Astec Industries Inc (ASTE) 2011 Q4 法說會逐字稿

Greetings, and welcome to the Astec Industries fourth-quarter 2011 results. 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, Steve Anderson, Vice President of Administration. Thank you, Mr. Anderson. You may begin.

Thank you, LaTanya. Good morning, and welcome to the Astec Industries conference call for the fourth quarter and fiscal year ended December 31, 2011. As LaTanya mentioned, my name is Steve Anderson, I am VP of Administration and also Corporate Secretary for the Company.

Also on today's call are Dr. J. Don Brock, our Chairman and Chief Executive Officer; and David Silvious, our Chief Financial Officer. In just a moment, I will turn the call over to David to summarize our financial results; and then to Don to review our business activity in 2011 and also provide some comments on 2012.

Before I 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 can 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 will turn things over to David to summarize our financial results for the fourth quarter and the full year of 2011.

All right. Thanks, Steve. And good morning to everyone, and thank you for being on the call with us this morning.

We will start with the quarter -- net sales for the quarter were $263.2 million, versus $190.8 million for Q4 of '10. It's an increase of 38%; $72.4 million increase. Making that increase up, we had an increase in international sales of $44.8 million, or 63%. International sales were $116 million for the quarter, versus $71.2 million for the same quarter last year. International sales were 44% of sales for the Q4 of '11, versus 37% of sales for Q4 of '10. That increase in international sales occurred primarily in Australia, in the post-Soviet states, in South America, and in Canada. Domestic sales for the quarter were $147.1 million, compared to $119.6 million in Q4 of '10; it's an increase of 23%, or $27.5 million.

Parts sales for Q4 of '11 were $58.6 million, compared to $50.8 million for Q4 of '10; it's an increase of 15.4%, or $7.8 million. Segment revenues for the fourth quarter are attached to your press release, but let me give you their contributions to the overall sales for the quarter. Aggregate and Mining Group was 32%; Asphalt Group was 26%; Mobile Asphalt Paving Group was 17%; and the Other Group was 15%; and the Underground Group was 10% of net sales for the quarter.

For the fourth quarter of '11, net sales increased in each segment. On a year-to-date basis, net sales were $955.7 million, compared to $771.3 million last year; that is an increase of 24%, or $184.4 million. Making that increase up -- international sales increased 34% for the year, or $100 million. They went from $294.4 million last year to $394.4 million this year. That increase for the year occurred primarily in Australia, South America, in the post-Soviet states, and in Europe and Canada.

For the year, international sales were 41% of net sales, compared to last year, where they were 38% of net sales on a year-to-date basis. Domestic sales for the year were $561.4 million, compared to $476.9 million last year; that is an 18% increase, or $84.5 million. Parts sales on a year-to-date basis were $233.2 million compared to 2010, when they were $200.5 million; that is an increase of 16%, or $32.7 million. For sales by segment -- for the year-to-date and quarter periods are attached to your press release. On a year-to-date basis, the segments contributed as follows -- Aggregate and Mining contributed 35% of sales, Asphalt Group was 27%, Mobile Asphalt Paving Group was 20%, the Other Group was 9%, and the Underground Group was also 9%.

Move on to gross profit -- for the quarter, it was $55.7 million in '11, versus $44.3 million in '10; that is an increase of $11.4 million, or 26%. The gross profit percentage did go down, from 23.2% to 21.2% from the '10 to '11. Now, that gross profit is impacted in the quarter by the utility product line charge that you have seen on that last page of the press release. That was $2.2 million, and did go through gross profit. So, without that charge, the gross profit for Q4 was actually $57.9 million, or 22%.

Gross profit by segment is also attached to your press release for the quarter and year-to-date periods. On a year-to-date basis, gross profit was $218.8 million, compared to $179 million in 2010; that is a 22% increase, or a $39.8 million increase. Gross profit percentage on a year-to-date basis was 22.9%, compared to 23.2% in 2010. Without the utility line charges we discussed, which occurred in the fourth quarter, on a year-to-date basis, the gross profit for the year would be $221 million, or 23.1% on a percentage basis. Gross profit by segment is attached to your press release -- again, for the year-to-date and the quarter periods.

Move on to SG&A -- in the fourth quarter of 2011, SG&A was $43.5 million, or 16.5% of sales; versus it being 19% of sales, or $36.3 million in the fourth quarter of 2010. Some significant impact on the SG&A from quarter to quarter versus prior year was payroll and other related-type expense items. Health insurance costs and commissions were up, as well. On a year-to-date basis, SGA&E was $161.3 million, for 16.9% of sales; compared to $131.6 million, or 17.1% of sales, on a year-to-date basis in 2010. Some contributing factors to that SGA&E increase for the year-to-date basis was commissions; was also ConExpo, which happens every three years -- and we had that in 2011, but certainly not in 2010; payroll and related expenses; R&D, which I am sure Don will speak to, was certainly up. And SGA&E also includes the airplane impairment charge that you saw on the last page of the press release, of $2.3 million.

