Astec Industries Inc (ASTE) 2010 Q1 法說會逐字稿

Greetings and welcome to the Astec Industries first quarter 2010 earnings release. At this time, all participants are in a 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, Jackie. Good morning and welcome to the Astec Industries conference call for the first quarter ended March 31, 2010. As Jackie 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, our 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 review our business activity during the first quarter.

Before we begin, I'll remind you 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, 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 McKamy to summarize our financial results for the first quarter. McKamy?

Thanks, Steve. We appreciate each of you joining us this morning. For the first quarter, our sales were $193.5 million versus $205.3 million for 2009 or a decrease of $11.8 million. Now, Don is going to share with you some insight on the market in his comments.

On international sales, our sales were at $64 million versus $73.8 million for a decrease of $9.4 million. International sales were 33.1% of the first quarter sales in 2010. They were 35.7% of the sales in the first quarter of 2009. International sales are being assisted by the stimulus programs in the foreign countries, which are focused more on roads than our domestic stimulus package is.

The domestic sales were $129.5 million versus $131.9 million. Parts sales increased to $50.3 million from $45.6 million in the prior year for a 10.3% increase. Aggregate and Mining Group had the largest increase, followed by the Asphalt Group and the Mobile Asphalt Paving Group. Increases in parts sales certainly have a positive impact on our gross margin.

As far as the sales by segment as a piece of the pie, total sales pie, Asphalt is at 36.2%; Aggregate at 30.5%; Mobile at 21.8%; Other at 6.9%; and Underground at 4.6%. The Aggregate and Mobile segments had increases in their two segments. On the gross profit, our consolidated gross profit was at $46.1 million versus $43.7 million or an increase of $2.4 million or 5.5%. The gross profit percentage increased 260 basis points for the quarter to 23.9% from 21.3% in 2009.

The segments' gross profit for each segment -- the Asphalt Group was at 28.8%; the Mobile Asphalt Paving at 25%; Aggregate and Mining, 22.4%; Other at 19.3%; and Underground Group, a negative 4.0%.

In summary, our parts sales increased; our variable manufacturing overhead has been adjusted to the volumes needed, and we benefited from equipment orders with some nice margins. The SG&A and engineering was at $32.7 million or 16.9% versus $31.4 million or 15.3%. The Company had increases in healthcare costs, personnel-related costs, and travel expenses. We have basically not made reductions in sales and engineering, as we have discussed in previous calls.

Our income from operations was at $13.4 million versus $12.3 million. The primary source of other income is investment income by our captive insurance company. Our effective tax rate is at 35.9% versus 38.7%. And the reason for that rate being lowered is that the domestic production activity deduction was -- significantly lowered that percentage because the [D-pad] is a higher deduction because of the increased profitability and because of the increase in the volume of manufactured products of the Company, and the rate allowed for that went from 6% in 2009 to 9% in 2010.

The net income attributable to controlling interest was at $8.8 million versus $7.4 million for the quarter. Our income per diluted share was $0.39 versus $0.33 in 2009. Our backlog is at $134.8 million versus $140.1 million. It's basically flat. Our international backlog is at $57.4 million compared to $61.1 million for a slight decrease, and our domestic backlog is at $77.4 million -- I'm sorry, is at $79.0 million -- is at $77.4 million from decreasing from $79 million.

The Mobile Asphalt Paving and Other segment had the only increase in backlog over the prior year. Our backlog -- our balance sheet continues to be very strong. Our days outstanding and receivables are at 39 days versus 35.4 days. Our inventory has decreased $31.6 million, and we have had decreases in raw material, purchase products, and finished goods inventories. Our work in process is up, which is a positive sign in terms of the production going through for orders.

There's nothing out on our $100 million credit facility. We also had $49.2 million in cash and cash equivalents. Our letters of credit are $11.7 million, that's outstanding and deducted from our availability to give us borrowing availability of $88.3 million.

Capital expenditures, $1.8 million; depreciation, $4.7 million; and our detailed cash flow will be attached to our 10-Q filing. All of our subsidiaries have attempted to right-size their operations and control their costs. And we certainly could utilize additional sales volume to absorb the overhead and utilize the capacity.

