Astec Industries Inc (ASTE) 2008 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Astec Industries first-quarter 2008 results conference call.

At this time, all participants are in listen-only mode. A brief 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 introduce your host, Mr. Steve Anderson, Director of Investor Relations for Astec Industries. Thank you. Mr. Anderson, you may begin.

Thank you, Doug. Good morning and welcome to the Astec Industries conference call for the first quarter of 2008. As Doug said, my name is Steve Anderson, and I am the Corporate Secretary and Director of Investor Relations for the Company. Also on today's call are Dr. J. Don Brock, our Chairman and Chief Executive Officer, and McKamy Hall, Vice President and Chief Financial Officer. In just a moment, I will turn the call over to McKamy to summarize our financial results, and then to Don to discuss our business operations and market conditions.

In the way of disclosures, I will note that our discussion 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, assumptions and other factors, some of which are beyond the Company's control. Some of those factors that could influence our results are highlighted in today's financial news release and others are contained in our annual report and our quarterly and annual filings with the SEC. As usual, we urge you to familiarize yourself with those factors.

At this point, I will turn the call over to McKamy Hall to summarize our financial results. McKamy?

Thanks, Steve. We appreciate each of you joining us this morning. It's certainly a beautiful day in the Southeast and we are certainly pleased to report to you on the most profitable first quarter in the Company's history.

The Company generated a 14.4% improvement in net income. We're looking forward to 2008, starting out with a backlog of $263 million for the quarter.

For the quarter, our net sales were $263.1 million. That's an increase of 22% over last year. International sales were $92.5 million, being an 88.4% increase over last year. Those increases occurred in Canada, Asia, South America, Central America, Australia.

The domestic sales were up 2.5% over the quarter for last year. Part sales were up 22.3% at a level of $52.6 million. We did have part sales increases in all segments of the business. We also had sales increases, as you can see from the attached information, to information attached by segment to your press release.

On the gross profit, the gross profit was at $66.2 million, an increase of $11.8 million or 21.7%. The gross profit percentage for the quarter remained flat at 25.2%. Again, that information is attached by segment to the press release.

On the SG&A, our SG&A was at 14.7%. This SG&A increase included an increase of $3.5 million for ConExpo expenses, and the other primary increase in the SG&A was in the form of salaries, commissions and benefits.

Income from operations was at $27.4 million. That's an increase of $3.6 million or 15.1%.

The effective tax rate was up just slightly, 36.63% versus 36.26%.

Our net income per share was at $0.78 versus $0.69, or an increase of 13% in earnings per share.

The net income was up 17, at $17.5 million versus $15.3 million, or 14.4%.

The backlog is at $263 million, as we mentioned in the beginning. That backlog is down 1.2% compared to the prior year, but we have to keep in mind that it is down after having achieved a 22% increase in sales. Certainly, we have spent money on capital expenditures and have improved our throughput to process orders during this last 15 months.

On the balance sheet, our balance sheet continues to be very strong. We have corporate cash available of $31.3 million. We have receivables at 39.8 days versus 36 days a year ago. Inventory is at 3.4 turns versus 3.5 turns a year ago. We owe nothing on our credit facility. We are utilizing our facility for $7 million of letters of credit, leaving a borrowing availability of $93 million.

Capital expenditures are at $7 million thus far through the first quarter, out of the scheduled $31.9 million. Our depreciation and amortization is at $4.1 million, out of a projection of $18.2 million. Our cash flow will be attached to the 10-Q when it is filed.

That concludes my prepared remarks. I certainly will be available to answer any questions you have later in the call. We do appreciate your interest in Astec as we strive to improve profitability and return for the shareholders.

Don?

Good morning. As McKamy said, we had a good quarter. We're very pleased with it. The revenues increased from $2.15 to $2.63, a 22% increase. Our income was up from $15.3 million to $17.5, or 14%, and earnings per share were up from $0.69 to $0.78 or a 13% increase.

The ConExpo expense, we generally have taken that in the past over an eight-month period. We took it all in this quarter based on what are some of the new rules in accounting that's required that. If we had taken that over the two-year period that we have in the past, we would probably had -- our earnings per share would have been about $0.08 to $0.09 higher then they are showing.

ConExpo was extremely good this year, but it was expensive, as McKamy said, in the $3.5 million to $3.6 million range.