Operating income increased from $8 million for the fourth quarter of last year to $12.3 million in the fourth quarter of this year. That is a $4.3 million increase, or a 54% increase in operating income. On a year-to-date basis, $57.5 million this year versus $47.4 million for 2010; that is a $10.1 million increase, or 21% increase. Again, segment information is attached, so income by segment is included there. But let me point out that, as far as those special charges go that we have just discussed, the $2.2 million utility line charge certainly appears in the Underground segment, and the aircraft impairment charge occurs in the Other segment when you are looking at that. However, the Other segment also includes all federal taxes on those particular items, and certainly includes all federal taxes for all of the segments. We carry those taxes in the Other Group.

Other income in Q4 was $931,000, compared to $528,000 last year. And it was $2 million on a year-to-date basis, versus $1.6 million last year. The primary source of that is investments at our captive insurance company. The effective tax rate was interesting this quarter -- it jumped up to 39.2%, compared to 29.1% in Q4 of 2010. And the reason for that is that the R&D credit was expired and had not been approved by Congress through the third quarter of 2010. However, in the fourth quarter of 2010, Congress did renew the R&D credit, both retroactively for 2010 and prospectively for 2011. Therefore, the Q4 of '11 provision -- tax expense -- only includes the Q4 portion of the R&D credit for 2011, whereas Q4 of 2010 includes the full-year impact of the R&D credit for 2010. Tax rate for the year remained relatively stable; it was at 32.5% for 2011 and at 33.1% for 2010. The real impactor there was just some additional R&D credits that were recognized in 2011.

Net income attributable to controlling interest in the fourth quarter of '11 was $8 million, versus $6 million in Q4 of 2010; that is a 33% increase. Earnings per share for Q4 -- $0.35 versus $0.26 per share in Q4 of 2010; that is a 35% increase, as well. You will recognize that Q4 net income before special items, as we described in the press release, was $9.4 million -- $0.41 per diluted share. On a year-to-date basis, net income was $39.9 million versus, $32.4 million for the prior year; that is an increase of $7.5 million, or a 23% increase. EPS for that same year-over-year period was $1.74 for the current year, $1.42 for the prior year; that is a 22% increase. However, those numbers were also impacted by the special items, which, excluding those, would have resulted in net income attributable to controlling interest of $42.7 million, or $1.86 per diluted share for 2011.

Backlog is attached also as a part of that segment disclosure in your press release. At December 31 of '11, the backlog was $279.6 million, compared to $233.1 million at December 31 of 2010; that is a 20% increase, $46.5 million. The prior-year backlog was adjusted to account for our current-year acquisition, so that you are getting an apples-to-apples comparison there. The international backlog at December 31 of '11 was $131.6 million, compared to $122.1 million at the end of '10; that is an 8% increase, or $9.5 million. However, the December 31, 2011 domestic backlog was $111 million last year -- at the end of last year. It has increased to $148 million this year; that is a $37 million increase, or a 33% increase. Our January, which we typically talk to you about this time of year -- our January 2012 backlog was actually up 14%, or $35.2 million, to $294.1 million; compared to $258.9 million at January of 2011. That is also a 5% increase over the December 2011 backlog -- a $14.5 million increase over December '11 backlog.

Moving on to the balance sheet -- we feel that the balance sheet is very strong. Our receivables are at $102.1 million; they were $80.9 million last year. The good thing is that our days outstanding has actually come down from last year; it's at 35.1, compared to 38.5 at the end of last year. Our inventory is at $299.1 million this year, compared to $253 million last year. We are generating 2.6 turns in 2011, compared to 2.4 turns in 2010. We have nothing owed on our credit facility; we have $57.5 million in cash.

In Q4, we spent $7.1 million on capital expenditures. For the year to date, we spent $36.1 million on capital expenditures in 2011. Depreciation in Q4 was $4.7 million. Depreciation on a year-to-date basis was $18.6 million. And we believe that this is a great report for 2011, and we have a nice, strong backlog going into 2012.

And that concludes my prepared remarks, and I certainly will be available to answer any questions later in the call.

Thank you, David. Dr. Don Brock will now discuss Astec's business operations for 2011, and also make some general comments regarding 2012. Don?

Thank you, Steve.

As David mentioned, we had a strong fourth quarter, with revenues of $263 million versus $191 million in 2010, or a 38% increase. Our earnings were $7.9 million versus $5.9 million, for a 33% increase; and our EPS went from $0.26 a share to $0.35. During the quarter, we continued to have high R&D expenses in testing and developing a number of new products. On February 9, we consummated the sale of our utility trencher and small drill line to the Toro Company. We experienced a pre-tax loss, as David pointed out, of $2.2 million. We believe that this will be a win-win for both companies. With the exception of the utility line, all of Astec's products are low-volume and high-priced type products.

Toro is a premier manufacturer of high unit volume and low unit price products. Their buying power in these size products and their distribution should make them very competitive and successful with this line of products. The removal of this line -- which we have a OEM agreement with Toro to bill for them up through September. But after we clear out that line out of the plant, we plan to backfill the Loudon, Tennessee facility with the new line of pump trailers used for fracking and for well servicing. To manufacture the line of wood pellet presses that we have developed, we plan to build a line of Heatec hot water heaters used for fracking, and to continue to manufacture the large Trencor trenchers and surface miners in that plant.