That concludes my prepared remarks. I'll be available to answer any questions you may have later in the call.

Okay. Thank you, McKamy. Don Brock will now provide some comments about our operations for the first quarter. Don?

Thank you, Steve. Our revenues were down, as you saw, from $205 million to $194 million or 5.3%. As you know, we acquired a dealership in Australia that is dedicated strictly to our products. And as a result, we increased during the quarter our intercompany sales by about $8 million over last year. That's products that were shipped from here to the dealership but has not yet arrived and been invoiced over there. So, with that intercompany eliminated, we were essentially flat with last year.

We continue to see very cautious buyers buying only what they need to have for the jobs that they have available. We have right-sized many of our businesses, and as a result, have been able to improve our gross margins as compared to '09. Our earnings increased from $7.3 million, as McKamy said, in the first quarter of '09 to $8.8 million in the first quarter of 2010, or an increase of about 18.9%. EPS increased from $0.33 to $0.39.

Our strongest businesses are the Asphalt and Mobile, which is really all Asphalt Paving, which constitute about 58% of our revenues for this quarter. Aggregate equipment sales have improved only slightly. However, Underground and the wood processing equipment remain to be very weak.

We have seen a pickup in parts sales from '09 and, basically, we see this as supporting the pickup in our customers' business loads. Parts of revenues increased from $45.6 million to $50.2 million. Our backlog was down 3.7% year-over-year, but was level at the end of the fourth quarter. So basically, we think we hit the bottom or gone to the trough at the end of the fourth quarter.

International sales were stronger than international shipments. We expect that international sales will be stronger in the second quarter and through the rest of the year. As McKamy said, our SG&A was impacted by higher healthcare costs, higher R&D costs, and the [serve] which is affected by changes in stock price. While earnings could have been better in this -- based on this economy, we're not very -- we're not disappointed.

Looking at the second quarter, our volume continues to be our biggest challenge. Fear and uncertainty among -- along with an extremely competitive pricing in our customers, for our customers continue to paralyze their decisions. Domestically, we see privately-owned companies continuing to be the predominance of our sales. Many of our private customers are well-financed companies and tend to be very methodical in equipment replacement, keeping their fleets relatively new and up to date.

Internationally, we see less of a downturn than we see in the US, since many of the countries did not experience the bubble that we did here in the US. We're beginning to receive orders on a number of our new products that we introduced last year and believe that will continue to backfill some of our needs in manufacturing.

The highway extension through 12/31 along with the additional stimulus money that's really just now getting spent ensures a continued workload for our customers for this year. However, we need to see Congress pass a new six-year highway bill before customers can be confident to make large expenditures. We see the predominance of our customers' expenditures being more smaller volume -- smaller priced expenditures for equipment that they need for the jobs they have right now, but not much long-term thinking in their purchases.

We see inflation lurking on every corner; steel prices are being pushed up as well as oil and other prices. Substantial effort in our engineering is being implemented this year to implement the -- or being expended this year to implement Tier 4 engine replacement that is required by 2010.

In summary, we're beginning to see a slight improvement in the US. For our customers to gain confidence, so was said above, and look at larger, long-range expenditures, we need to see a new highway bill. We believe that international sales, along with our growing in the mining and energy business, will help us to make 2010 better than 2009. (inaudible) however, will probably be a couple of years before we return to 2008 revenue levels in our businesses.

At this point, we'd be glad to answer any questions anyone would have. I'll open the floor for questions.

(Operator Instructions). Jack Kasprzak, BB&T Capital Markets.

Congratulations on the very good quarter. The first question is on the gross margins, I guess, particularly the asphalt gross margin above 28% in the quarter. In particular, benefited by the increase in parts and how sustainable do you guys see that?

