Astec Industries Inc (ASTE) 2009 Q1 法說會逐字稿

Greetings and welcome to the Astec Industries' first-quarter 2009 results conference call. At this time, all participants are in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stephen Anderson, Director of Investor Relations for Astec Industries.

Good morning and welcome to the Astec Industries' conference call for the first quarter of 2009. As Latonya mentioned, my name is Steve Anderson and I'm 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'll 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'll note that our discussion this morning may contain forward-looking statements that relate to the future performance of the Company and that 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, 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'll turn the call over to McKamy Hall to summarize our financial results.

We appreciate each of you joining us this morning. For the quarter, our net sales were $205 million versus $263 million, for a decrease of 22%.

Our international sales were $73 million versus $93 million, for a decrease of 20.7%. International sales were 35.7% of the first-quarter sales in 2009; international sales were almost the same, at 35.2%, in 2008. So we have retained that breakdown between international and domestic.

The domestic sales are $132 million for the first quarter, versus $171 million for the first quarter, for a 22.7% decrease. The parts sales for the first quarter are $45.6 million, versus $52.6 million, for a 13.2% decrease for the quarter.

The part sales were 22.2% of quarterly sales in 2009 and 20% in 2008. So, just a slight change.

The sales -- total sales increased in the asphalt segment only, and decreased in all other segments. The asphalt segment now accounted in the first quarter for 40.6% of our total sales, and those sales increased 16.3% for the quarter. That is a reflection of the strength of asphalt versus other segments.

The aggregate was 25.1% of the pie but with a decrease of 43.4% of the volume. Mobile is 15.3% of the pie. Sales decreased 33.4% in volume.

Underground was 9.9% of the pie with a decrease of 38% in volume. The other group is 9.1% of the pie with a decrease of 8.7%.

Sales by segment are in the report attached to the press release for your further study. The consolidated gross profit for the first quarter was $43.5 million versus $66.2 million. That's a decrease of $22.8 million, or 34.4%.

The gross profit percentage decreased 400 basis points for the quarter, to 21.2% from 25.2%. Obviously, much of that is related to volume.

The SG&A was at $31.4 million, or 15.3%, compared to $38.8 million or 14.7% last year. So a decrease of $7.4 million.

Con Expo was in 2008, so that is a primary difference in last year and this year being 3.7 or 50% of the decrease. Because it was in last year, not in this year.

Income from operations for the first quarter were $12 million versus $27.4 million, or a decrease of $15.4 million or 56.1%. And the income by segment is attached, again, to the press release for your reference.

The effective tax rate is 38.71% for the quarter, and that is the result of lower operating volumes, increasing state taxes, primarily. Our estimate, which most of you usually want to know, for the year, consolidated annual effective tax rate will be 36.1%.

Our net income, which has a new name, as you've noticed on the statement, net income attributable controlling interest is $7.4 million versus $17.5 million, for a 58% decrease.

For the quarter, the earnings per share was $0.33 versus $0.78, or a 58% decrease.

Our backlog, which is also attached for your reference to our press release, is $140.1 million versus $275 million, or a decrease of $135 million or 49%. Now, to add a little more information relating to that, I would share with you that the international backlog at March 31 was $61 million compared to $97 million at March 31, 2008, for a 37% decrease.

The domestic backlog decreased from $178 million to $79 million for a 56% decrease. The asphalt segment accounted for 48% of the decrease and the aggregate segment accounted for 35% of the domestic backlog decrease. Now, the backlog, as I said, is at the bottom of the press release attachment. So that's there for your reference.

The balance sheet is very strong. We are positioned financially to weather the current economic conditions and to continue improvement of current products and development of new products. The strength of our balance sheet also allows us to continue to evaluate strategic acquisition possibilities.

The receivables are at 35.4 days versus 39 point nine eight -- I'm sorry, 39.8 days outstanding. So it's actually an improvement.

The inventory is at $278 million versus $219 million. Those turns are at 2.6 turns versus 3.4 turns. The primary increase in our inventory is in the finished goods area, and that is up $52 million.

We do owe $17 million on the Wachovia credit facility. We are utilizing $8.6 million for letters of credit, leaving us a borrowing availability of 70.47 -- $74.4 million on the facility.

Our capital expenditures for the first quarter are $4.1 million versus a budget of $30.5 million, and Don will address this in a minute. But those are being limited. The depreciation is at $4.7 million for the first quarter. Forecast for the year is $20.7 million, and the cash flow will be attached to the 10-Q filing.

