Astec Industries Inc (ASTE) 2011 Q1 法說會逐字稿

Greetings, and welcome to the Astec Industries first-quarter 2011 results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Steve Anderson, Director of Investor Relations for Astec Industries. Thank you, Mr. Anderson. You may begin.

Thank you, Diego. Good morning, and welcome to the Astec Industries conference call for the first quarter ended March 31, 2011. As Diego mentioned, my name is Steve Anderson, and I am the 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; McKamy Hall, our Chief Financial Officer; and David Silvious, our Corporate Controller.

In just a moment, I will 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 will remind you that our discussion this morning may contain forward-looking statements that relate to the future performance of the Company, and 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 you to familiarize yourself with those factors.

At this point, I will turn the call over to McKamy to summarize our financial results for the first quarter of 2011.

Thanks, Steve. We appreciate each of you joining us this morning. 2011 has started with a 14.8% increase in net income compared to 2010 and a strong backlog of $244.8 million. We are pleased with the increase in net income considering ConExpo took place this quarter at a cost of $2.7 million.

Our net sales were $230.2 million for the quarter compared to $193.5 million in 2010, for an increase of 19% or $36.7 million. All segments had increased sales compared to the prior year.

Our international sales were at $82.7 million compared to $64 million for first quarter 2010, for an increase of 29.2%. International sales were 35.9% of the first-quarter total sales. International sales last year were 33.1% of total sales.

The increase of international sales for the first quarter compared to the first quarter last year occurred mainly in South America, Europe, Canada, Russia, Australia and Brazil. International sales increased in all segments.

Domestic sales increased by $18 million, or 13.9%. Domestic sales increased also in all segments, except for the Asphalt Group. Part sales were at $57.3 million versus $50.3 million for a 13.9% increase. Parts were 24.9% of the quarterly sales in 2011 versus 26.0% in 2010.

In terms of dollar increases, the Aggregate and Mining Group had the largest dollar increase, Asphalt Group second, Mobile Asphalt Paving Group third and Other group next.

The segment revenues for the first quarter of 2011 are attached to the press release. The Aggregate and Mining Group had the largest slice of the pie at 34.3% and sales for the quarter increased 33.8%. The Asphalt Group was 32% of the pie and the sales increased 5.3%. Mobile Asphalt Paving was 21.7% of the pie, with the sales increasing 18.7%. The Other group was 6.9% of the pie, with an increase of 18.5%. And the underground Group was 5.1% of the pie, with sales increasing 30.7%. So total sales increased for each segment.

The consolidated gross profit for the quarter was at $54.7 million compared to $46.1 million, or an increase of $8.6 million or 18.7%. The gross profit percentage was at 23.8% for the quarter compared to 23.9% last year.

The segments, by gross profit percentage, the Mobile Asphalt Paving Group was at 26.9% gross profit; the Asphalt Group at 26.1%; Aggregate and Mining at 23.8%; Other group, 19.8%; and Underground Group 1.1%.

On the SG&A and engineering, we were at $39.5 million versus $32.7 million. That is a total increase of $6.8 million. As we mentioned earlier, ConExpo increased $2.7 million, and that is a once every three years expenditure.

The largest increase was payroll and related expenses of $3.5 million, commissions expenses of $1.2 million. All other increases were less than $1 million and our health insurance decreased $1.6 million.

The pre-federal tax income by the segment is attached to your press release as well for your convenience, and I will not read those to you. The other income -- the primary source of the other income was investment income by the captive insurance company.

On the effective tax rate, the Q1 2011 tax rate was reduced by the R&D credit as compared to the Q1 2010 tax rate. The R&D credit had expired in Q1 of 2010. However, in December 2010, Congress renewed the R&D credit retroactively for 2010 and prospectively for 2011. Therefore, the Q1 2011 provision included the R&D credit, whereas the 2010 did not include the credit.