Jack, I think the -- if you make a comparison, last year, the first quarter there was certainly a paralysis in people spending on anything. And there was a very -- we saw a slowdown in parts, which we generally don't see. So as a comparison year-over-year, I think it was more of last year's effect. This year was a good year for parts in the asphalt side of it. A lot of people had delayed updating or replacing parts on their equipment. So it was better, but I'd say it's back to more normal, is what it amounts to.

We also, as I mentioned before, we've got a parts sales -- in the Asphalt side and in the Mobile, we've got a number of parts salesmen in the field. And we have spent more effort of focusing on selling parts than we have in the past.

Obviously, the Mobile business that you guys have discussed for the past few quarters has been very good, helped by, I guess, the stimulus and paving activity; but how much left do you see there -- how sustainable is that business now that the deadline to obligate stimulus money is behind us and it looks like the paving season will be good; but without a new highway bill, do you risk that business, the mobile business, maybe falling off or having a tougher time, the stimulus going away?

Jack, truthfully, we -- we're always looking over our shoulder in that area. It's frankly better than we expected. The thing we think we are gaining some market share in that area.

Secondly, we do have a number of customers, particularly in the -- that buy both asphalt plants and pavers, and mobile equipment from us that are well-financed, very methodical in their purchases. And basically, when they get 5,000 to 7,000 hours on equipment, they trade it. So that base of volume helps us a lot.

And then some of our growth has been international in that area. I'm not sure I can answer it -- we're very pleased with the performance in the mobile side of it this year, obviously. And, again, on a year-to-year comparison, the last year first quarter, it absolutely stopped. And Roadtec and Carlson basically had a nine-month year.

But I guess the other thing, just looking in history a little bit is, the average life of the highway type paver, while it's much longer, but generally, people update them in about five years -- or 5,000 to 7,000 hours. Some people run them much longer than that. But they're out on an average to eight years right now. So a lot of this is, I think, just pent-up demand.

Okay. I mean, you guys are out talking to customers all the time. And how would you, from those conversations and what you're hearing, how would you assess the paving season for 2010? There seems to be a general expectation it will be good with the stimulus -- the bulk of the stimulus (multiple speakers) to continue. And -- I mean, do you see a good volume season but still price competition? How would you guys assess it from where you sit?

From what we've seen, the prices are extremely competitive. They were helped a lot last year while it was competitive by lower asphalt prices. That does not exist this year. So I think you're going to see margins for our customers really, really hurting this year, frankly, Jack. They had the benefit last year of a surprise drop in asphalt prices and it's gone the other way this year. So that part is negative. I think the volume of business they're doing is going to be okay in most cases.

So it's a little bit like our steel prices. Steel prices went down for us last year but under-absorption offset the savings we had in the steel. I think the volume that they're seeing will certainly help to offset it a little bit.

The other thing that -- we see an increase in the amount of recycle use going from what was two or three years ago 15% to 25% to 30% today and continuing to increase. Particularly on private work, we see a lot of our customers doing 50% recycle now. So all of those tend to offset those increases in prices, but it's a very competitive market for them.

Very good. Thanks very much, Don.

Arnie Ursaner, CJS Securities.

You mentioned in your prepared remarks that international sales are stronger than shipments. What is causing that mismatch?

I think it was just the order flow of when it came in, number one, Arnie. And the other side of the coin is that when you go south of the equator, their seasons are opposite ours. Australia, New Zealand, South America, it's -- and South Africa, all of those are opposite seasons to ours. So their buying pattern is 180 degrees to the US buying pattern.

So, I'm a little unclear. If they are giving you a sale now, wouldn't it be giving you a sale just before their winter season? And wouldn't it be something where they would want delivery much later in the equation?

Typically, like on asphalt plants, crushing plants and things like that, they want to put it up when they're not -- obviously not in the middle of their working season. So that's the reason that they're buying now for delivery in June, July, August, in that time period, so that by their spring of the year, it'd be October or November. So they like to get it running. And typically, a lot of the larger purchases take -- from the time it gets there, take eight to 10 weeks to get them running.