That concludes my prepared remarks on the financials. I'll be available to answer any questions you have later in the call. We do appreciate your interest in Astec. Thank you.

Dr. Don Brock will now discuss aspects of business operations in the first quarter of 2009.

This is probably the first time in my career I have been somewhat happy with the results of the quarter when they are down 58% from the previous year. However, when you consider the severity and the depth of the downturn, we are pleased to still remain profitable while a lot of other companies have not been able to do that.

We are fortunate to be positioned with our Company in a number of different industries and be able to take advantage in some of those while the others are down.

For approximately five to six months, starting in October, we saw states practically quit having highway lettings. As Congress talked about the stimulus package, I think they saw let's take the projects that we've got engineered and hold them back, and we will release them when the stimulus passes. That seems to be what is happening.

These projects have been let. We are seeing the largest highway letting in history, at this point. As of -- as of April 7, 44 states that obligated $5.5 billion of the stimulus money have put it out to work.

We continue to see very large highway lettings. Probably the next two weeks will be the biggest end rush of lettings that we've seen in a long time.

This pick-up has helped our mobile asphalt business considerably, and the asphalt business has picked up somewhat, but again, in the asphalt side, it's more longer-range purchases.

Our other companies continue to be slow, but are seeing some improvements.

Our larger customers have been particularly conservative during this time period to avoid covenant violations and to retain cash. Some even delayed winter maintenance, resulting in the drop of our parts business, as McKamy said, from $52 million to $45 million during the quarter.

We believe that this will reverse as work begins in the second quarter. They will have to repair the equipment as they put it back to work.

We have seen a drop in steel and component prices during the first quarter. But as McKamy mentioned, we have also seen an increase in our plant underabsorption due to the reduction in man-hours.

Our gross margins for the quarter dropped 4%, and this is primarily due to the less man-hours worked through the quarter.

During the quarter, we reduced our inventories from a peak in November of $292 million to $277 million. We expect to continue to reduce these inventories during the second quarter.

We ended the quarter, as McKamy said, with between $17 million and $18 million in borrowings, and with approximately $10 million in cash. We expect, with the reduction of inventory here in the second quarter, to be out of debt by the end of the second quarter.

Looking forward into the second quarter, we started the quarter with a backlog of $140 million. Although this is down from the $275 million level in '08, it's considerably more comfortable level, especially in the Asphalt Group.

In '08, we lost orders due to extended deliveries. Today, we are better positioned to respond to our customer needs. With the large volume of highway work being let out to bid at this point, we believe the asphalt and mobile business will continue to improve.

However, we see little long-range planning and equipment acquisitions by the customers. When they get the job, they buy. Not before. In most of our companies, the volume of quotations is at a record high level, but the customers remain to be very cautious.

Our employee level is down 17% from its peak in the summer of '08, but our man-hours worked is down approximately 25%.

We plan to use this time in each of our companies to aggressively move forward in new product development, product improvements, and develop of products to service other industries. We are delaying some of our CapEx to support this effort.

With the dollar weakening somewhat, and over 29 countries starting infrastructure stimulus packages, we expect to see international business to return to levels of the '06, '07 levels. Probably not as high as '08 as we saw, but we expect to see a return of international business, which has been extremely slow.

We believe the economy hit bottom in late February and early March. However, we see the recovery as being slow and gradual. For this reason, we will broaden our products and the industries we serve to keep our plants running at reasonable capacity.

Our strong balance sheet gives us the flexibility to take advantage of the opportunities in the economy that we presently are in at this time. I'll be glad to answer any questions anyone has. Thanks.

(Operator Instructions). Michael Cox, Piper Jaffray & Co..

Good morning, and nice job weathering through this storm, guys. My first question is on gross margin expectations. As you look at the balance of the year, should we expect a continuation of the Q1 trend in the low 20% range, the 21% range?

I think we hope to see an improvement in that. The price reductions on components and steel, we're really beginning to just see those flow into our cost. We had some carryover of steel during the first quarter and in inventories at higher prices.

So we will take advantage of the lower prices in components and steel, going forward. And with the gradual pick-up in man-hours worked, that will help our underabsorption. So we think we will see that climb back up.

That's great. My second question is on the seasonality of your business. Looking back over the past several years, there has been a modest uptick from Q1 to Q2. From your comments, it sounds like you're seeing a pretty meaningful improvement here in the month of April. Should we see a much more significant lift in sales from Q1 to Q2 this year?