Net income attributable to controlling interest was $10 million versus $8.8 million, for an increase of $1.3 million or 14.8%. Earnings per share -- per diluted share was at $0.44 versus 39% (sic -- see press release) in Q1 2010. Our backlog at March 31 was $244.8 million versus March 31 of 2010 of $134.8 million, an increase of $110 million or 81.6%.

The international backlog was at $124.7 million compared to $57.4 million at March 31, an increase of $67.3 million or 117.3%. The $124.7 million of international backlog is a historical high for the Company.

March 31, 2011 domestic backlog increased from $77.4 million to $120.1 million, for an increase of $42.7 million or 55.1%. The backlog by segment is attached to the bottom of the press release for your convenience.

Often, people like to look at the incremental increases. The backlog of March 31, 2011 at $244.8 million compared to December 31, 2010 of $216.6 million is a 28.2% increase or 13%.

On the balance sheet, our balance sheet is very strong. The strength of the balance sheet provides a base for us to seek acquisitions. Our receivables are at $100.2 million. The days outstanding are at $39.1 million versus $39.0 million for March of 2010. In reflecting on the increase on the receivables, I would call your attention to the fact that the first-quarter sales were up $36.7 million and March sales alone were up $14.3 million.

The inventory is at $272.7 million compared to $246.4 million for an increase of $26.3 million. Our turns are actually 2.5 turns versus 2.2 turns last year. The raw materials and purchased parts are up $21.2 million, and that is reflective of the leadtimes and the availability situations that we are facing, and preparing for the increased backlog.

Our work in process is up $11.7 million. Our finished goods are gradually down $7.1 million. And used and rental equipment are up $4.2 million.

Nothing is owed on our $100 million credit facility. We have $80.2 million in cash and equivalents. Our letters of credit are $7.6 million, meaning our availability on the loan is actually $92.4 million.

Capital expenditures for the first quarter were $4 million. Depreciation was $4.5 million. [Vested] capital expenditures for the year are $29.4 million, and cash flow -- I'm sorry -- and depreciation is budgeted for $18.8 million. We will have our cash flow attached to the 10-Q filing.

This concludes my prepared remarks. I will be available to answer any questions you may have later in the call, and we do appreciate your interest in Astec. Thank you.

Thank you, McKamy. Don will now provide some comments regarding our first quarter of this year's operations.

We are obviously pleased with the first-quarter results. Revenues were up 19%, as McKamy said, from $193 million to $230 million. Our net earnings were up 14.8%, from $8.8 million to $10.1 million.

Earnings were negatively affected by the expenses of $2.7 million at ConExpo, additional [surf] expenses and additional R&D expenses during the quarter. International sales continued to grow and were actually about 36% of sales versus 33% in 2010. Our parts sales grew 14% from $50 million to $57 million during the quarter. We ended the quarter with a backlog of $245 million versus $135 million in 2010 for an 82% increase. The backlog, as McKamy said, was 49% domestic and 51% international.

Our domestic customers seem to be less concerned about the lack of a Federal Highway Bill than they have in the past. Their cautiousness over the last couple of years has led to more aged equipment and developed somewhat of a pent-up demand for many of our products, especially in the mobile equipment group. With the outlook for less highway money, states are spending more on pavements and less on new construction, which in turn especially helps our mobile equipment. The accelerated depreciation along with more paving has been a driver especially for our sales in our mobile equipment business.

This is particularly the case in privately-owned companies, which prefer to keep their depreciation strong and pay less taxes.

While ConExpo was very costly, we were pleased and surprised to have the best show in the history of our Company. I guess we didn't expect the number of people there, and we historically do not sell a lot of equipment at ConExpo. But this year we sold approximately $30 million worth of equipment, and the response was outstanding.

Looking forward to the second quarter and the rest of the year, we entered the second quarter with a strong backlog and it has continued to grow. And we are especially pleased to see finally a pickup in the Underground segment of our business. Since the end of the quarter, this has continued to grow and improve.