I'd like to focus two or three questions related to the much-better-than-expected gross margin. You mentioned that you bought your dealership in Australia. I'm assuming you're now capturing the retailing margin as well, versus -- in addition to just the manufacturing? Your parts were 26% of sales versus 22%. And obviously, you're getting a little more usage of your facility to add lower steel prices.

Can you walk us through the various components of your margin and maybe put some quantification around where the dramatic improvement is coming from?

Well, obviously, when you get a $5 million increase in parts margins and you're in the 35% to 40% margin there, that's the biggest single factor. Australia helps it some, but a lot of their sales, as I said, were intercompany that really will flow in later in the year. Their selling season is a little opposite of what we see here in the States.

But it's the largest single component, Arnie, is in parts. And as I told Jack, as I mentioned to Jack awhile ago, it's -- last year, we saw some of the larger companies that didn't even do -- some of the public companies shut down everything, didn't even do winter repairs. So our parts margin was unusually hurt last year, as far as the revenues were. This is back to more normal revenues for the parts, and it's a certain amount of pent-up demand.

But we can say -- we believe we'll continue to see parts be okay, be good this year, because of the amount of work that they're doing.

Don, any plan to update your views for the full year, which you had given earlier?

Well, I'm still cautious, Arnie. I think the only thing I'd say is I'm very confident that 2010 will be better than '09, but let's don't get too carried away. It's still -- we're basically -- if you look at our backlog, it's even with what it was at the beginning of the year. And we're basically shipping each quarter about what we're selling.

Domestic continues to be a challenging market. International is less predictable, but so far, is very good, and the predominance of our prospects for larger equipment is international. I think you'll see the mix shift more towards international in the back half than you do now.

Thank you very much.

Chris Weltzer, Robert W. Baird.

Normally, if you looked seasonally at your business in the last several years, you'd see a sequential uptick in EPS in the second quarter over the first quarter. But now you've gotten -- maybe the international mix is a little bit stronger. This might not be a normal year. Can you talk about how you expect the year to play out seasonally?

Chris, historically, we were about 60% of our volume the first six months and 40% the last six months. As we have strengthened our international sales, that has been more level. Historically, the second quarter is our best quarter. I kind of frankly expect it to be similar to the first quarter; maybe a tad better, but it's probably going to be similar to the first quarter.

Okay, that's very helpful. Can you talk a little bit about the oil and gas drill rig side of the business? Has there been any movement there? What's the order outlook look like?

It's still pretty slow. We have sold one rig this year, is all. And that's better than last year. We were working on backlog last year. But it's still -- that is a weak side of the business. There is a lot more quoting going on, but a little reluctance to put it to -- they've got to put some of the rigs that are out of the work before they buy any more. So that's still very weak.

Same way on the distribution side of it. The pipelines and the drills, again, a lot of quoting, but a reluctance -- that's our, by far, our weakest segment, as you can see.

Yes. Were there any inventory liquidation this quarter like there were last quarter?

Not as bad. We continue to liquidate the small trencher line. And that's -- our sales there are up from last year but up from being very low. And we continue to be under-absorbed there because we're trying not to build till we get our inventory back in line. And so we can -- that's the only place that we are liquidating inventory. In the asphalt side of it, we really don't have any inventory problems.

In the aggregate side, we did have quite a few crushers up ahead. We pretty well liquidated that. We're increasing the hours in our plants, I'll put it that way. The liquidation is such that we're now starting to build what we sell in every place except the underground.

That's very helpful. Any predictions or estimates of when you can start producing your retail demand in the underground business?

I think it will take the rest of this year. We just need a pickup in the market, you know. That's -- and the home buildings, where we had a problem there is basically related to utility and home building type work. And as that come -- it's not zero, but it's way down from what it was at its peak.

Got you. And then can you talk a little bit about when higher steel prices start to flow through the income statement? And, I mean, what your strategy is -- are you going to be out there trying to get price? Or is it just not worth it at this point? Can you just talk a little bit about how the steel cost issue, when that will impact you?

We're trying to buy out as long as we can. In some places -- we're pretty well covered through the end of the year. And that's not on everything, but it's on steel plates. Some things you can't cover on. But it, like oil, it went too darn low and it's coming back. It's really more back to the prices that it was at the beginning of '08 and in late '07; so it probably needed to come up some.