Over the years, about 60% of our business was always in the first six months, when you talk domestically. International, generally, is -- tends to balance that, and in the last couple of years, with a lot of international business, it seems to have more affect in the back half of the year.

I think the difference in this year that's kind of -- makes it hard for us to read is all of this money that's going out, if you take the Feds spending $40 billion to $41 billion, as they normally would, and then you add about another $16 billion to $18 billion that will get spent out of the stimulus, plus the states basically delayed their normal spending to later in the year because they were going to take all the jobs they had engineered and get the stimulus money for that.

So I see us spending probably, state and federal, like $86 billion to $88 billion, which is what they spent in '07, but they're going to spend it in nine months. So the back half could be a lot better than classical times without international.

It's pretty hard for us to predict international. It's still -- the dollar is still stronger than I'd like to see it for robust international business. An exception to that is Canada has got a very good highway program, and there is a lot of work going on in Canada.

But to answer your question, I guess when I look at it at 30,000 feet, I think the back half, there's going to be a lot of money out there. So the back half, hopefully, we'll see a better than usual domestic improvement.

That's very helpful. My last question is just on equipment pricing. You've taken a lot of price last year. Steel was rising. I wonder if you could comment on your ability to hold that pricing, or what type of activity you are seeing.

We are seeing a lot of pushback from customers on prices, and we are seeing them even on parts and things like that, getting bids on competitive, trying to be more competitive. So we are seeing a price pushback.

We are able, with the reduction of steel and components, to reduce our prices back somewhat. But we probably averaged last year raising our prices 8%, some of the companies a little more, and those that were more than that, we have actually pushed -- we've actually cut back.

Thank you very much.

Rich Wesolowski, Sidoti & Company.

Good morning. Has the stimulus activity spurred a lot of pick-up in the asphalt plant inquiries?

Mainly, I think what we are seeing in the asphalt plant side of it is, to answer your question, I wouldn't say a larger pick-up. It's just changed the mix. There's more interest in portable plants, and this is a historic trend. When things are not good, people buy portables and start moving around. And when they are good, they'll buy more of a relocatable or stationary plants.

So what we are seeing more in asphalt is probably buying components that will reduce pieces that will reduce their cost. We are selling a heck of a lot of the green packages. Building about one a day of those at this point. Adding recycle bins to plants, adding double barrels, selling what I would call [high] plants.

My estimate that it would take -- to do the same volume, the Astec group is probably -- or Astec Inc. and Dillman will probably have to do twice as many work orders to get the same volume this year. And we are seeing a heck of a lot of small purchases in that area.

In the road tech side of it, it's certainly -- we are seeing a lot more interest there. I think there's two drivers. Number one, there's a driver to cut costs, and we fortunately have the equipment and the components that they need to do that. And then, there's the drivers just to fill a need to do the job with this increase in volume coming out.

How about the recent and unexpected utilization at the four Asphalt Group companies?

The utilization is up at road tech. I had a quarterly review with them yesterday afternoon. It's up, not enough to bring employees back yet. We'd laid off about 100. About 20 we'd transferred to [heat] tech. But we have not called anybody back there yet.

We are trying to bring the inventories down. So -- and I guess we will continue there for a little longer. I suspect -- I guess -- we have a rule, as some of you know, of talking to five customers today. I've had my five so far this morning.

One of them told me he is going to buy two favors from the milling machine as soon as this next highway letting passes, but he's not going to buy it until he gets the work. That's kind of the typical trend I see, particularly on the mobile equipment.

Lastly, it seems there's a lot of discussion from you guys about the mobile equipment specifically, and that gets the real benefit from the stimulus package, but that's traditionally, say, 15% of your business in total. Is the real pick-up in the mobile paving group enough to pick the company up in the second half?

Probably -- I guess, basically, about half of our business is asphalt. And I think what it will do for us, I think the asphalt plant business will continue to stay okay. And make it a normal year.

It will be a different product mix. I expect it to be good. I expect road tech to be more of the pick-up, as you say, but we need the other companies to come back somewhat. We are seeing that on a very slow basis.

It's come -- the second quarter in all the other businesses will be better than the first quarter. But I'd feel a lot better if we could see a more pick-up in that. But it's just unpredictable right now. There is -- the whole deal is, all of this is creating somewhat of pent-up demands out there, but the people are nervous as a cat. They just -- they are very reluctant to spend until they absolutely have to.

Thanks, Don. That's helpful.

Arnie Ursaner, CJS Securities.