Our growth in international distribution continues to backfill weaknesses in our domestic markets, with increased sales in all segments of our business. We are opening a sales distribution center in Europe for our mobile group in the second quarter, and we plan to open a branch in South Africa somewhat similar to what we have in Australia to sell products from all of the companies.

We are expanding the application of our products in other industries, as well as developing many new products for other industries.

In the energy market, we are selling very large hot water heaters for use in fracking in the oil and gas business. We continue to develop our oil and gas rigs and additional auxiliary equipment to support the rigs. We continue to sell our large thermal oil heaters for gas processing plants and for use in the tar sands.

We have continued to perfect the pellet press line and are completing at this time our first complete pellet plant.

In the mining industry, we are supplying our complete range of crushing equipment for almost all mineral extraction and reduction of practically every mineral you can imagine. The new mining sales force is doing very well. We are applying our surface binders in a number of new applications, and we are selling directional drills for mining lithium and other minerals.

For both the domestic and international infrastructure markets, we have added the complete concrete plant line, a concrete placer, additional models of stabilizers, a power broom line, additional processing equipment for recycling concrete, asphalt and roofing shingles. We just received a patent on our warm-mix process, which we applied for and introduced about three years ago.

Lastly, we have developed a number of processes to enhance the performance of our existing equipment, which will reduce maintenance costs and extend wear life on the wear components used in the equipment.

What are our concerns? Inflation continues to concern us. We see continued rises of component prices. We see extended component delivery problems going forward. And mainly, we see a lack of direction from Washington on highway funding, energy policy and deficit control, any and all creating uncertainty for our customers.

We continue to explore various acquisitions, both domestically and internationally. Again, the acquisitions are of various sizes and we continue to look at a number of them that would be add-on to our existing business.

With our strong backlog, we expect the second quarter to improve over our first quarter, and we expect to see a return to growth and continued improved results in 2011. We would be happy to answer questions if any of you have them.

(Operator Instructions) Jack Kasprzak, BB&T.

Thanks. Good morning, Don. First question is with regard to SG&A. Strip out the ConExpo expense and run rate in the quarter was somewhere between $36 million and $37 million. Is that the run rate by quarter we should expect for 2011, more or less?

Jack, there is some increase that will be steady. We had about a $3.5 million expense increase in payroll, and that was primarily we have added a number of people in the international sales area, the new mining sales force and some of that. And part of it was just normal increases. But we have a lot more legs on the ground internationally.

We had some unusual expense in R&D, more than we will have going forward, probably in the $500,000 to $1 million range, in that area.

The other areas, one of them which really irritates me, is the supplementary retirement expense, and that goes up and down every quarter and I hate to even bring it up. But if our stock price goes up, we have to take a hit. If it goes down, we get a positive credit, which --. That -- I guess the main one would be, though the main one, that probably about $2 million of that is additional sales expense. There was $1.2 million in commissions that will just always kind of run with increased sales.

Okay. I think you mentioned in your prepared remarks backlog continued to trend well in the second quarter, and included, I guess, a pickup in Underground. What are you seeing there, if you can give us some detail?

It has grown about twice what it was at the end of the quarter, primarily in the directional drill area and oil rig, mainly at American Augers. It has been a very good increase, and they are getting back up to -- I wouldn't say a normal run rate. But the bottom of their market kind of hit middle to late last year, was kind of the lowest point. And I was up there Friday and they are doing quite well. It is --

But we see, again, prospects for that to pick up. And depending on what happens with the gas drilling in this country, that could be a very good segment for us again, with more pipelines going in and a lot more drilling, and we are participating more in the drilling side of it.

So we are reasonably optimistic that we would sell more domestically. Unfortunately, most of that backlog, though, is all international. I should [not] say unfortunately, but what is coming in is mostly international.

I was going to -- on the subject of margins, I mean, the margins with good in the quarter. But given that, would you have expected your gross profit on a 19% sales increase maybe to have grown a little better? Again, not that it was bad; they were good. But [is there] some impact there from what you were talking about with regard to inflation and is that going to continue to plague you this year?