Without the one-time charge, fourth-quarter earnings would have been $9.3 million versus $5.9 million, or a 55% increase. Earnings per share would have been $0.41 versus $0.21, or a 58% increase. I might point out, as we talked about in the third quarter, our fourth quarter was also helped by a pickup of inter-Company profit that could not be taken in the third quarter, on equipment that was on its way to Australia, and that was successfully there and put into service and sold here in the fourth quarter.

For the year 2011, during the year we had a number of unusual items, many of those that we had previously discussed in our conference calls. A few of these were the write-down of the aircraft that we mentioned, the asset write-down of $2.3 million; very heavy R&D expenses; and, as I mentioned just a moment ago, the sale of the utility line. Even with these items and a very weak domestic economy, the continued lack of action for a new highway bill in Washington, we managed to increase revenues from $771 million to $956 million, or 24% for the year. Our earnings, as we mentioned earlier, increased from $32 million to a little less than $40 million, or 23%. Our earnings per share went from $1.42 to $1.74 after the asset write-downs, as mentioned above. Without the asset write-downs, our earnings would have been $42.7 million, or a 32% increase. Our earnings per share, as shown in the press release, without the two asset write-downs, would have been $1.86 versus $1.42.

During the year, we acquired two companies, we started one joint venture, we bought two new facilities, and we added on to three of our existing facilities. And we developed a number of new products that will help us as we go forward in the future. Our international sales grew to 41% of our business, and we ended the year with a backlog of approximately $280 million versus $233 million in 2010, or a 20% increase.

Looking forward to 2012, we have started the year with a strong backlog. The effort started three years ago to increase international sales for our infrastructure equipment; to sell more equipment in the mining industry; and to grow, develop, and acquire products in the energy industry are starting to pay dividends. We remain concerned, due to the uncertainty related to the highway bill, and what direction we will have there for our domestic business. Most likely, we believe that over the next few years, that highway spending will remain flat. I would like to think it would be different, but I don't see that. However, with all of our other initiatives, we expect 2012 to grow approximately 15% over 2011. We remain concerned about inflation and components and steel prices. However, with the increased volume, improvement in product mix in the Underground Group, less R&D expenses, and one-time write-downs, we hope to see an improvement in our bottom-line performance in 2012.

We would be glad to answer any questions at this time.

(Operator Instructions) Robert McCarthy, Robert W. Baird.

Very impressive quarter, congratulations.

Thank you, Rob.

I -- wondering if you could help us with some details here. The strength that you reported in the Other segment, I presume is mostly the Australian sales that you were talking about?

That is correct.

And can you tell us what the revenue contribution from the acquisition was during the fourth quarter?

About $10 million, is about it. They did not have the strongest quarter, the fourth quarter is weak for them, generally. But GEFCO should be about a $65 million annual revenue, and they ended up with about $10 million for the quarter.

Okay. And the business that you sold -- the product line you sold, I should say, contributed how much to revenue? And what was its contribution or loss on the operating income line for 2011?

For 2011?

Yes, looking backwards, what do we save -- what does it cost us on the top line, but what do we save in earnings by divesting the business?

It's about a $16 million to $18 million sales business, the way it is right now. It has been a loss for a number of years, Rob. The problem is, the operating loss was not as bad as -- we went to '07-'08 running wide open, built up a sizable inventory on that. And the way we write off inventory fairly aggressively, we have had a number of write-downs. We have averaged probably $3 million to $4 million loss a year in those, in that line.

And -- but you are going to continue to build the product through September?

We have an OEM agreement with them, where they buy the components, and we will build them at our standard cost through September. We do not anticipate very little loss on that. Our write-downs are over with, as far as inventory.

But they have acquired some inventory from you, so there will not be a -- do we take 75% of $16 million annual sales and assume that that is the right kind of number? That sounds high.

Basically, they acquired the inventory and the product line from us, and we took a hit on the inventory. That was the $2.3 million hit that we took. In addition to that, during the year, we had taken our normal write-downs due to obsolescence or excess items. So, that is where -- there will be no longer write-downs on excess or obsolescence; and basically, the inventory now belongs to them.

And it's -- okay, so, it is basically neutralized going forward.

That is correct.

All right, thanks a lot. I will get back in line.

Jack Kasprzak, BB&T.

Great numbers, congratulations on a good year. I wanted to focus, though, on the margin -- again, strong sales performance, and the gross margin was up. But the gross margin percentage, even without the charge, was down. Can you talk about that, and what it would take -- or why you did not get maybe a little more operating leverage there?

Jack, I think the -- we had a number of unusual items. We spent about $4.3 million more in R&D expenses than we have in previous years. We had the write-downs, obviously, on the Underground inventory that was sold to Toro. I would say the best analysis -- David and I went back for our Board meeting that is coming up and really analyzed 2008, which was our record year, and said -- our volume is not far from that. If you take our core businesses, it's around $900 million -- we were at about $900 million in the same businesses that we had in 2008.