This is actually Jason Ursaner calling for Arnie. In Q4, you had spoke about building inventory levels partly by design to get in front of pent-up demand. It worked down a little and it sounds from your comments that this should continue. Is this in line with expectations, or are trends in April better than you anticipated when you built it up?

We basically, I guess, had two things. We acquired -- we bought a lot of steel ahead, we bought a lot of components ahead when inflation was going like mad mid last year.

When it suddenly turned down in October, to delay layoffs of people, we went ahead and converted a lot of it to finished goods. It doesn't sell in the raw form very well, so I said let's go ahead, we've got the cash to do it, let's go ahead and convert it to finished goods.

So that created kind of a peak build-up in November, as I mentioned. We see it being able to work down during April, and it's a combination of a pick-up and the fact that we are keeping our production levels low.

As I said on road tech, they basically are not calling employees back yet until they get the -- if we did not have the inventory level that they've got, we would probably be calling employees back. But we are not until we work that inventory down. And that's applicable in other businesses other than road tech.

I know you were very reluctant to give guidance for 2009 for uncertainties, both domestically and internationally. But can you speak more generally to the uncertainty? Do you still expect to return to growth by the end of this year or early part of next year?

I think we are going to be growing from where we are today, not necessarily at the levels we were last year. I think you're going to see a gradual improvement in the economy every quarter. I think this is more of a hockey puck-type recession, which sudden drop and then a very slow recovery out of it.

And I guess -- the two wild cards that makes it difficult for us, looking forward, is just how strong does international come back? Does it improve the infrastructure side of that side of the business, and then how long it takes for a recovery in the commercial and residential side?

And it looks to me like that's probably 18 months to two years out on the residential and commercial. We are sure backfilling a lot with the public works right now, and I think that's certainly helping our customers. But those three components combined is how -- how each one of them helps makes it awfully difficult to try to give you any good guidance going forward.

Could we just get a quick update on the American Augers facility?

We are about finished with it. Unfortunately, the volume of work has slowed down considerably. Talked to our guys in Paris a while ago. It's at Intermat, and they've sold about three machines. So they were feeling better.

The oil drilling rigs are still very slow. We still are working on backlog, but we have not received any new orders for oil drilling rigs in probably three months now. So we're going to have a nice facility very underutilized for a while here.

I still am optimistic that oil will go back to $70 a barrel, and when it gets to there, I think you'll see a lot of drilling going on.

Our smaller rigs, we build two sizes. Our smaller ones are very suitable for the Marcellus Shale and the contractor who bought the first -- a number of the first units, and frankly, all of the first ones that we built, the 800 hp units, he's got every one he's got busy. And still in gas drilling. Because he moved quickly and it's a lower cost drilling unit.

Thanks a lot.

Jack Kasprzak, BB&T Capital Markets.

I wanted to ask specifically about the second quarter. I'm looking at the backlog at the end of the year, and it was about $193 million. Obviously, Q1 sales were $188 million, so more or less in line with the backlog. The backlog at the end of the first quarter was $140 million. So, I guess the question is Q2 sales, would you expect it would be in line with the backlog again, or is there enough sort of this off-the-shelf potential inventory reduction demand to boost it a little bit above that?

I think it'll boost a little above that. Obviously, the mobile side never has much of a backlog. Last year, they did. Last year, we missed orders because we couldn't make delivery. That's not a problem this year.

So I see a lot of off-the-shelf orders for that. We just sold a big trencher at underground. It's off the shelf. They've got an order Friday for a large 1660, and there is a number of those out there, a large number of quotes.

Frankly, you've just got to look at the backlog and the different groups, and there is inventory waiting to go out the door there if they'd get orders.

The asphalt plant side of it, I was talking to Ben last night, and he said over the average of six years, the backlog is dead on what it is today. Over the past six years. So they feel reasonably comfortable where the asphalt plant side is, and we are being able to shorten up deliveries into the six weeks' timeframe, which, on portable plants, a guy won't wait much longer than that.

That's a more comfortable position for us to be in in this type of economy. I think there's going to be a lot of stuff sold in the same quarter that it's going -- it'll go out in the same quarter it's sold.

Based on, I guess, how weak the private sector appears to be, and I guess you just mentioned this may be 18 or 24 months before residential and nonresidential shows some signs of life, do we -- do we really need the private sector to kick back in for -- ? I mean, is that the key to kind of get the whole business kick started again, would you say, or is stimulus and new highway bill potential enough to really resume growth opportunity

I think the stimulus and the highway funding is fine to resume growth from where we are today. To get it back up to where we were a year ago, it's going to take -- it's going to take more than the public sector. There's no question.