You know, it is the same old thing we've talked about in the past, is the good part of it, we were overabsorbed in most of the companies in the quarter, with the exception of the Underground companies, and they will be a lot better in the second quarter. But some of that savings we got from plant utilization was offset by -- we are seeing price increases of 4% to 8% in component prices. We've seen steel go up, although it has not affected us as bad yet. But certainly the price of steel has increased a bunch since November of last year.

Last year, we had some unusual things in the Asphalt Group, particularly at Heatec, where some of the industrial shipments had very strong margins and their margins were down. Astec probably had an inordinate amount of -- their parts business was probably a little better in the first quarter of last year. So we think we will see an improvement in margins in the second quarter over the first, but there were some unusual comparisons last year on gross margins.

Got it. Very helpful. Thanks very much, Don.

Robert McCarthy, Robert W. Baird.

Morning, Don. Morning, everybody. I wonder if I could just ask a little bit more about the Underground business and the difficulty in getting that business to break even, Don. Even with -- well, first, why don't we start with the improvement in the order book? Is what you are seeing enough to bring the segment back to profitability in the second quarter?

Hopefully, Rob. Our forecast shows that it will be. But it is -- mainly, the improvement has been in directional drills, oil drilling rigs, more in the American Augers than it has in the Underground.

I guess my question then goes to -- I presume that it is the small trencher business that is creating most of the problem for you. Do you find yourself thinking about -- or rethinking your presence in that space, or maybe doing something more dramatic with cost structure, given that we got a pretty lousy outlook for housing for the foreseeable future?

We are taking a hard look at that particular product line and restructuring that business somewhat. We got to fix it and we intend to.

It is -- a lot of that business is related to home-building and we just don't see that coming back for a couple of years. The other area, though, that I guess hangs in the back of our mind -- with the amount of natural gas drilling going on in this country, the next major crisis is going to be a lack of distribution of the natural gas. And we got a whole new infrastructure that will eventually have to be put in if we switch vehicles and other things to natural gas, which really utilizes that specific equipment. So there is a fine line between being brilliant and being stupid on what to do on that.

I prove that every day, Don. And McKamy, tax rate going forward, what should we be thinking as a targeted average rate for the balance of the year?

34.5% to 35%.

34.5% to 35%. And Don, you gave us a nice, thorough review of where you are at in a variety of different initiatives in the energy patch. And you mentioned the rig business -- do I hear that you have more orders for rigs, or --?

We are beginning to get some more. We just sold one in Australia, and a number of prospects for them. And we are looking at some acquisitions that would fit with -- would probably help us in the distribution of those more.

Still believe we've got a real unique opportunity there that is -- particularly with this oil and gas expanding in, the equipment for fracking and things like that, we see growing the things around the rigs themselves forward.

Okay. Thanks. I'll let somebody else go.

Rich Wesolowski, Sidoti & Company.

Thank you. Good morning. Don, from peer comments, it would seem that the Company has the opportunity to raise prices for equipment. Are you already doing so?

Yes, we are raising them. Whether we are raising them enough or not kind of depends on how this inflation continues forward. And we are also looking at some differential pricing for international sales, too. With the dollar being weak against a number of currencies, there is a little opportunity to do better internationally than there is domestically. But to answer your question specifically, yes, we've raised them.

Are the increases focused on one or two product categories or is it more across the board?

It is more across the board. Practically all of our customers -- all of our different segments. Probably from 3% to 5%, depending on which segment you're talking about.

Okay, so if your components are rising 4% to 8% and you are going to get bitten more by steel in the second half than the first half, I would assume, because of your supply agreements, is that 3% to 5% just the first step in getting in front of it and you would anticipate having to do more, or is that basically all you can do?