Our backlog for the quarter is flat, basically down about 1%. Frankly, this is a little more comfortable level that allow us to make deliveries. We are still a little high in some of our segments, stretching the deliveries out a little bit longer than we would like.

International sales, as McKamy had said, is up about 88%. 35% of our revenues for the quarter were international and 65% domestic. Domestic sales were up only 2%, but we continue to grow our international sales, and that continues to -- we look for that to continue to increase over the next three quarters.

We were real pleased that part sales were up 22%. This is an area that we focus on and continues to grow.

Our gross margins were flat at 25.2%. We see this as probably one of our biggest challenges with the continuing inflationary pressures that we have in commodity prices of maintaining this 25%, this gross margin or our gross margin for the year. We think that's going to be one of our biggest challenges.

Looking forward in the second quarter and the rest of the year, while ConExpo was very expensive, it was the best one that we've ever had. Historically, we've never obtained many orders there but we received approximately $40 million in orders at that ConExpo throughout all of the Company, so that was very -- ended up being a very good show.

Our April order intake, as a result of ConExpo, was very strong, both domestically and internationally. This had been helped a lot by our new products, the green systems only asphalt plants, the need to increase recycling, both in asphalt and in aggregates, and particularly in the new oil-drilling rigs that we are building at American Augurs.

Looking forward, we are confident that we can meet our growth projections of 15% this year. We are still comfortable with our annual guidance in the [$2.80] to [$2.95](Sic. See press release) range, but our challenges are going to be managing the rapid increases in steel prices. We're very comfortable with second quarter. It's a little hard to see out beyond on the second quarter. We're doing everything we can to offset increases by efforts of our focus groups and our improved manufacturing operations, but as I said, the visibility is a little hard when you get out beyond three to four months.

We continue to work on a couple of acquisitions that hopefully will close in the third quarter. The growth in the energy market looks very good to us. We are doubling the size of the American Augurs facility to build drill rigs to have a dedicated factory just for that.

In summary, we had a good first quarter. The second quarter looks good to us. We continue to diversify into other markets that are counter-cyclic to the infrastructure market and that will level our volumes and earnings. We will also continue to increase our sales coverage geographically around the world to apply our products throughout the world.

With that, we will stop and answer any questions.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. (OPERATOR INSTRUCTIONS). Arnie Ursaner, CJS Securities.

I wanted to follow up a little more on the SG&A related to ConExpo. In your last conference call, we asked about it and you spoke about it. You mentioned normally you recognize half in the year of the show, half the following year. At that time, I think you indicated it would add an incremental $700,000 to costs, most of it in Q1. I'm trying to reconcile kind of the $3.5 million number with that. Is it fair to say you had assumed $3.5 million generally over the two years and if we kind of ex this out, should we assume we will have $1 million, $1.8 million less next year (multiple speakers) ?

Well, Arnie, you'll basically have -- if you take the $3.6 million, divide by eight quarters, that's what we would have normally had. So there's 7/8 of it that we took basically upfront here. You won't have any next year; you won't (inaudible) Yes, so basically, we've written it. It's all been written off. Historically, though, we were writing it off over that period, over eight quarters.

you had given guidance before about SG&A as a percent of revenue. What should we be thinking about both this year and for next year to try to build this (multiple speakers)?

That's just the one-time hit, Arnie, that we took to the best of our ability, all of it in this first quarter.

So if you want to take $3.6 million or $7 million out of that number and look at it, as Don said, for the first quarter, then that's what it would be without, and there will be none for another three years.

The next question I have is can you comment on the impact the currency had on your results? How much how much did it benefit revenue and any comment you have on how it may have impacted earnings?

It had a very negative effect to related to BTI. I don't have the numbers in front of us, but the exchange rate has certainly hurt them considerably, which is our Canadian subsidiary. But frankly, with the weak dollar, it certainly -- it drives international sales or has been one of the drivers of it. So I don't know that we can qualify that, Arnie, other than the fact we are up 10%. We are up from 25% international sales to 35%, and that's part of -- part of that is the dollar and part of it is more effort to sell international.

The final question, if I can, relates to steel. Obviously it's a concern. You have had supply locked in through June at fixed prices. To the extent your backlog is going well beyond June, what steps, if any, are you taking when you either bid on work or do you have specific escalators to reflect higher steel, or if in fact you' book business at a certain price and steel gets way out of whack, you have to absorb a margin in. Can you walk us through that process?