Our question is, is just how aggressive are they going to get? Iron ore prices have gone up and it's -- the demand is certainly not there to justify it, but they're pushing the prices up. But we're all right through the rest of the year, to answer your question.

Okay, that's very helpful. And then last one -- tax rate for the full year?

I'll let McKamy answer that, or David.

Around 36%.

36%?

Yes.

Thank you.

David Wells, Thompson Research Group.

First off, just in terms of the outlook for 2010, you said you expected it to be better than 2009. Is that -- are you referring to top line or EPS, or both, with that thought?

Both. Yes, you know, not a great deal top line, but I think our bottom will be better because we're -- you know, we've made a lot of adjustments and we've kind of right-sized most of the businesses. So I think we're -- and the other thing, our inventories are in pretty reasonable shape. And I think that we'll be building -- we'll be able to put more man-hours back in our plants. So that should help bottom line.

Okay. And then I know in the past, on the fourth quarter call and maybe the third quarter call, as you thought about 2010, you hadn't been including new product orders in your expectations and budgeting process. From what it sounds like, you are starting to see some orders for those new products flow through. Are those going to be incremental to that expectation? Or is that kind of included as well as those parts contributing somewhat to the outlook for the full year?

I think it's them including to the output for the full year, David. The market is still very weak, so it means we've got to touch more markets and that's what we're trying to do.

And then, as you look at the first quarter relative to the fourth quarter, how much under-absorption was occurring? Was it only in the underground business? And have you gotten to a better place in the other segments? Or was there still some under-absorption occurring in the quarter? Kind of any thoughts on that would be helpful as well.

We were over-absorbed in some of the -- obviously, in the asphalt companies, but under-absorbed in the others. I think the under-absorption was about $2 million less than last year first quarter. So we've certainly improved but we've got a ways to go yet.

And then maybe lastly, there was some comments in the prepared remarks about selling some equipment with nice margins. I guess they go into backlog. Any color with regards to that? Is it -- are you seeing new capacity additions that are coming online or is that new products? Any comments on that would be helpful as well.

Well, as I said earlier, the parts margins obviously help you. We have a -- in the oil and gas side of it, the big heaters that we build, those units, their backlog is extremely good in that it's not a big company, $50 million company or so. But their backlog is very good and the margins are a little higher in that business than it is in some of the others.

And then last question, I guess, looking at the backlogs in the underground business certainly pick up somewhat sequentially. Would you expect some of that to move through to Q2 from a topline perspective? What is the duration of that backlog look like?

I think we're seeing a slight pickup that voids from a low level. It will -- some of the backlog, most of that backlog, all of that will go out in Q2. But their prospects and their sales are a tad better than they were a year ago and better than they were in the fourth quarter.

All right, friend. Thank you very much.

Rich Wesolowski, Sidoti and Company.

My question is -- my first question is on the disconnect between the mobile business and the parts business, which were great, versus the asphalt plants and the aggregates, which are still slow. In your experience, are the former two typically a precursor for improvement in the big ticket stuff? Or could we go for an extended period of time with good business in mobile and depressed activity in asphalt and aggregates?

Well, I guess the way I read that is, our asphalt customers have got a lot of work right now, but it's they cannot see beyond the end of the year. A lot of them, particularly the privately-owned companies are a little -- they're driven by -- their purchasing are driven a little bit different from a public company.

Number one, a lot of them do not like to pay taxes. Number two, a lot of them like new equipment. And they're ready to spend some money, but they're not wanting to spend too much. So if you've got a choice of upgrading -- do an upgrade of $4 million asphalt plant or do I buy a $300,000 to $400,000 paver or milling machine? -- that's kind of where they're leaning towards more of the mobile side.

And in the past, what we have seen, Rich, is that when the mobile is having the best year, it's usually that the asphalt plants are down a little bit. When asphalt plants are up, mobile is generally down. Not a lot difference, but it's -- they're usually out of phase a year or so.