If you take the unusual items that we had, the write-down of selling that Falcon aircraft, the R&D expenses, we wrote down another product line that we had at Roadtec -- and if you take all of that and consider the difference in volume in it, our margins come out to be about 23.6% this year versus 24% in '08, which is down slightly. And you might say -- why didn't we compare it to '10? Well, we were saying -- we have a lot more volume. But it is primarily these one-time items, Jack, that made the difference.

Our aggressiveness in R&D expenses will not be that strong next year. We are getting a lot of these products -- the biggest R&D expense has been on this pellet plant, and we are getting at the end of that, which we will start building those this year. And that has been a very heavy, very large product line development, and very expensive. But if I take those one-time expenses out of it, we are about -- we are looking at about 23.6% on the gross margin.

Okay. So, it sounds like -- first of all, your comment on 15% sales increase for 2012 versus 2011, based on your backlog being up very nicely. So, it sounds like we should maybe expect a higher gross margin too. I mean, we would not think we would have these write-downs, less R&D expense and some operating leverage to translate, all else equal, to a higher gross margin. Is that the way to think about it?

Yes, that is the way to think about it. We would expect our earnings to be quite a bit better next year.

Okay.

My reservation in getting too optimistic is, we just don't have much long-term visibility. I would feel a lot better if we could see something on a sustained highway bill and some things like that. But with 50% of our volume just about coming from international, it is more difficult to get a read on it than it is for us to get -- I always felt like I had a gut feeling for what is happening domestically, but I can't read the international quite as well. We had a -- Asphalt sales were up very strong in the fourth quarter. We had about a $15 million order come from Azerbaijan in October that none of us was expecting, and which was very, very good. And about two-thirds of that was shipped in the fourth quarter. Some of those kind of pop up internationally, that you have a better read on it domestically.

Understood. But your domestic numbers, your sales and your backlog numbers, are up nicely and starting to ramp a bit. So, what is driving that, if -- given that we all know highway spending is basically flat and we -- prospects for a highway bill still seem pretty dim?

I hate to say that I -- it's one of those GOK, God only knows what it is. (laughter) Again, in all seriousness, we have a better product mix. If I look at the heaters we built at Heatec, we have a very, very strong backlog for the energy business, for gas-processing plants, for the tar sands, for heaters in the tar sands, a number of applications for the heaters that -- and that business has grown very well for us. The Underground -- the fracking trailers, we have orders for over 16 of those, and you are looking at over $1 million apiece. And we have verbal orders for another 16. So, we have got-- and a lot of those are not on our backlog.

Right.

And I guess what I'm saying is, the product mix in other industries, we have seen a good pickup in the drill rigs up at American Augers, and the product mix is enough different that we are servicing other industries. If we were dependent on the same product mix that we had in '07 and '08, our revenues would probably be 30% less.

Got it. And also, on SG&A, it sounds like all of the -- David mentioned those one-time items were in gross -- or in cost of sales in the quarter or came out of gross profit. SG&A -- $43.5 million or so, it sounds like some of that is obviously related to the sales increase. But for 2012, is that kind of a quarterly run rate number we will be in, more or less, given where sales are?

That is probably the run rate. We expect the sales to be up -- we expect a percentage of that number to go down, but the actual number will probably stay in that range.

Got it. Okay, great. Thanks very much, Don.

Rich Wesolowski, Sidoti & Co.

Your backlog is at a record. Can you comment on the delivery times among your big-ticket product lines, and whether that will soon influence, if it hasn't already, the volume of orders that you would like to accept?

We are out into May or June on asphalt plants, for example. The crushing equipment, some of it is -- we are struggling a little bit on it. The heaters for the oil and gas industry, we have over a year of backlog in some of that. But those projects are kind of stretched out in themselves. We are fairly comfortable with the backlog level. If it was any higher, I would be uncomfortable; I will put it that way. We are not losing deals due to the delivery at this point, but we are right on the ragged edge. There are -- a lot of our customers don't order until they want it. And so, we are getting -- I would not want it to be any larger than it is, and be able to not miss orders, I guess.

Right, okay. It was my understanding that your R&D expenses are included in SG&A. Is that incorrect?

That is correct.

They are in SG&A.

Yes.

Okay. Would you mind discussing in a little more detail the outlook for inflation in the components and the steel -- as you mentioned in prepared remarks, the pricing power for your products and the prospects for you to hold gross margin or even expand it in '12?

We have seen -- we have had probably, on average, price increase in the 4% range, but we are seeing some of our component prices to be in the -- much higher than that. Not all of them. I would say, on a weighted average, that we are seeing probably increases of a size 5% to -- somewhere between 4% and 7%. The exception to that is that we are switching more to the Tier 4 engines. We are seeing prices of 40% to 50% higher on them. But on an overall weighted average, probably 4% to 7%. We still have competitive pressures and we have competition. They are not as busy as we are, particularly on the domestic front. Our international mix tends to help us a little bit. But on the domestic front, the asphalt plant market is still very competitive. And also on track-mounted crushers, things like that, it's just very competitive.