I would say, in general, if we booked it, we're going to get hit on further out, Arnie. With some of it, we do have some major jobs that we are basically negotiating now with a steel price increase. There is some of them that will be hanging out there though. It's primarily on asphalt plants. What we're doing is buying all of the steel we can get our hands on at the prices we've got locked in right now, which we can cover a couple of months on out beyond but that's about as far as we can go.

The real question is, is it going to stay up? Boy, you can get every answer you want. There is a fine line between being brilliant and being stupid on our buying right now. You know, I guess we were -- a number of people in the business seem to think that it's probably going to start to level back down or drop back in July. Now, we are here in as far out as the fourth quarter, so it's kind of a wild-card that we don't know.

We're trying to buy ahead -- to answer your question, we are trying to get escalators. In some cases, we do have escalators, but not in every case.

Arnie, I would just add to that, and Don can expand on it, but we are -- in all of our subs, we're looking at what are typical products or representative products in those subs. We're doing what-if roll-ups of the cost to keep our people apprised of what they need to do, either in terms of reducing costs or increasing prices or a combination of the two, to maintain or improve our margins.

Dr. Dr. J. Don Brock: We are raising prices at this point, but how much we can raise them is still out -- questionable. I mean, some of the companies have raised them 4% to 5%, some of them as high as 7% or 8%, and this is a midyear price increase, what it amounts to. So I would say, on an average, we've raised them 4% to 5% midyear here, where we normally don't do that until September.

Thank you very much.

Michael Cox, Piper Jaffray.

Good morning congratulations on the quarter. My first question -- I was wondering if you could comment on your ability to add sales resources or new distributors to capitalize on the increased manufacturing capabilities that you described. Should we expect the backlog to remain at this relatively similar level through the balance of the year?

Dr. Dr. J. Don Brock: I guess, to answer your question, it normally drops off a little bit in the summertime, but yes, I personally don't want to see it grow much from there because you start getting out where you're missing orders because you can't deliver. It's been at -- it has been at an uncomfortably high level. We've added enough capacity in many cases. For the first time, we can probably deliver track mounts pretty quick, track-mounted crushers at JCI end KPI. We've been really backed up there. Asphalt plants are still a big backlog on those, a lot of international business coming in there.

Oil-drilling rigs, we can't deliver those as fast as we need to, so we've got capacity problems in about probably in four of the companies. Some of the others that we've added onto, for example Roadtec and Kolberg-Pioneer were two big additions that we did about 18 months ago. That's really paying off on helping us keep the backlog at a reasonable level.

Okay, great. That's helpful. On the international side, are there specific geographic regions that you're seeing the strongest growth or any deviation from recent trends?

I wouldn't say there's much deviation. It's pretty well spread all over -- Australia, Russia, Middle East, a number of units going to Europe. It's pretty well spread out.

The international pipeline business, of course the trenchers kind of follow where that goes, the big drills kind of follow that -- a lot to the Middle East, a lot to Russia, some into Turkey. Wherever your big pipeline projects are going, that's where they follow. But Canada, Western Canada, well, all over Canada is very strong for us. So, it's not a whole lot different mix that it was last year, though, to as your question.

Okay, that's great. My last question is on the domestic business. If I carve out Peterson business, it looks like domestic was down 7% or 8%. I'm curious how that stacked up relative to your expectations. What do you expect as you look to the balance of the year? Do you expect that decline to get worse?

Well, first, on the Peterson business, we basically -- it wasn't -- it's totally additive. We took what their backlog was before we bought them, so it's still in there. But aggregate, if you look at that, they are down probably from $120 million to $100 million in backlog. Mobile, which is Roadtec and Carlson backlog, you might as well throw that one out as not very meaningful. Their backlog was $13 million and they did $17 million last month. So they would probably do that again this month. So you end up -- backlog is not very meaningful in that group.

The other groups basically are all up. The aggregate in mining basically is down 17%, but part of that is just increased capacity. We've increased capacity in a lot of those plants. You know, domestically, frankly, domestically, we have seen a slowdown in all of the volume that our customers have.

