does that at all effect, how you guys are going to look at forward buying or are you going to put more, if you're kind of an inventory de-stock, and is there a different between finished goods and raw materials and would you be more reliant on de-stock, maybe spot prices in procuring raw materials versus forward buying?

Benjamin Brock -- President and President and Chief Executive Officer

Maybe answer in a couple of ways. One is with the software system now looking at all of our inventory. When you think about the one-time cash release, one of the things that we can do now is look at where, let's say there's -- and I'm picking probably a bad example, because motors move pretty quick for us, but if we have a 15 horse motor that's moving slow one place now we can get it to another place and get it out, get it sold, get it moving, or even sell it out of that inventory and parts to a customer nearby, that's in a capability that's coming that will help that. On the raw material side, it's interesting, but we're just trying to leverage our spend and when you look at it, some of our companies we may have an opportunity to be more closer to the mills and our purchases particularly as we leverage the expense (ph), and then as far as also on the minimum and maximum levels, it's a complete overhaul of what those are, but we still have to be able to service our customers, that's extremely important to us. But certainly there's opportunities on the max-min levels and in our inventory to get better too, and that's a piece of that cash release.

Brian Rafn -- Morgan Dempsey Capital Management -- Analyst

Okay. And then you talked a little bit maybe you said I (inaudible) maybe a kind of an inflation creep. What are you kind of seeing in all inflation maybe across the board in steel and healthcare costs, payroll, what's couple of percent you see accelerating, give me a sense of where you are you?

Benjamin Brock -- President and President and Chief Executive Officer

It depends on when everybody can get to stick, but I think it's about 2% to 3%, that I don't have anything right in front of me to prove that, that's a gut number.

Brian Rafn -- Morgan Dempsey Capital Management -- Analyst

Okay. And then just as you look at, you've talked a lot about infrastructure, certainly your steady state solid, what's your sense of mining and the energy side. How do you see that the delta change maybe into 2019?

Benjamin Brock -- President and President and Chief Executive Officer

Kind of in the range of 4% to 6% for the year up next year. Mining for us again is mainly at Osborn and BTl, and how they feed their underground mining equipment into the mining industry out of BTl, but aggregate side, the aggregate piece of the aggregate mining group, looks pretty strong up went to the (inaudible) conference with our KPI-JCI and (inaudible) group and met with some dealers and they're pretty optimistic about next year.

Brian Rafn -- Morgan Dempsey Capital Management -- Analyst

And anything on energy?

Benjamin Brock -- President and President and Chief Executive Officer

Yes, sorry in energy, we're optimistic like we said in the comments, while get things going, the oil and gas side seems to be pretty stable, of course oil is up, so that's helpful. JFK (ph) is doing well. Got a good backlog over there. The (inaudible) are selling very well for them. The Peterson Group is doing very well, wood chippers and grinders having a good year, RexCon, the concrete side has picked up orders, we're pretty optimistic on energy.

Brian Rafn -- Morgan Dempsey Capital Management -- Analyst

Okay. And then Dave, did you have on the 297,000 share repurchase, you have a per share dollar amount, you bought shares average weighted per share costs?

David Silvious -- CFO

Yes. Brian, it's Dave. You can average out the dollars versus the shares, but on -- but that $14 million approximately over 297,000 shares.

Brian Rafn -- Morgan Dempsey Capital Management -- Analyst

Okay. All right. Thank you, guys.

David Silvious -- CFO

You bet.

Operator

There are no further questions, at this time I'd like to turn the call back to Steve Anderson for closing comments.

Stephen Anderson -- Vice President, Director of Investor Relations

Thank you, Rob. We appreciate everyone's participation on this third quarter conference call, and thank you for your interest in Astec. As our news release indicates, today's conference call has been recorded. A replay of the conference call will be available through November 6, 2018, and an archive webcast will be available for 90 days. A transcript will be available under the Investor Relations section of the Astec Industry's website within the next seven days. All of that information is contained in the news release sent out earlier, as Rob mentioned this concludes our call, so thank you everyone, and have a good week.

Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

Duration: 80 minutes

Call participants:

Stephen Anderson -- Vice President, Director of Investor Relations

David Silvious -- CFO

Benjamin Brock -- President and President and Chief Executive Officer

Stanley Elliott -- Stifel -- Analyst

Mig Dobre -- Robert W. Baird -- Analyst

David Silvious -- Chief Financial Officer

Mig Dobre -- Robert W. Baird -- Analyst

Larry De Maria -- William Blair -- Analyst

Brian Sponheimer -- Gabelli & Company -- Analyst

Brian Rafn -- Morgan Dempsey Capital Management -- Analyst

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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This article appears in: Personal Finance , Stocks
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