Okay.

I think there's a pent-up demand for people replacing new asphalt plants to do higher recycle. There's a lot of them in place, but there's a lot that are needed. But that is going to take a new highway bill to kick that off of dead center.

The 25% to 30% kind of offhand remark you made on the percentage of recycle was higher than what we've heard in the past. Are there states that have raised the limit? Or is it just private customers doing more of it?

No, the states have -- I would say the average in the whole country, the states are up 10% to 15%.

Over the past year or two?

In the past year or two. I think in about a four-year period, I gave over 120 speeches on how to increase the recycle. And I think probably the real thing that's pushed it off of dead center is the warm mix technology where we can run high percentages of wrap, keep the asphalt softer. And the combination of it seems to give them the inspiration to go to warm mix and higher recycle. And that's green and that's sustainable and environmentally friendly.

So the combination of both of those has kind of really kicked in. It varies with all 50 states, but we've got some states that are now allowing it that I never would have believed. But Texas is very aggressive in it. Missouri is very aggressive. Missouri used to be the most conservative state in the nation and now they're very, very open-minded. They've got a new -- a very progressive Highway Director out there. North Carolina is allowing more. All of them have gone up. Some of them has gone up more than others.

Previously, you had cited a goal of about one double barrel green sale or shipment a day over the course of a year. Have you reached that goal?

Yes, we're there. Yes, we've now come out with a system for batch plants, and there's a lot of old batch plants and we're beginning to sell those. So, yes, it's been a good little addition for us.

Do you have a sense of how many comparable warm-mix plants the leading competitor has sold?

We probably -- my guess is probably 70% market share, but they're -- in the foaming packages we're offering, there's about nine competitors now. So they're all out there.

Separately, I was hoping to get a little bit more detail on the inflation topic in steel. What are the steel prices, if you could put a blanket statement around it that would be reflected in your 2010 numbers, versus what would it cost you if you bought the material on the spot market today?

Oh, I would guess that we're 20% below spot.

Okay. And then, lastly, which of the new products can you envision really moving the needle, say, in 2011?

Probably the pellet plants, the wood pellet plants just because of their sheer size. I mean, a complete pellet plant is going to be in the $8 million to $12 million range. And it pulls products out of about five of the different companies and that's probably the one that would move the needle the most.

The concrete plants, while we've only sold one, there wasn't but about three sold in the whole United States last year. So it's still -- the technology is very exciting of what we can do there compared to what's out there right now. So we're excited that that could be a good product.

The pellet presses, as we get those going, there will be a lot more of those sold than there will be the complete pellet plants. But they're a [$5 million] package. So we see that as a pretty good product. We see a real opportunity to grow in the mining business. And we've hired a great guy we think it will be -- to head up the mining sales. He's had a lot of experience in that field, so we think we can grow a lot in that area.

Okay. Thank you for the detail.

Walt Liptak, Barrington Research.

I wanted to ask about the outlook. You mentioned the mix of international sales higher. Which products are you seeing sold internationally?

Well, basically, over 50% of our aggregate sales in the first quarter was international and about 45% or so of the underground sales were international.

The asphalt and mobile was only about 14% to 15% first quarter and we see that being much higher in the second, third, and fourth quarters. So we see the opportunities more going to countries around the world that's got stimulus programs. So most of our -- the biggest part of our asphalt plant orders looking forward into the third quarter will probably be international.

Okay. And then going back to the gross margin question, given the pickup that you're seeing internationally and that being in the backlog, and your comments about the gross margin, are you expecting gross margin to be similar throughout the year to what it was in the first quarter?

I need to hedge on that. I can't give you a good read. We had an inordinate -- we had a strong parts first quarter. I expect that to be similar in the second but probably weaker in the third and fourth. And that certainly helps the margins. But in that area, it's not going to vary a whole lot. It certainly helps the margin when we get more absorption through these plants, too.

Okay, right, because of inventory?

Right.