I talked to a customer up in your area this morning, and he said the commercial and private work is just practically nil. But he said there is plenty of work with the stimulus, but he said it's a different kind of work. It's not paving, it's a different type of work.

And he said, [the] your benefit, it requires different kinds of equipment. It requires more of the bigger equipment to get it done. But his opinion was that the stimulus was backfilling what their decrease in the residential business was.

The negative side of that is that the public works is never as profitable for our customers as the private works is.

On the other side of that equation, though, is there is a big part of the stimulus that's going to cities and counties. We haven't seen that really hit yet. But I think you'll see it in the next couple of months.

But the city and county work, it's more like residential and commercial work. It will be not as much competition and more of the local contractor getting it and probably better profitability.

So, as long as this stimulus is here for the next couple of years, if residential will come back, it's going to be a good backfill for us, put it that way. To say it would be as good as a good economy, no. I can't say that. But it will darn sure keep it from being really bad.

Right. Fair enough. Thanks very much.

Chris Weltzer, Robert W. Baird & Company Inc..

Chris Weltzer Quick, easy question first. Do you know how much the acquisition added to revenue in the quarter?

McKamy's got that, there. One point I'd make on the acquisition -- we acquired our distributor in Australia. There was probably -- when you own a company, you've got an intercompany elimination of profit until they get it sold.

Our Australian company was installing equipment that was shipped in the fourth quarter, the third and fourth quarter, that we could not count in the fourth quarter, but we count some in the first quarter. So there was -- some of that intercompany elimination goes with asphalt plants that were being installed over there that we actually shipped towards the end of the year. But McKamy's got it.

The two combined are $18 million. Now, what Don was saying while I was trying to look and are still looking -- as he said, there's an argument that can be made that we would have gotten a major part of that anyway because we would have just sold it through the company that we acquired over there. So we were already selling that company.

Maybe it would be helpful, then, if you broke out Dillman versus your distributor, if you have it.

Dillman was about -- $8.5 million for the quarter.

And so, my other question relates to what you reported the all other segment profits. Because you had a declining gross income there, but a pretty sharply lower loss. Is some of that what you were talking about with flowthrough from your Australian distributor, lower corporate expense, Peterson? I mean, what are the moving pieces there?

That one's a little hard. It's Peterson, and it's Astec Australia, and it's corporate. Peterson did not -- their quarter is still very slow. It picked up in March a little bit, but it's way below what it was last year.

Australia was pretty good. So it's a mixture of those two. McKamy, do you want to make any other comments?

Peterson was the challenge that we have. And as Don said, their volume, their business is just off significantly.

That's helpful. And then, in the press release and earlier, you mentioned broadening your product portfolio to certain more countercyclical industries. Are you talking about -- is that a comment about directional drills and concrete [bash] plants, or are there more things you have in the works that we are not aware of yet?

There's a number of things we have in the works, and I guess our -- we made a decision that we are going to attack instead of retreat. I guess the thing we see is -- the line of concrete plants, we have the first couple of them sold that we are pretty confident in, and that broadens our base.

Other products for the mining industry, we are building a big machine that will go on the leach pads that should increase the amount of recovery for gold and copper, where they are doing the leach pad recovery. We are building the geothermal line of drills. We have the first two of those sold that are going out.

We are developing products that will go, in addition to Peterson's products, to make a wood-to-energy system, where we can directly put wood straight into power plant-type boilers and make it as painless for them.

Products that we've worked on that, really, I think that's really taken off is products that will increase the amount of recycle, and that's -- the warm mix package is really beginning to really take off. The increase of the amount of -- the double barrel really is the only plant out there to run 50% recycled without burning any more fuel. And that's been a real good seller in these times.

So a lot of enhancing of that type of equipment. Recycled concrete, being able to take it back to its original sizes and reuse it, but a number of products like that that will broaden our base.

Thank you. Last question, you talked about the mix changing a lot in your asphalt plant business, from onesy, twosy, big plants out of the smaller order size. What are the margin implications of that? Does that business usually run a little bit better for you on the margin side?

It generally does. It's -- doing this makes it more difficult -- we've got a lot of engineering horsepower and in these companies, we are accustomed to doing special retrofits and not that our competitors can't do it, they can do it. But I think we are more accustomed to doing a lot more retrofit-type business.