Has the steel component of your cost changed much since the last call? I can't imagine it has.

No, it's kind of flat. They keep talking it up. We are pretty well locked in through June now. It's -- I would say it's stable right now on steel.

Okay. And then, lastly, on the September quarter call, you suggested there was about $40 million in pellet plant orders that could be booked if you had the confidence that your plant had passed the quality inspection. It sounds like you have not reached that approval as of yet?

We are on the ragged edge, I guess. Our confidence level is probably considerably higher than it was in October there. We are running the plant, as we speak, 24 hours a day to try to get hours on it before we take orders. We are on the verge of taking our first couple of orders right now.

Appreciate it. Best of luck in 2012.

Okay, thank you, Rich. I might add that in our budgetary planning, we put nothing in for the pellet plants; so, that is kind of a bonus.

Jason Ursaner, CJS Securities.

On the SG&A, can you just break down the percent of payroll versus R&D? And then, within payroll, when you look at the year over year increase, how much is investment in sales positions that are ahead of revenue in new markets and new geographies?

David, do you have -- on the year over year -- what was the second part of that question? Maybe I can answer that while he is looking it up here.

How much of the increase is coming from increases to what you have had on your core, versus new products and new markets where you are putting in sales ahead of revenue?

Okay. I would say that probably, conservatively, we have 15% to 20% that is coming from new products. I looked at probably -- our R&D expenses were about $4.3 million over last year, our engineering expenses were about $3.5 million above last year. A lot of that $3.5 million that we don't show was R&D, but that engineering increase was primarily due to new products and product editions.

And Jason, of the increase year over year, which was $29.7 million, about one-third of that was primarily related to payroll and those types of related items. Within that, as far as the breakdown of -- you talked about selling personnel versus other personnel. Is that correct?

Yes.

We have increased our employment from our low point in '08 to -- in '07, I should say, about 3,100 up to -- we are close to 3,900 as we speak. I would say approximately two-thirds of those are direct manufacturing, though. Of our staff, there is about 10%, a little over 10% of that 3,800, that is in engineering. I'm not sure we are getting all of your answers; but of the SG&A, though, to answer your question, it's probably -- basically, about two-thirds of it is payroll.

Well, one-third of the increase is payroll and related items.

Okay. I think that helped a lot. And then, just for the overall outlook on the Asphalt side, you got a question on how you are showing the increase versus more of a flat market. But what do you think the recycle is doing for you? Is it allowing contractors to do more with less funding? Has that been maybe what has been driving the increase for you guys?

We think so. We have technology today where we can now run through our double barrels up to 60% recycle. We are ahead of what the states will allow. We have -- the technology is ahead of what is being permitted. The National Center of Asphalt Technology, that I am on the board of, we have data now showing that the recycle basically will last much longer than the virgin material, if you do it properly. And states are -- there is a meeting next week down there of state DOTs looking at the test track. And we are seeing DOTs gradually allow higher percentages of recycle; and over the next couple of years, we think that will really take off too.

I think our technology is ahead of what they will permit. I don't think -- I know it is. So, to be competitive, we have got to run more recycle. We have to get more miles for the dollars that the states have to spend. And I see that coming. There is no question, we can't get equal or better performance. And fortunately, our equipment is ready for it when they allow it, I will put it that way.

And right now, on a national level, it's something like 20%. What do you think that could go to?

Jason, it's around 20% on a national level. I expect within five years, we will be in the high 40%. The economics are just -- we are having service seminars here, and I speak at the opening of it. If you run an all-virgin mix today, with the price of -- on an average in the United States, your material costs, if you are burning natural gas, is about $47 a ton to run through the plant. If you do it with the number 2 diesel fuel, you are going to be around $50 a ton. If we put a 20% recycle, we drop it from that $47 down to $40. If we go to 50%, we drop down to $31 a ton. You can add roofing shingles into it, and 5% roofing shingles will take it down another $5. Where they will allow us to go to 50% wrap and 5% roofing shingles ever, I don't know it will quite get to there. But we are seeing a lot where we could get up in the 40% and 50%, and that -- so, you can see it's a substantial reduction in the cost of the mix.

I appreciate those details. Thanks a lot.

Nick Coppola, Thompson Research.

I'm looking for any update on the US Army contract. You see Asphalt revenue and backlog up, I wonder how much of that, either in revenue or backlog, is from that $89 million contract that you talked about last quarter?

We have orders for 7 of the 24 plants. The others are not guaranteed, so we do not have them in the backlog. The first order, there is a -- to answer your question, there is about $20 million in there that is from that, approximately. The first order was for three plants, plus all of the documentation and the testing was around $13 million. And then, there were four more added to it. So, maybe even closer to $25 million.

$25 million backlog?

Right. Yes, sir.

All right. And then, you also spoke about a 10% to 15% revenue growth for fiscal year of '12.

Right.

I wondered if there is any update on that, given higher backlog this quarter and from January?