That is another one of those fine lines between being brilliant and stupid. We are watching it very closely. We have set up the complete prices of each machine, and we try to run them on a monthly basis to see what component prices -- you know, how it has affected us. A big component can really affect you a lot more than small components. You can have a bigger price increase in small items and it doesn't hit you as hard as the larger ones. So we have to really run it through the complete cost system and we are doing that on a monthly basis.

The other thing that again offsets it -- with the additional plant utilization, we do have some savings there that tends to offset that. But we are watching it very closely. And I would say there is -- I guess my feeling is steel probably is going to back off probably midyear or in the third quarter, and depending on what it does will affect what we have to do going forward.

Right. And lastly, this is a bit of an oddball question -- I feel funny even asking it. But are you almost hoping the Highway Bill is delayed further, given how good your domestic business is doing without it?

That's a good question. You know, if we get a Highway Bill that is either less or equal to the one we had in the past, we would be better off without it -- just continued. Although it is really hard. States will have to -- you know, you've got to keep the pavements in fairly good condition or the roads will just come all to pieces. And they will do that first. They will have to spend the money on maintenance first before they can add capacity.

So even a lesser Highway Bill I don't think is going to kill the asphalt market. But it certainly hurts the bridge builders, the people who are building -- designing and building big interchanges. I just don't see think you are going to see much of that for a while until the economy gets straightened out. But it hasn't affected our asphalt people near as much as they thought it would.

Great. I appreciate it.

Tom Hayes, Piper Jaffray.

Thanks. Good morning, Don. I was just wondering -- it sounds like -- McKamy went through a list of the international markets where you are doing well. I was just wondering if maybe you could provide a little more color as to which international markets are outperforming and in kind of which segments.

Typically, where there is oil and minerals, that is going to be the ones that is going to help you. But I guess Canada and Australia have always been good markets for us. We do see improvements in Russia. And a lot of stuff going on in South America and Brazil and those areas there. There is a lot of -- from an infrastructure standpoint, there is quite a few privatized roads. Or I think I mentioned on some of the earlier calls, some of the countries in South America -- Colombia, Chile, a number of them -- are using their government employee pension funds to loan that money at a reasonable interest rate to the consortiums that are building the toll roads. And then they use the tolls to pay off the pension funds, which is a great idea to me. I mean, they get the roads ahead of time. They get them maintained for 20 years. And they get a predictable return on their pension fund investment. So I think they've been a little smarter than we have on how they fund the roads. But there are some big projects going on in South America.

There is also some big dam projects, quite a bit of infrastructure in that area, which uses a lot of crushing equipment. And there is a lot of new mines being opened up, both in Australia and in South America.

In South Africa, 95% of our business is going to the mining industry. So wherever there is oil and minerals, that is what is going on.

In the US, a lot of aggregate used for oil drilling pads or gas drilling pads, where they go in and --. So there is quite an offshoot just from the drilling business that is helping the aggregate side, or our aggregate customers.

Okay. I guess shifting gears a little bit, I guess, how would you characterize the state of the used equipment market right now? Is it at a level where there is still sufficient inventory that a contractor could turn to that? Or has it been drawn down enough that there is not much out there and when the need arises, they are going to have to turn towards new equipment?

You know, it's interesting. On asphalt plants, there is just not many -- specifically, on asphalt plants, there is not -- there is a very limited market of used equipment, which is surprising. Most of our asphalt business is portable plants, our new ones. And there might be some used older stationery plants, but the need right now would be more for portable plants, where the people are starting to move and go to larger jobs.

In the mobile side of it, there is not -- due to the fact that in the last two years the market has been off, there is not a lot of low-hour used equipment out there. So we see there is a certain amount of pent-up demand for all of the equipment that is beginning to show up.

Great. Thank you.

Jason Ursaner, CJS Securities.

Good morning, everyone. You mentioned the immediate impact of component prices, but that steel hasn't really been impacted so far because you had locked in the inventory purchases. How soon do you see the low-cost inventory rolling off and raw material inflation beginning to hit?