In the asphalt side, we've not necessarily seen a slowdown in buying. I think a lot of that is driven by the increase, needing to increase the amount of recycled to stay competitive, and the warm asphalt or green systems. We are up close between 80 and 100 of those out now and are either ordered or out, so that certainly helped the asphalt business.

Okay. I apologize. I actually was referring to booked revenue as opposed to the backlog, domestically, so I would just be curious as to your look at the demand environment on the domestic side.

Yes, I'm sorry, I probably didn't answer the right question. Okay.

Could you comment on the demands environment that you see domestically?

On the demands going forward or are you talking about the quarter?

Going forward.

Okay. Michael, on asphalt, I guess a surprise to me -- I mean, at the price of oil where it is, it's obviously meaning buy less tons. There is still a disconnect in asphalt prices and oil prices, but we've seen a big increase in asphalt prices. But the states are very much more willing to do more recycle; we see the amount of the recycle increasing.

We see another major trend that I haven't seen in my career -- is historically, the cities, the counties, the private works follow whenever state specifications are. States are pretty conservative, a lot of engineers in the states. With this new warm asphalt, higher recycle, we are seeing them disconnecting. The cities are saying "the heck with what the states want to do; we need to stretch our dollars." So we see the contractors gearing up to do more of that. With the LEEDs credits that they get by running higher recycle, developers are saying "to heck with the state. Specs put us down a good mix." So we are seeing a growth in that market not being held backed by state specifications. I mean, they seem to be more aggressive on the private and the city and the county side.

Overall, though, there is obviously a slowdown in the U.S. economy that is occurring, but we haven't seen a slowdown in the buying, which is a little surprising.

Okay, great. Thank you very much.

Rich Wesolowski, Sidoti & Co.

Good morning. Don, you mentioned some of the ConExpo orders in April. How much of the $40 million that you cited was in the $260 million backlog?

Dr. Dr. J. Don Brock: I would say there's probably a third of it. The rest of it is what I would call firm verbals. They didn't have the paperwork in.

Right. That's what you are referring to in April?

Dr. Dr. J. Don Brock: Yes, that and we have a lot of orders, verbal orders for drill rigs that's not in there either, substantial number.

Can you provide some kind of detail the additions you're making to your sales forces, especially internationally? How big is it now versus a year ago? At what stage are you in this plan? What regions are you targeting, etc.?

Dr. Dr. J. Don Brock: Probably the biggest push that we've had is in the asphalt side of it. We've got a new Vice President of Sales for the Asphalt group internationally, and he's adding people around the world pretty well. We had a small sales force but we've added people in the Middle East; we've added -- we're adding people in Asia-Pacific. We had people there but we're adding more to those forces in the different areas. Europe adding dealers -- basically these guys work with dealers and you're adding dealers in these different areas.

Peterson -- obviously we're trying to grow their international business and they are doing quite well with their wood chippers internationally.

The aggregate mining side of it has really grown tremendously in the last four years in that area. We haven't had as many recent additions in that area. We kind of ramped up in that area, but mainly with the asphalt and in the green side of it.

Does the fact that you have a lot of new faces on the sales force make it more difficult to get the price increases to stick?

Dr. Dr. J. Don Brock: I think that comes back to us at the top management of managing that. We certainly -- we've got to put them out there in try to dig our heels in early.

But so far, we haven't had too much push-back. If I go up as much as steel has gone up, I worry about that. So I mean, we are putting every effort we can to take other costs out, to continue to work on our costs in all areas so that I guess I don't see us being able to raise our prices as much as the steel has been going up. So we've got to get it somewhere else to maintain our margins. At this point, I think we can but the jury is still out on that.

Finally, just a minor question -- the $32 million CapEx budget you cited, that doesn't include anything for the American Augurs expansion, right?

Dr. Dr. J. Don Brock: It included probably $4 million. We're probably going to spend $10 million. So our Board has given us approval to up that to do what we need to do up there.

Thank you very much.

Jack Kasprzak, BB&T Capital Markets.

Congratulations on the quarter. I wanted to ask, in the segment breakdown, there's an "all others" category which says 2008 revenue was 2623, and it was I guess 0 last year. Can you -- maybe McKamy I guess is the question (multiple speakers).

Yes, that's Peterson.

Dr. Dr. J. Don Brock: That's Peterson. At Peterson, we only had a half a year.

Yes, okay.

Dr. Dr. J. Don Brock: That was for the first quarter basically. We didn't own them the first quarter, right?