The combination of putting together new and used plants, we have the vehicles to take in used plants. People today are wanting to keep the cost down. You can sell them a half -- new half-used plant. Use of used components makes it more competitive.

But it's a lot more engineering time to do it. But we are better positioned to do that than some of the others.

Thank you.

I'd add to that, just for fear that anybody is concerned about used equipment inventory. It's only up $5 million over where it was last year.

Thank you.

Walt Liptak, Barrington Research.

Good morning, guys. First, just an easy one. The tax rate was a little bit higher than I expected. What should we expect in the second quarter and through the balance of 2009?

36.1%, I believe, is what we expect for the annualized amount. Or annualized rate effective consolidated rate.

What was the higher rate in the first quarter related to?

It was related to lower volumes, but also, we have a lot of the states that are going to unitary, and we are doing more business in more states, thereby increasing our taxes slightly.

And then, when I was out there a few weeks ago, we saw some of the inventory -- the finished goods inventory at road tech. And I wanted to get some clarity about the job lettings that have happened at the states. Is that getting converted yet? Have you sold some of those machines?

We've had a good month in March, and we are going to have a good month in April, and yes. I was over there yesterday. When they get where you can come in the gate and not see any, I'll feel better. But we are not there yet. But there is a lot of it going out.

Is the expectation that in the second quarter we see most of that inventory gone from the parking lot?

Yes.

Okay. And then, in the comments about the backlog in the Asphalt Group, I think it's clear that you may get some pick-up from the stimulus bill.

But I wonder about the aggregate mining. Would you expect the stimulus would have any impact or do you need a highway bill before you see that part of the business? (multiple speakers)

I think you're going to see a gradual but slower pick-up in that. A lot of the aggregate companies had a lot of inventory as they start doing more asphalt work. Most of your asphalt work is maintenance and overlay, which is a high pinch minus aggregate.

A lot of time requires more -- it always requires more crushing, and so, I think it changes their product mix for them, requiring them to crush more, and they are first going to sell what they've got, reduce their inventory, then they are going to start repairing the machines, and then thirdly, they are going to start adding machines. We see that probably not getting help until the third or fourth quarter.

All right. Thank you.

Kristine Kubacki, Avondale Partners.

I had a question about the SG&A real quick. How do you see that going from the levels of the first quarter through the year? Do you see it staying flat at these levels, or as we see a general pick-up in demand, we will start adding back employees, or are there other cost initiatives that will offset some of those costs?

We see that staying pretty flat.

Okay.

The only exception to that is some of the companies we put engineers -- the ones that were really deep, we put engineers on part-time, and we are going to -- particularly in a couple of the companies, we are bringing those back to get more aggressive on product development. But it's an [s] in the overall size of the company. It will stay pretty well flat.

Okay. And then, when did you say -- or when did you say you thought highway lettings would really peak as pertain to the spending base this year, and then with the stimulus bill? Was that kind of in the back half of the third quarter timeframe, after the highway bill?

I think we are seeing them pick up considerably, right now. I think you will see them to continue to let jobs over the next six months. I think they are climbing up to a very high level.

There is -- the next two weeks is going to be big -- next two to four weeks. A lot of states are having two lettings per month. So there's a lot of work going out.

The first wave of it has gone awful cheap. There's been people that were out of work, and they are just loading up. So some of them, what I would call our better customers, more sophisticated customers, are kind of laying back and hoping that prices will pick back up a little bit as everybody else gets -- as these smaller ones get loaded up on work.

Do you see that, and related to -- you're talking about the lack of more profitable private activity, and the kind of the uncertainty around the timing of these projects? Is that changing the way -- what customers are buying, or are they making different decisions on maintenance versus buy?

It changes what they buy. The equipment, generally, for private works is smaller equipment, particularly in the paving side of it.

So as they get highway work, typically a guy that's doing the predominance of private works, he probably will not own a milling machine. When he gets into the public works side of it, he's going to have to have a milling machine, because most of the jobs are milling inlay now or a larger proportion of them are.

And generally, he's going to have to have a larger paver and run higher production to be competitive in that type of work. So it does change the products somewhat.

Is there -- with the uncertainty of a highway bill renewal, is that driving any change of behavior with your customers?

I think -- it's -- in my career, every time -- about this time before a highway bill, everybody gets nervous because they think there's never going to be another one. There is no question there will be another highway bill. The question is how big it'll be?