Well, it's not as good as it sounds. We acquired about 7% of that backlog last year, that did not come into the backlog, with GEFCO and a little company in Germany; you might as well say you have about 7% of it that is coming from there. You probably have 4% of it due to inflation or price increases, so the true, real growth is probably 4% to 5%.

Okay. And then, talking about acquisitions, what does the acquisition landscape looking like, going forward? Have you seen anything out there that fits strategically or you can find at an attractive valuation?

We are looking at a couple right now. Probably in the foreplay part of it; we are not gotten very far along. But the acquisitions -- our plan for this year is to digest what we have and get our margins improved back, get some of these product development finished. We kind of -- have really had a major overload with product development, and I am, unfortunately, guilty of that. We need to get those products finished and out, and that is really our plan. If a decent acquisition comes along, we certainly would look at it seriously. We have the cash to do that. There is one, in particular, I would be very interested in, that we are just in the early stages of. But not anything serious beyond that.

Okay, thank you.

Todd Vencil, Sterne Agee.

Don, are you starting to look at bottlenecks in the manufacturing process? And where would those be popping up?

Well, yes, we have had bottlenecks, probably in our -- and are working on those. We have a lot of opportunity to improve at GEFCO, the company we just bought. Their former owners had not really invested anything in new equipment there. There is some real opportunities there. We have had -- probably our biggest bottlenecks now, if I had to categorize it, is more in the machining side of it, both in -- it's primarily in getting -- you look at the unemployment rate, it's very low in South Dakota. You look in Milwaukee and places like that, machinists are very scarce, because the other manufacturers are doing well, also. And so, our bottleneck, I would say, in Oregon, in Yankton, in Milwaukee, is more in the machine shop areas.

We are adding more sophisticated and automated machine tools in there, but you have to have the operators to run them. In Canada, we have had some pretty good inrush of business up there, and we have had some bottlenecks there. Those seem to be leveling out. We will, with taking orders of these pellet plants, have some capacity problems at Astec. There is a -- one of these pellet plants is equal to a whole bunch of asphalt plants. So, we could see some need to add to this facility at Astec within the next 12 months. But not too many. Heatec, we added a new bay to it last year; in South Africa, we have added new bays over there. Heatec is -- probably needs to add another bay. So, it varies company to company. The only -- the underutilized plants we have probably is at Loudon. American Augers is still slightly -- is still underutilized, and GEFCO is underutilized. But we are picking those back up.

It sounds like partly personnel, partly machinery, just in -- spread out here and there in spots.

It's a little bit of all of it. The rest of the story too, we -- if you just look at the numbers, we don't work near as heavy second shifts and night shifts as we do on the day shifts. We have room to improve those; but you also, truthfully, have a lot of trouble getting people to work on those shifts. So, that is where your challenges are.

Got it.

If we get the orders, will find a way to fill them. So, that is -- that doesn't bother me too much.

I like to hear that. What about components? Are you having any trouble getting those in?

No. We did for a while. Some of the other suppliers have ramped up, but there is a lot of people here in the depth of the downturn, really did like all of us, they cut back. And as business picked back up, they struggled a little bit. We are having trouble with Tier 4 engines, getting them as fast as we need to. And there is a struggle between this Tier 4 and the flex engines and all of that between all of our companies. That is a challenge, but that will work itself out. Hydraulic components continue to be somewhat of a challenge in specific areas.

Got it. Thanks a lot.

Morris Ajzenman, Griffin Securities.

You spoke in detail early in the call on gross margins, and giving some adjustments to get us a better feel for what they are on a normalized basis. If you further drill down to Mobile Asphalt Paving Group, in the most recent quarter they were 23.8% versus 28.3%. And again, the color you gave earlier helped in getting some detail there, as well as the Underground Group. Can you give us some idea of what is a more normalized gross margins for the Mobile Asphalt Paving Group going forward? Should it be closer to 28.3% for this coming year, or somewhere in between? What should we look at, based on your current orders in hand and how you see things playing out over the next year or so?

Well, Morris, there are two factors that affect it. And to answer your question, I don't see much of improvement, if any, in the Mobile this year due to the fact of phasing in these Tier 4 engines. That is a major redesign, and a high -- the engine suppliers are loving it, because they are getting a good increase on these Tier 4 engines. Due to the Tier 4 engines implementation, I don't see much improvement there. Going forward, we think we will pull it back down.

The other thing that makes these margins kind of vary a little bit -- the margins are worse on the machines and better on parts. And so, what you are looking at is a weighted average. And the more parts we sell -- and we see a good growth, a continuing growth, in our parts business, we are aggressively trying to sell parts both for our equipment and our competitors' equipment. And just in talking to our guys, the parts business continues to grow and be strong, which helps your overall margin. But what I see in the Mobile -- don't expect any more, if quite as much as we had this year, in that particular segment, because of these Tier 4 engines.

Thank you. And just one last follow-up, separating those things in that question -- for 2012, can you give us some sort of help on tax rates, CapEx, and depreciation?

I can. I think the tax rate will be back to a normalized run rate of about 35%. And we are looking at -- in 2012, we are looking at a very similar year on capital expenditures. We did $36.1 million this year, we are probably $37.4 million.