Okay. And then you're still very cautious, it sounds, on your buyers; you talk about the fear and uncertainty, and the highway bill. And I wonder about the timing of the highway bill. What are you hearing about when there's going to be a new vote on the highway bill? Would they bring it in 2011? And what does the spending look like? Are they still trying to increase the six-year highway bill? Or do you think it will be flat with the last bill?

Walt, I guess my gut feeling is -- and this is just -- I don't have the facts to back it up, but just based on what I've seen in the past, it will probably be a $400 billion to $450 billion bill when it passes.

My feeling is it will pass in the lame-duck session. The reason I say that, nobody wants to touch a gas tax and you don't have any other way of raising the money, other than increasing the user fee. It's kind of a silly thing, that all the other taxes are increasing $0.10 a gallon on gas tax would affect the normal person 70-something -- about $75 a year, which is about $6 a month. But you know, it touches everybody so they're very, very cautious about that.

But the only way we can get more money is increase. And the only time I can see them increasing is all the people are going to get kicked out, voting for it in the fourth quarter, so -- you know, in the lame-duck session. And that's about the best guidance I can give you there.

Okay. Just to be clear, the user fee you're talking about, you think it will be a gas tax increase as opposed to some kind of tolling or something?

Well, it's kind of a silly. I mean, you pay one way or the other, and the gas tax spreads it out to everybody that drives a car. And that's probably the most equitable way to do it. The tolling is just another way of saying we're not increasing it, but they really are. And it's disproportionate to any of that, the other.

So I think the fairest way is that -- you know, what we've got to go to is Vehicle Mile Traveled. I mean, that's the VTM type of measure in the miles you travel, because a lot of these fuel-efficient cars are getting a free ride. So I think that's what's going to happen long-range. But right now, there is still enough uncertainty about how to do that. So, this next bill is going to have to have a tax increase in order to be able to fund it.

Okay, got it. All right, thank you.

Ryan Reynolds, Canaccord Adams.

I was actually wanting to know if you could give me some more color on your new products? Sort of specify what you're talking about and what you could see -- what you're seeing in expected volumes and margins for them.

The concrete plans kind of depend on how we build and think like that. It's a parallel to -- it would be helped a lot by construction and home building, things like that. And I guess our look on it is this a good time to develop it, perfect it; and probably we'll see benefits of it in multiple years out.

Next year, probably volumes in that business probably be at best between $5 million and $10 million -- fairly low.

The pellet plants consist of basically a lot of material handling equipment where you dump truckloads of chips. It will consist of Peterson shippers that take logs and make it into fine chips, and then Peterson rechippers consist of dryers and a huge hot oil heater we're basically using like a 40 million BTU hot oil heater to run a rotary tube dryer to dry the woodchips. And then multiple pellet presses that we build. And that's why you get into something that is a $8 million to $12 million plant.

I can see that in the foreseeable future in '11 and in '12 as being from $30 million to $50 million of additional revenues. A number of other products -- the pellet presses themself could grow to be a $25 million, $30 million business just in those things alone.

Other -- a number of other products, our geothermal drill rigs could be a substantial part of the underground business. Those are $500,000 to $700,000 machines. And we believe you'll see a continuing growth in that. Homes and buildings heated to geothermal in the states are about 3% and in Europe, it's about 80%. And we see more and more of those wells being driven. It's got a -- there's a lot of tax credits on that.

A number of other pieces of equipment we're building for more of the global market. We have a track-mounted global crushing line that we've come out with, that we would sell all over the world. We have a number of -- two models of oil drilling rigs that we mentioned that about the time we got them developed are slow, so a number of products like that.

All right, perfect. Thank you very much.

(Operator Instructions). Chris Blackman, Empirical Capital.

Thank you. Actually, my question has been answered. Thank you.

Thank you. That concludes the question-and-answer session. I'd like to hand the floor back over to management for any closing comments.

Thank you, Jackie. 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 4, 2010, and an archived webcast will be available for 90 days. A transcript will be available under the Investor Relations section of the Astec Industries website within the next seven days. All of that information is contained in the news release that was sent out earlier today.

We appreciate your participation. Have a good day.

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