Late June, somewhere like that, early July. We are basically -- steel is a big one, and I guess it depends on what they do and how strong the market stays where they can support the higher increases. Spot market right now is probably in the $0.55 a pound on discrete plate, and that is up from $0.39 to $0.40.

so it -- I don't see it going much more than that. Whether or not there is any backoff is going to be questionable. But I would say third quarter is where you are going to see most of it.

Okay. And in the Ag and Mining segment, can you just maybe talk about some of the major factors driving demand there, and talk a little bit about some of the opportunities that maybe you are seeing with some larger mining customers (multiple speakers)?

Most of our improvement there has been in the mining area, and there are a lot of new mines opening up all over the world. Some of them will even -- to open up quickly, will use track-mounted equipment to go in and start a mine, and we are selling equipment in that area.

Whatever you want to talk about -- iron ore, gold -- all of them are fairly busy, I would say, right now and are opening more deposits and increasing capacity in the ones that they've got. So we see a continuing growth in that area. With China and India are growing like they are, there is a continuing need for more commodities, copper, these other items. So that area looks good for the next 10 years to us.

On the domestic side, in aggregates, even with all the highway work, do you see the reclaimed pavement as kind of a headwind there to [bouncing] on the aggregate side?

Yes, I think our aggregate customers are probably at the bottom of the cycle. I think during this down cycle, some of their business has just eroded and they've lost it to a higher percentage of recycle asphalt, to crushing more old concrete and things like that. So there has been an erosion of their market just by reprocessing of a lot of the existing materials that probably won't come back. I think really, though, the need for aggregate is probably at the bottom of the cycle, I guess is where I would still. And I would say it is wallowing around there and going to be there for a while, until we get a recovery of our domestic economy.

What is helping them a lot, there is a lot of -- with all of the oil and gas drilling that is going on, depending on which area you want to look, but you can -- in Pennsylvania, some of our customers up there are -- one third of their business is going to make crushed -- for crushed stone for drill pads. Northern Louisiana is extremely busy. Parts of Texas is very busy, or most areas of Texas. They are going back into old oil wells, and with the horizontal drilling, they are getting a lot more oil out. North Dakota and that area up in there. So there is -- wherever they are drilling, there is pretty good aggregate business.

Okay. And you mentioned the orders you took at ConExpo. Did that $30 million go straight into backlog essentially?

Not necessarily. I mean, we sold the equipment that was there, number one. And I would say half of it went into backlog.

And one last question, on more macro funding, particularly the American reinvestment funds. You talked last quarter, a disproportionate amount of the projects going to pavement improvement. Were the funds all allocated for project that was delivered for last year's construction season, or is this a portion of what is in the backlog and what is being delivered now?

I would say there is probably this year 30% of the money -- the last 30% is being spent this year.

Okay. Thanks a lot. I will jump back in the queue.

David Wells, Thompson Research Group.

Good morning, everyone. First off, as I am looking at the mobile business, given the strength that we saw really starting in the third quarter of 2009 as the stimulus dollars it to flow, how far along are we in kind of that catch-up replacement cycle? And does that have additional legs, or are most contractors in pretty good shape now with the state of their paving equipment?

I hope it has additional legs, but I guess I'm not sure I could --. We have been surprised at the strength of that business, to be frank with you -- surprised and pleased. And we continue to get orders. We are getting more international orders now. And hopefully, international will backfill.

But just on a seasonal basis, obviously, the back half of the year is usually much weaker than the first half for that mobile equipment, because they buy it and they put it to work.

I am not sure I can answer as far as the market is concerned. I do believe we have increased market share there. We've also added and broadened our product line there in some unique products. We got a line of power brooms now, and we showed the first one at ConExpo and sold a large number of them at ConExpo. And we believe we've probably improved our market share, increased our market share in that area.

We've introduced a small line of pavers for commercial work, and realizing it was a bad time to do that. But still we are selling out at Carlson a good number of those and are very pleased with that. They introduced a new stabilizer, which gives us two in that line, and we will be introducing our third one shortly. So we've expanded the product base there, as well as the market has been good and we've increased market share.