And it gets passed, but it does create uncertainty that once it's passed, it gives them confidence, and it always helps our business once it's passed. But there is no question, until there is a more -- a little more visibility on what the highway bill is going to be, it's going to make them cautious.

And then, just one final question. On the acquisition front, are you seeing any activity there, any declines in valuations, or any distressed sellers entering the market?

We are not, at this point. I think it's a little bit early. I think there is some distressed companies out there and there are some that could be available. But we are only talking to one or two companies at this point, and they are not in a distressed period that they would be more strategic for us.

Okay. Thank you for your time.

Alex Mitchell, Scopus Asset Management.

Good morning. I want to follow up on some of the backlog questions. Do you feel comfortable talking about [at trans mitchell kado], and how close you can get to -- one in book-to-bill? As we proceed throughout the year?

It varies with every company. It depends on basically --

There are some companies that are going to be higher than one.

That's correct. Generally, in the process equipment like asphalt plants, crushing plants that are stationary facilities, you typically -- a four months' backlog would be more typical than what you would have in those businesses. And that's a comfortable level.

Sometimes when you get further out than that, it gets uncomfortable because you can lose deals.

On the mobile side of it, and if I look in the crushing, like the track-mounted crushers, it's basically build, ship, build, ship -- or sell and ship, and that's the same way on the mobile asphalt side of it.

So, in some of the aggregate, where it's track-mounted screens, track-mounted crushers, it's -- you get an order and you ship it. There's never much of a backlog and we try to keep certain components in inventory.

If I had to weigh it out, I'd say half of our businesses are basically you sell it and you ship it, at the same time, just about. The other half is an average of probably four to five months' backlog.

I hope I answered your question.

I just wondered -- if you had an opinion about how the year will trend.

(multiple speakers) I expect the backlog to be about this level the rest of the year, frankly, with probably a pick-up in the fourth quarter.

All right. Thank you.

Eric Prouty, Canaccord Adams.

Just a quick question on the inventory. Without breaking it down group by group, is most of the inventory in the asphalt arena, especially the mobile, where we would expect that to work down pretty quick with orders?

It's in -- it's there, it's in some of the underground and the trenching side. Not much in the drill side. Aggregate has got some more inventory than they need, particularly the mobile, the track-mounted aggregate side. They've got more than they need.

Astec Inc., which is our largest company, has got -- theirs will work on down, and it's -- everything we've got on the yard that's sold, it sold but we may be waiting on deliveries, for fees for permitting. There's some of that.

But -- we see -- the easy part to come back down will be in the mobile and the underground businesses, as those sales pick up.

Great. And then, on the asphalt side of the business, a good quarter [forward] -- a lot of that, I would assume, would be from working down previously-booked backlogs. Can you just discuss what you are seeing out there in the market? It sounds like the next quarter you have some visibility in. Is that solely because of, again, working off backlogs? Are you actually seeing some new orders coming in on the asphalt side? Thanks.

Actually, in the Astec Inc., they sold more equipment in the first quarter this year than they did last year. But it's kind of -- I'd have to say -- in '07, their fourth quarter was huge. It was just -- and bookings was huge.

And then, it was slow in the first quarter, so it varies from quarter to quarter. But I was surprised that we actually sold more the first quarter of this year than we did in the first quarter of last year.

They are booked out into July right now, so they are -- that's Astec Inc. Dillman is not that far out, but Astec Inc. is. They are backfilling about as fast as they are shipping. I hope it continues at that.

Okay. Good quarter, thanks.

Rich Wesolowski, Sidoti & Company.

Thanks, one of the other analysts was comparing the current backlog to the forward sales. I just want to expand on that.

Your backlog now is at roughly the same level as in March of '06. And in that year, you did a little over $700 million in sales, averaging $200 million in quarterly bookings for the remainder of the year.

Now, of course, the stimulus is a big factor that separates the two years, but if you're stating that March was the bottom for quarterly sales, I think that would even require quarterly bookings towards the higher range of what you've ever recorded. So, I really just want to confirm that your forecasts are based on inquiries and orders well beyond what you are seeing even here in April.

To answer your question, we obviously have got to sell more. But I guess the way I look at it, we are at 200 -- a little over $200 million right now. We've got $140 or so in inventory at the end -- in backlog at the end of the quarter. That's $340 million.

You're going to get another $150 million in parts sales. So you add all that up, you're up to about $500 million here in March. And our biggest peak sales quarters generally, for most of the companies, is in the second quarter.

So -- and with the stimulus taking it in, we are not going to be at last year's level, by any means, but we will be north of the $700 million you're talking about.