And depreciation?

And depreciation, will actually -- we think it will increase next year, it will be about $22 million in 2012.

Thank you.

Brian Rafn, Morgan Dempsey.

Give me a sense, maybe a broad view, kind of your operating shifts, labor you are running, by different segments, overtime that you guys might be paying. And then, also, a bit on -- you talked a little bit about commodity inflation. What do you see for salary and wage inflation, and then benefit inflation?

For salary and benefit inflation, we see probably in the 3% range. Our shifts are working, in general, about 50 hours at this point. We find that some labor -- some overtime does not really cost you. You have certain fringe benefits -- vacations, insurance, all of those things that are basically a fixed item. And while you are paying the overtime premium, it pretty well balances out what your benefits would be if you hired new people. So, we find that generally, rather than hiring a bunch of people and having to lay them off, we are more aggressive on working overtime.

Typically, our businesses, particularly domestically, is generally about 60% in the first half of the year and 40% in the back half. International tends to be, often, just the opposite of that, particularly if it's south of the equator. So, we generally are aggressive on working overtime. But if you work much over 50 or 60 hours, you start to get into fatigue problems; so, we don't try to go much over 50, 55 hours. Does that answer your question?

Absolutely. Let me ask you -- as tepid as the road-building thing, situation is in the US, and the overhang of not having a highway bill and the extensions -- if you look at the business you are doing, whether it be asphalt hot mix plants or paving equipment, are you selling more to national road builders or more regionals? Is it more rental fleets? Is it capacity, which I probably would say it would be, or is it more obsolete to replacement?

It is generally more obsolete replacement. It is generally more to the privately owned entrepreneurs. The national companies are very conservative on their expenditures. Many of them still save their money to try to make acquisitions instead of updating. But I would say the preponderance of our business, still, are to the privately owned companies -- the more entrepreneurial-type companies that probably are not as focused on bottom line as they are on being competitive and being a little more focused on their business.

So, that -- are still -- the only exception to rental companies in the Aggregate business, particularly the smaller track-mounted crushers, a lot of those go through a dealer network; and they do a lot of rental, but it's generally rent to own. And we have seen a pickup, where they have exhausted their fleets and are ordering more for stock than they have in the past. That is not a huge part of our business, but Kolberg-Pioneer JCI mobile screens that go through that dealer network, we have seen an increase in what they are ordering for putting into stock. And they are doing a lot of it that is going out on rental.

Okay. If you look back, you made a comment on the last couple years -- how has your part sales ramped up? If you are seeing road builders that are waiting till the last minute, and everyone is worried about the highway bill -- has your parts -- repair parts sales business, has it moved up? Or has it been kind of strong but flat?

It has moved up. It's remained -- last year, it was about 24%, 25% of our business, and continues to grow. But the overall business is growing. But if you really took -- if I go back and take the core businesses that we had three years ago, we have very little parts business in the new products we are selling in energy, in the oil drilling rigs. We don't have -- in other words, those -- the parts business hasn't -- they haven't been out there long enough to have much. So, if I took our core business of asphalt plants and crushers, I would say we have seen in those segments, the parts business probably grow a lot more than the new equipment.

Okay, all right. Fair enough. Let me ask you a strategic question, Don -- if you had your druthers on Chattanooga, would you want a highway bill that would come in, about average, the $260 billion, $270 billion? Or would you rather wait for an extension to get a much larger bill, say $400 billion to $500 billion?

I would rather wait on a larger bill. These darn continuing resolutions don't give the states any guidance or any clearance of how to go on and make large project designs. So, it keeps doing more just repair business -- which is not all bad for the Asphalt side of the business, because you end up getting more overlays and inlays in that type of work. But what they have to face up at some point is that we are adding a Chicago a year to our -- we are adding 2.7 million people a year. They have to have goods and services. We have 7 million trucks on the roads. We have to do something to improve our infrastructure, rather than just kicking it down the road.

There is talk of a -- again, I have worked a lot on this myself, but a new vision for the interstate where we would have dedicated truck lanes. The truckers are behind it, the truckers are willing to pay for it. And they just want to pay their fair share, is about what it amounts to. And there is on the drawing board like a 27,000-mile interstate system, beside the existing system, where we would have dedicated truck lanes. We need somebody with a vision that would take that and go forward with it. If we don't, we are going to be about like we were in 1956, where the whole country is going to be in gridlock, because we are adding -- when you are adding 2.7 or 2.8 million people a year, that is the size of the city of Chicago, and we are going to do that for the next 20 or 30 years, we are going to get where we can't even move.

Yes, okay. Good, good. One more question -- you talked about the difference in using recycle versus virgin asphalt. But you also mentioned that the recycle last longer. What kind of lifespan extension do you get from the recycle?