Right.

Dr. Dr. J. Don Brock: Last year, yes.

Then the profit part of that exhibit, where the all-others category has a loss of 12.725, is there a corporate number that is embedded in there? (technical difficulty)

Yes, that's McKamy -- that's basically McKamy department.

He's ribbing me now! (LAUGHTER) That also includes all of your federal taxes, Jack.

Okay, great. I just wanted to know what I was comparing there.

It's not indicative of Peterson; it's primarily corporate and federal taxes.

Dr. Dr. J. Don Brock: If we get another acquisition in that area, we get another company, we will separate that as a green group.

I got you. Okay. I guess you made some comments already, Don, about the U.S. and the economy and how your orders are looking there. I guess I wanted to maybe ask it a different way, but the state budget situation is generally -- I think it's fair to say deteriorating. Tell me if you disagree with that. The last time we had this sort of situation like this, '02/'03, you know, it was a little dicier time. Could just maybe talk about today versus five or six years ago when we had the last sort of state budget crisis.

Dr. Dr. J. Don Brock: Jack, I guess the thing that quite frankly surprises me is that I think we probably got a more sophisticated clientele than we had six to ten years ago. I am surprised at the number of customers that continue to buy equipment.

At ConExpo, I've listened to CNBC and I would want to go get back in bed and pull the cover over my head and cry. Then you go down to the show and everybody is walking in, and they want to buy something. I wanted to say "Aren't you listening to television?"

But I think what I see more of our customer base, which we have a large, stable customer base in the asphalt, is they are raising their prices right with liquid asphalt. While the states can buy less and the states are spending less, our customers are still making money. You show them a reduction in cost and they will jump all over it, and they are still buying. We've got them ordering out into the fourth quarter right now and just wanting to go ahead and get their orders in. That's one thing that bugs us a little bit with the steel price is to make sure we are covering everything, not knowing how this stuff is going to keep changing.

I guess, due to the green systems, it lowers our cost. Coal burners lower their costs, but mainly, mainly increasing them out of recycle lowers their costs. We had one of the major players brought ten of his people in last Thursday for -- we had a warm mix demo where we paved our church parking lot and had about 60 customers in. I mean, they don't seem to be slowing down at all, although the market is slowing a little bit. They've got money; they're willing to spend money to reduce cost.

They had a good year last year.

Dr. Dr. J. Don Brock: They had a good year last year. I guess that -- so it's a little bit of a disconnect, Jack, that's surprising to me.

Okay, that's very helpful. Thank you.

Also, I wanted to ask about whether it was possible to give us a guesstimate on what you think the Company's capacity is today. I know that, going back in time, we used to throw around different numbers for what you thought your peak capacity was. Is there any color you can give us on that?

Dr. Dr. J. Don Brock: Jack, I would say we're running close to 90% right now, and there are some of them that could do a little more. There's a couple or three of the companies that could do more but I was in South Africa a week before last and they are wide open. I mean, their problem is stretched-out deliveries. In all of the asphalt companies, the three in that group and the two in the mobile group are wide open. I mean, we are running at peak capacity. We can build up some more second shift but we are still running close.

American Augurs is totally above capacity, but that's why we are doubling the price -- the size of that plant. So we're running up around -- it depends on how you figure it. If we could get more employees on the second shifts and the third shifts, we can increase them a little bit, but we're getting up pretty close on capacity.

Thanks very much.

Neal Miller, Fidelity Investments.

Don, a question on American Augur -- what geology matches up with this sort of drilling? Is it oil shale or what areas of the country is it suitable for application?

Dr. Dr. J. Don Brock: Neil, I think it can go all over, but the hot areas, that Marcellus shale that goes from Indiana up to New York, a big gas deposit. The Barrett shale in Texas you know is supposed to be at 17 trillion cubic feet, and they are estimating that I've heard from $50 trillion to $320 trillion. It's pretty well shallow gas up in that area, so there's a huge amount of drilling starting to go on in Pennsylvania, Ohio and that area, which is right where our plant is, right in the middle of it. The last rig that we shipped last week went to Oklahoma though, and some of them are going to Texas.