Okay. That's helpful. Are you seeing issues with actual component availability in terms of being able to get what you need, or is it just more pressure on the pricing side alone?

It's a little of both. I think everybody cut down -- our suppliers basically shrunk just like we did in 2009 and in 2010. And they have all been a little bit surprised at the pickup in the market, and where you were expecting a three weeks delivery, you are now seeing six to eight weeks. So it is just they've had a lot of incoming orders and so it is stretched out our delivery time on components, is what has happened.

If you could refresh us, what percent of the business overall is tied to the mining industry right now?

Approximately 20% of it.

And then jumping back to one of the earlier questions, I'm trying to get a sense -- I think you said that you were looking at possible acquisitions that would help with the distribution of your drill rigs. Does that mean that you are looking more further down-channel and looking at distribution opportunities, or -- would that be your preference as you look at deals right now? Or are you still thinking more in the kind of manufacturing side of things?

More in the manufacturing side of things, to look at more established companies that are established and have a distribution for their products that could help with our products.

Okay. That takes care of it for me. Thanks.

Ted Grace, Susquehanna.

Good morning. First thing I was wondering, any chance you can speak to how the first-quarter results compared to your internal plans? I think you were helpful on that last quarter, so I would be curious just whether it is at high level, revenue and profit, where the biggest variances were. And then if you could tell us by segment just -- not to go through all five -- but kind of where the key variances were.

I think basically, it was -- I guess if you'll take ConExpo out of it, which we probably should have factored in, it is pretty much on plan of our forecasted internally. ConExpo obviously affected it $0.07, $0.08 a share. So it was pretty much like our first-quarter budget.

What was the second question, Ted?

I was curious -- at a high level, it sounds like it was generally in line with your expectations, both top line and EPS, Ex ConExpo. But I was wondering if there were any big deviations by segment.

The Asphalt Group, basically, they were pretty close to budget internally. And I think they had forecasted that; even on a year-over-year comparison, they were down like 15% on profit. But it was primarily -- again, as I mentioned, Heatec had an extraordinarily good quarter first quarter of last year.

Astec Inc, which builds the asphalt plants, which I just get tired of talking about it. But they had about $6 million, $7 million of delay shipments right at the end of the quarter that could have changed both the revenue and the bottom line of theirs. But that will show up in the second quarter.

And we always have some of these delayed, but -- due to weather and I forget what all -- there are two or three items that delayed them.

Was that the major slippage in the quarter, was just that $6 million to $7 million for Astec Inc.?

That was the major slippage, I would say. And the margins were not as good as they were a year ago, because they were kind of unusual in that group a year ago.

Okay. The margins is really a tougher comp.

Yes, that's right. Aggregate Group, obviously, has gotten a lot of international business, mining business, and has come back very strong. Mobile has been very strong, been very good.

Underground had a weak first quarter, but again, their backlog has picked up since then. I would say the last one, which is Peterson in Australia, kind of a flat quarter; but again, their backlogs are both good.

Okay. As a follow-up to a question I think Rich asked, last quarter you indicated -- if my recollection is correct, you were confident that you would be able to maintain flat gross margins for the year. I was just curious -- we appreciate all the inflationary considerations and the pricing initiatives you are putting forth. But are you still confident you can maintain flat gross margins this year?

Yes, yes. We still feel fairly comfortable on that.

Okay. And as we think about the 2011 outlook for the original equipment sales versus aftermarket, last year, mix was about 26% aftermarket. It was 24% the prior year. Normal, if you look over the last five, was probably in the low 20s. How would you suggest we think about that mix for this year?

I think the mix is going to be in the low to mid 20s, and somewhere between 20% and 25%. We are continuing -- and part of our SG&A increase, too, I mentioned adding international salespeople and the mining sales people; we are adding more feet on the ground to sell parts, part salesmen. The asphalt plant operation has got as many part salesman as they have new equipment. We are growing that in the aggregate side and continuing to add them as fast as we can train them in that area. So we plan to really continue to really push the parts business.