The beauty of asphalt, is I think it's a perpetual pavement. You can continue to reuse it. Concrete, you can reuse the aggregate, but you can't reuse the glue. Asphalt, you can revitalize, reuse the glue, if you want to call it glue, but we can reprocess it multiple times. The new asphalt basically, generally, has a base asphalt in it, and in order to meet the state specs, the oil companies cut it back with light oil that basically -- I call it slick 'em instead of stick 'em. The slick 'em evaporates in about one year. So, the recycle is a pure liquid and actually, the performance of it, it glues better than that that has been cut back. So, the older asphalt seems to have a better performance -- not seems, or does have a better performance than the new.

Okay, sounds good. And then, you guys mentioned headcount going from 3,100 to 3,900. Don, any -- what is your sense in 2012 of headcount hiring?

We expect, probably, our average to be 4,000 in 2012.

Okay. Outstanding job, guys. Thanks.

Robert McCarthy, Robert W. Baird.

Don, your observation earlier that you are really looking at something like a 4% to 5% volume increase in your 15% top-line forecast -- could you talk about which segments of the Company that you expect will be able to grow faster than that, as opposed to those where you think it will be a little more challenging?

We took the numbers that came in from the 18 subsidiaries, and just -- that was our budget. We did not play with them or anything. And I think the budget was fairly conservative. When I first looked at the number of about $1.1 billion to $1.15 billion, I thought -- I swallowed hard and said that is a little strong, which is about 15% when you look at it. When I look at it, though, and you look at we are adding about $70 million from GEFCO to what we had this year, that puts you at about $1.02 billion, and then you take inflation -- I am being too honest, I should not talk about inflation.

But the real growth, probably of 4%, is probably going to come out of these pellet plants and more products going to the mining industry and more products going to the energy side of it. We see American Augers and Astec Underground, and Heatec and Astec all as growing next year, real growth. So, we could be a tad conservative, but with the unpredictability of what is going on in Washington in an election year, it is hard to be any more optimistic than we are.

You mentioned mining a couple times, and you have talked about strength in mobile crushing, for example. You are not expecting the Aggregate and Mining segment to be up?

Yes, I do expect it to be up, but it will be up probably more in mining that it is in infrastructure. We are growing in Australia in mining, we are building the plant in Brazil, and that is predominantly going to Mining. One thing, it's -- South Africa is doing better than it shows. The darn rand is varied so much that if you look at our backlog, their backlog is up 12%; but when we convert it to dollars, it's down about 8%. So, you have a little bit of that to worry about too.

If I could follow up, it was not perfectly clear to me -- in the fourth quarter, did you feel like, with price increases, that you had covered material cost inflation? Or was material cost still a bit of a drag in the fourth quarter?

I think material cost was still a little bit of a drag. We were -- our absorptions were a lot better, and that is the thing going forward. We will have -- if we can -- when we run more man hours through these plants, we cut our labor rates; and that helps to offset some of these increases. We take our managers, basically, and see what we think the market will stand on price increases. And frankly, it does not always equal to what we are seeing in component increases. But fortunately, when we see the market growing and we have more man hours running through these plants, we offset some of the increases there.

Okay. And then, in 2012, do you think it will be roughly a wash, or are you expecting material costs still to be a bit of a headwind?

I think it's going to be a wash.

Okay, all right. Thank you, Don.

Walt Liptak, Barrington Research.

I will try and make this one a quick one. Just following on the pricing question -- are you raising prices again in any of your product groups for 2012?

We did most of it in the fourth quarter, and we are beginning to -- we won't see the effect of it probably for another month, with the backlog that we had going into it. So, typically, no, other than on the -- where you are going from Tier 3 to Tier 4.

Okay, got it. And with the acquisitions, including GEFCO, was there a purchase accounting charge this quarter?

No.

Okay. And then, there is none expected for first quarter? Was that business profitable? Was it accretive during the quarter?

It was slightly profitable, yes.

Okay. Do you have any update on the 2012 accretion expectation?

We expect GEFCO to do in the $60 million to $70 million range, pretax, pre-corporate, in the $5 million to $6 million, somewhere in that range.

Okay, good. And then, just the last one -- (multiple speakers)

I hope they are not listening, because I expect them to do better than that.

And then, the last one on the -- you said you were surprised by the international asphalt order activity, and it's a little bit harder to predict. Can you try for us? Is there a chance that we get more surprises throughout 2012, because of international demand in the Asphalt Group?

I think it will be equal to last year. And when you look at international, probably the strong markets are Canada and Australia and South America, and the former Soviet countries. Those are the one that is harder for me to predict, is what is going to happen over there. We had a $15 million order from over there that was a surprise for most of us. But I guess Australia and Canada is not that bad to predict; but again, the former Soviet Russia should buy a lot of stuff this year, but they are very unpredictable.

Okay. And are you able to keep margins, international margins in the Asphalt Group, at least similar to domestic?

Yes, yes.

Okay, great. Thank you.

There are no further questions in queue at this time. I would like to turn the call back to Management for closing comments.

Okay, thank you, LaTanya. We appreciate your participation on our conference call for this fourth-quarter and year-end 2011. As our news release indicates, today's conference call has been recorded. A replay of the conference call be available through March 6, 2012, 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 thank you for your time. Have a good week.

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