The thing that I think I see for shallow drilling, you can go down 300 feet and then turn horizontally for a mile, and from the same hole with a wagon wheel pattern, you can cover a 2-mile area. So we see that as probably being a great machine to be more acceptable environmentally, instead of one guy in Oklahoma told us, said you would have to drill 50 wells to cover that same area, or punch 50 holes in the ground and you guys are just punching one. You're not having to move the rig 50 times. So we see it as applicable all over. The new rig will go to 13,000 feet in depth and of course, you can go horizontally for a mile if you need to.

I was at an energy conference and certainly shale in the United States is top of the mind, so that's good to hear. A question on your leadership and asphalt, kind of the green component -- any comment here on the competitive backdrop? Has that changed? As I recall, you had a significant leadership.

Dr. Dr. J. Don Brock: Yes, we've sold between 80 and 100 in our other two competitors. One of them hadn't sold any yet, and the other one has sold one. So we are kind of a little bit 100-to-1 out in front, I guess.

Frankly, we've even debated of even helping our competitors because we think it's the right thing for the country and the right thing for the industry, and I don't want them to screw it up. I mean, what we're doing is working, is working right. My only concern is they kind of do a halfway job and not get the performance that we need to get. But right now, we are kind of way out in front on that. But it's just taken off like a green tsunami.

The other interesting thing, Neal, it's dragging the asphalt plants along with it. I've got customers flying in here right now to see it, and it's exciting development. You don't have to have us -- you can eliminate one roller and compact in it. It compacts easier. You eliminate all the smoke and the smell; you can run higher recycle without changing the grade of liquid, and you will reduce your drying costs from 14% to 20%. So it's got some good legs to it.

Awesome. A question on the balance between domestic and international sales -- you said, in this quarter, I think it was 35% international. Would you expect, given that domestic backdrop in reference to -- you said you can overcome some of these municipal budget struggles or state struggles, but I'm just kind of wondering whether you would expect the international component to scoot up toward year-end.

Dr. Dr. J. Don Brock: Yes, I expect, the back-end of the year, it to be up more in the 40%, 45% range, but I kind of expect to end the year on balance, Neal, at probably about 40%.

Interesting. Thanks so much.

Chris Weltzer, Robert W. Baird.

I've been wondering if you've seen any your steel suppliers tacking on surcharges to your existing steel contracts.

Dr. Dr. J. Don Brock: No, we haven't got there yet but the next round, where we will have that in it I guess what I'm saying. Right now, we are covered up in through May and June. That varies with each company but in the South here, we use a lot of steel. We are kind of locked in there, but the scrap surcharge will be probably one thing we won't be able to get around in the next round.

Now, we can get sort of a pretty good view on spot prices here, but what sort of percent increases on steel are you seeing on the ground?

Dr. Dr. J. Don Brock: What we're seeing is -- what they are talking about is going to be -- will be up probably 60% from January. We've probably seen today -- while we haven't seen it come through to us exactly yet, but if you were on the ground at spot level right now -- I talked to a guy last night, a company we're looking at acquiring, and he was paid 45% -- or paid $0.45 a pound in October and he paid $0.68 yesterday because he's not protected. So you're seeing from 30% to 40% to 50% on the ground.

The question is, when is it going to back off, or is it? That's -- the steel distribution centers are very reluctant to load up because a lot of them think it will back up. It's hard to read. If you get a good reading on it, we would appreciate your input.

Certainly. I know you've talked in the past about a better pricing opportunity internationally, given the weaker dollar, implying that gross margins internationally might be better than here in the States. Does that difference carry through to the operating margin line, or the extra sales support you've added sort of neutralize the benefit?

Dr. Dr. J. Don Brock: No, it will carry through to the operating line. If you really look at our numbers, if you really could dig down into them, which we don't give you that kind of detail, I think, by the end of the year, you will see it us; our average margins are going to be helped by the international. But the domestic margins are probably going to be down, international will be up. But that's one of the things I hope that we can achieve to just maintain margins.

Okay. Then just remind us. The ConExpo expenses -- are those in the "all other" line or are those spread throughout the segments?

Dr. Dr. J. Don Brock: They are spread throughout the segments.

Is it fair to assume they are spread roughly proportionally to revenue?

Dr. Dr. J. Don Brock: Pretty well -- not totally, but that's a good assumption. That's close enough.