Thank you.

Bentley Offutt, Offutt Securities Inc..

Good morning. (multiple speakers) I'm doing good. Going back to your international business, because, as we all know, that's -- been the real momentum in the Company's results for the last year or two. And has -- [currently], the profit margins have been somewhat better, too.

I notice that it's about 25% of your sales in the first quarter compared to over 30% a year ago. My question is what -- have you basically expanded your sales force overseas? Are you going to be in some additional tradeshows this year? What's your status as far as your growth activity in your overseas business?

I guess first thing (multiple speakers)

Let me make a correction. On the international sales, in case you misunderstood me, in 2009, they were at 35.7% of the first quarter. Last year, they were 35.2%.

Okay, retract that. (multiple speakers)

We are up, but I would support a little bit on your side on that in that that was the reason -- the sales are there for the quarter, but the bookings weren't there for the quarter, internationally.

Our international sales went off the cliff in October when the dollar strengthened. And it went up 40% in two weeks.

We are seeing a recovery a little bit in international, but if the dollar could weaken a little more, it would help.

Now, to come back to your question, we have added heck of a lot of international salespeople, and we are covering more corners of the world than we were three or four years ago. And it has been the part of the business that has certainly helped.

We consider Canada as international. Canada is still pretty strong market. And it's better. Mexico has been a good market for us, but it's -- the peso was so doggone strong -- or weak. In other words, against the dollar, the dollar is strong against the peso.

The other big thing that gives us some confidence that it will come back is -- there is 29 countries that has passed stimulus measures or are in the process of passing them. And probably in each of them, there is more emphasis on infrastructure than there is in America. I mean, the infrastructure side of the U.S. stimulus package is less than 4%. So -- for roads and bridges.

You're going to find that Canada is like -- of their $50 billion package, they are more like $10 billion, so there is a more -- a higher proportion part of it is for infrastructure.

So we think we are going to see a pick back up in international. A lot of our big international -- the big customers, the cement guys, the aggregate guys internationally have been hit with debt covenants and problems like that, and have cut back their CapEx. But I think they will get that problem solved, and you'll see them begin to purchase again.

And we are beginning to see some of that. But international is -- will continue to be important to us.

Now, a couple years ago, you were kind enough -- or [seed] actually to set up a trip. I went over to South Africa to visit your operation in Johannesburg. I was very impressed with what was going on in there.

Their large activity was, as you know, they were shipping not only to South Africa but to dealers in Turkey and elsewhere, and also, more importantly, to Latin America. Their large focus, if I remember correctly, was in the aggregate side of the business. I mean, as far as mining equipment, screens, and stuff like that. And that was a pretty important factor at the time.

What does that look like now, with the fact that commodity prices have fallen the way they have -- for nickel [and] elsewhere?

You've got to move with where the commodity is. Gold right now is still very strong. Gold mines are doing well, and they are buying a lot of equipment in the gold side of it.

Copper is less, but copper is still much above what it used to be. Copper has kind of slowed down a bunch. Iron ore has obviously slowed down, but the real high-grade ores, they're still doing a lot of spending and mining on that. The lower grades, they tend to back away from.

Gold mining, the equipment for that, which are underground, and our crushing equipment is doing well in.

We have also tried to grow in that business by setting up a sales group in the aggregate mining side of it to put more effort. We can grow in that in a down market, because our market shares are very small. We've got some real opportunities there to continue to sell a lot of unit machines into the mining field. Out of the U.S. as well as out of Africa.

One final quick question. There's a lot of excitement over what's going on in China as far as the stimulus program, and you mentioned 29 countries were involved in stimulus programs. I don't think you've done business in China. Have you before?

We did a lot of business on -- we've probably put 60 asphalt plants there over the years. The problem you get into is they tend to copy what you do, and then they put a tariff on you bringing stuff in. They are not, in my opinion, very fair traders.

We've had them copy our asphalt equipment. They have copied our directional drills, so we are still today selling some stuff, but not a lot. And we typically sell probably one-third of an asphalt plant, and then they will build two-thirds of it locally. But it's not a big market for us.

Thank you.

At this time, I would like to turn the floor back over to management for closing comments.

We appreciate your participation on our first-quarter conference call. 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 May 5, 2009, and an archived webcast will be available for 90 days. The transcript will be available under the investor relations section of the Astec Industries' website for the next seven days. All of that information is contained in our news release that was sent out earlier today. We appreciate your interest. Thank you for your time.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.