Okay. And on the printing initiatives, you mentioned, I think, 3% to 5% is -- 3 to 5. Is that across all the products or are you trying to get better pricing in the aftermarket parts and less on the OE side, or how should we think about the actual pricing?

Typically, it is more that 3% to 5% would be on new equipment. Parts, we basically try to price them to market as we -- and that varies with what components you are selling. When you are selling a few hundred thousand of them, you've got to price some of it to market.

The one good thing about the pricing of the parts is we can react very quickly there. But when you are pricing equipment, especially that has a big backlog, you are pricing out months ahead. And that is one of the things that Don and I try to get through to everybody, is that you've got to be on top of it and forecast out the cost of those materials to the degree that you've got backlog in hand. And some of our companies with the backlogs we have now are pushing out there several months.

Sure. So would it be fair to say you're going to get better pricing in the parts business than the 3% to 5% on the OE side?

I doubt that. There is plenty of competition out there.

Okay. That's great. Well, thank you very much. Best of luck this quarter, guys.

Robert McCarthy, Robert W. Baird.

Thanks, guys. I just have a couple small follow-ups and then one real question. First, Don, you mentioned the addition of the distribution service location in South Africa. When are you planning to open that?

During the third quarter. And it will be managed by our management team that is down there. The guy that's over Osborn will look after that, too.

And the pellet mill shipment that you talked about would occur in what quarter?

Probably in the late third quarter, Rob. We are actually erecting it on the yard and we will be running it here, doing a lot of testing before we ship it.

Is there some chance that it slips to fourth (multiple speakers)?

Could be.

Is that what you're saying?

Could be, but -- yes, it could.

And this will all be billed through Peterson?

It will all be billed through Astec. The others will be intercompany. We have pieces coming from BTI in Canada, from Telsmith, from JCI, from -- yes.

So everybody gets a little (multiple speakers).

Five different companies -- Heatec -- so --.

If I remember, we are talking something like $5 million to $10 million?

Yes, they're generally about $1 million per ton per hour. So this first one is a five ton an hour, so about $5 million.

Okay. And then the other question I wanted to ask you is I just want to sort of test my understanding of what is going on in the mobile business. You had a question earlier about the tremendous strength that has continued to carry in that business.

Put it this way. Your revenue was up about $8 million compared with last year, right? Almost --

Right.

Big increase. But you probably had some pricing in there. You have some product line extensions, so you are selling some product that you didn't have last year. And your international business is up big; I presume it also helped here. So my question is, assuming all that is right -- and please tell me if it isn't -- are you really seeing much of any volume growth in the domestic market?

Well, I would have to say, first on the international, it is probably -- Astec and Roadtec probably get the least. While international is -- let me grab the right sheet of paper here -- while international is important to them, they have probably at Roadtec got less benefit from international growth than some of the others. International sales is only 18.2% of Roadtec's business in the first quarter. And while in dollars it is pretty significant, it still as a percentage is pretty small. It is about 30% of Astec Inc.'s business.

So I think we -- I think I mentioned once, maybe just to you, Rob, but in the last 10 years, the average number of highway pavers sold has been about 650 per year, up through 2008. 2009 and '10, there were about 450 a year sold. So we are seeing somewhat of a pent-up demand domestically. And I think our competition is doing okay, too. I just think one or two of them have seen lost market share, and that market share has been gained by the other three that is there.

Okay, very good. Thank you, Don.

Thank you. There are no further questions at this time. I will turn the conference back over to management for closing remarks. Thank you.

Thank you, Diego. We appreciate your participation on our conference call and thank you for your interest in Astec. As our news release indicates, today's conference call has been recorded. A replay of the conference call will be available through May 6, 2011, 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 that information is contained in the news release that was sent out earlier today.

This will conclude our call. Thank you, and have a good week.

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