When you look at Astec Inc., they two 1/8 scale models of two asphalt plants and they are spaced and equal some of the bigger equipment spaces. So, I mean like Astec and Roadtec probably were equal in their space allocation but pretty close. Other than that, other than Astec Inc., that would be the only one that would be disproportionate.

Okay. Then I just had a couple of quick questions on Peterson. One, if you could help us out with what sort of operating income contribution there was from Peterson in the quarter. Then I was just wondering what Peterson's domestic/international revenue split might have been.

The revenue is -- it's $14 million domestic, $6 million international.

That's helpful. Then the operating income contribution?

We haven't broken that out, Chris. That's in that "all other".

Right. I mean, would it be fair to say that a Peterson operating margin was probably a little bit below consolidated level?

Dr. Dr. J. Don Brock: Well, if you basically look at the all other, McKamy don't bring in any revenue and he don't bring any gross profit (LAUGHTER) so there you are! (LAUGHTER)

Thanks, guys.

Alan Brochstein, AB Analytical Services.

I had a couple of questions on the balance sheet. The first, on the inventory, it sounds like the explanation is probably the Peterson acquisition as well as stockpilings steel. Can you just elaborate a little bit on the inventory buildup you guys have?

Dr. Dr. J. Don Brock: It could be -- basically, Alan, to be frank, we haven't -- we need to increase; we've needed increase in some areas to be able to make deliveries on all of that.

Some of this is delayed shipments on asphalt plants, and some of the other where they haven't got their permits; that's part of the bit. That will come on down during the second quarter. This is kind of our peak inventory and our peak time of the year.

Steel is a part of it. We're trying to stock as much steel as we can, as we can buy right now. But mainly, I guess there's some asphalt plants; there's some crushing equipment for international orders that we're waiting on, letters of credit or we're waiting on permits or something like that, and that's probably the biggest driver.

Yes, one thing that happened to us last year in the asphalt mobile paving operations, we just didn't have the stock available that we would like to have had available, so we have put an extra effort into this year making sure that we had adequate stock there for the real surge that we have in the first and second quarter.

We go direct to the market there as opposed to going through dealers. The competition has stock sitting at dealers. We needed, last year, more stock here available to ship immediately for demand. So, we've boosted that number considerably in asphalt mobile paving as well not to miss orders.

Okay. Also on the balance sheet, the receivables -- I'm imagining that's due to your increased international sales. Can you walk me through the receivable growth as well?

Well, if you look at the days that I mentioned, your days are at 39.8 versus 36, so other than the increase in volume, we don't really feel like there is any noticeable increase in any area. As far as international goes, often international is better than the domestic because we do deal in primarily letters of credit or cash in advance. So often, the international adds a more favorable aspect to it, not a negative aspect.

Dr. Dr. J. Don Brock: The other thing -- I don't know. Most companies have this same problem but we ship an inordinate amount the last month of the quarter. It seems like everybody gets all geared up by that time, and the receivable is about equal to a one-month shipment.

So you all had really good sales this quarter, better-than-expected, so that would boost it even more?

Dr. Dr. J. Don Brock: Yes, that's correct.

Okay. Then on the income statement -- and I appreciate your concern about margins near term. You mentioned some of the potential issues. But if you look out longer, your gross margins are about as high as they've been and your operating margins as well. Are there some steps, though, that you can take, over time, that will leverage -- can you leverage higher sales levels? You know, what should we think longer-term about your operating margins?

Dr. Dr. J. Don Brock: We are up at a margin level -- of course, the rest of the story now is, historically, I mean, you look at where we are this quarter, they tend to deteriorate towards the end of the year. I think you've got to look at us on an annual basis a little better. We put in an enormous amount of effort to improve our products and improve the margins on the products over the last four years in the face of tremendous rise of steel. Steel went up 225% in '04, and it's jumping again. Frankly, we have wrung out a whole lot of savings and they are not as easy to get as they were back in '04. We went to coiled steel versus plate; we did a lot of things. So we are continuing to work on those, but I don't see, long-range, us getting a huge benefit, a huge increase in gross margins.

Obviously, some of the new products we got have got a little better gross margins -- should have better margins. Some of the real hot products -- and they do, and as we get more of a better product mix, we may see some improvement. But it's difficult to push it up much more than what it is right now.

Okay. This last one -- I ordinarily wouldn't ask a CEO this question but I have a feeling, Dr. Brock, that you know the answer (LAUGHTER). You said something that caught my attention. I think at this industry event you were just at, you said you took some prototypes with you. I guess my question is are you guys using any of the virtual prototyping or any simulation as opposed to actual physical prototype construction?

Dr. Dr. J. Don Brock: We have very sophisticated computer systems in all our engineering that really cut down a lot of your mistakes that you normally make in prototyping. But one of the humbling things about the business we are in is God gave us a lot of different aggregates, a lot of different materials that we have to process. Until you get about ten of the machines out and about all of the conditions, you don't know all the weak points that's going to show up. As hard as we try, we go through a lot of debugging them, I guess is what I call it. But I think we've made great leaps. We've got simulation where we can simulate rocks dropping in a drum, a drier, different sizes, everything like that. It sure does pull your boundaries in of what you can do and what you can't do. I trust that answer your questions (multiple speakers).

Yes, thank you very much. Thank you, guys.

[Garro Norian], BlackRock Inc.

Just one thing I wanted to clarify for myself -- the ConExpo expense, was that by choice or is that required by GAAP? The way you guys (multiple speakers)?

That has been -- that is the current interpretation that our auditors have of how that should be handled. That has changed over time, and that's where we are today. Like many other things, the interpretations continue to change, but that's where we are today.

Okay. On the steel, if you guys fully tried to pass through what you expect the price increase to be, you know, what do you think would be the negative repercussions? Is it customers going to competitors who are willing to take lower margins, or do you think it's people just throw their hands up and say "We can't afford it"?

Dr. Dr. J. Don Brock: I think it would be the latter, if you go too far. I don't -- our competitors are fairly sophisticated, too, and they're going to be going up similarly. I mean, they've got to.

We haven't seen that much push-back yet, but (inaudible). If this sticks at this higher level, we've got to go up more. That's always -- that's the bigger concern, is will we get a huge pushback. We haven't seen that yet, but we haven't gone up as high as we need to go, either.

Don may want to address more adequately than I can, but all that I can read in here and see that's going on -- this is not a U.S. problem; this is a worldwide problem. It's not just impacting the United States, and I think that most people are becoming readily aware that it is a worldwide problem.

Dr. Dr. J. Don Brock: I talked to one customer this morning, and he builds bridges, too. He is totally aware of the steel increases. I guess, as McKamy said, basically they are paying the same price for steel in South Africa as we are here. When I was down there the week before last, it is a worldwide commodity price now, and there's not opportunities to bring in foreign steel at any cheaper prices.

And virtually none is being brought in.

Dr. Dr. J. Don Brock: Yes.

I agree. When you have guys like Caterpillar and all the of huge iron guys raising prices, I would think it gives you guys a little more cover.

Dr. Dr. J. Don Brock: Right. You are correct in your assumption that our biggest concern is when does the customer push back? That I wish I knew the answer to, but we haven't seen it at this point, but we're not through raising prices either.

Yes, but it's not yet? Okay.

Dr. Dr. J. Don Brock: Not yet.

The last question I had was, on the Augurs expansion, when do you expect to get that gone? What does it mean exactly for capacity and I guess revenue potential once it's done?

Dr. Dr. J. Don Brock: Well, they're doing about $80 million, $85 million a year right now. This will double our capacity. To answer your question on when it will be done, I hope by the end of the year. We are just now breaking the ground.

Okay, that's where you had kind of these verbal kind of orders but not the hard ones?

Dr. Dr. J. Don Brock: We got those firm verbals and everything in all of them, but we got a bunch up there on oil drilling rigs. Some of them -- most of those are hard orders, they just want booked in March, at the end of March. We don't put it in the backlog until we have a signed contract. Some of these are customers you know and they've told you "Go ahead with it" but you haven't got the paperwork, so you can't count it. But I haven't seen any of the verbals back off, I will put it that way.

Gentlemen, there are no further questions in the queue at this time. Would you like to make some closing comments?

Yes, thank you, Doug. We appreciate everyone's participation in our first-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 our conference call will be available through April 29, 2008 and an archived webcast will be available for 90 days. We will have a transcript on our Web site in the Investor Relations section within the next seven days, and all of that information is contained in the news release that was sent out earlier today.

We appreciate your attendance on our call. Thank you.

Ladies and gentlemen, this does include today's teleconference. Thank you for your participation. You may disconnect your lines at this time.