Astec Industries Inc (ASTE) 2013 Q4 法說會逐字稿

Greetings, and welcome to the Astec Industries' fourth quarter 2013 Earnings Conference Call. (Operator Instructions). It is my pleasure to introduce your host, Steve Anderson. Thank you, Mr. Anderson. You may begin.

Thank you, Christine. Good morning, and welcome to the Astec Industries' conference call for the fourth quarter and fiscal year that ended December 31, 2013. As Christine mentioned my name is Steve Anderson, and I'm the VP of Administration, and Secretary and Director of IR for the Company. Also on today's call are Benjamin G. Brock, our President and CEO, Richard Dorris, EVP and COO, and David Silvious our CFO. In just a moment I will turn the call over to David to summarize our financial results, and then to Ben to review our business activity during the fourth quarter.

Before we begin I would remind I 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 that you familiarize yourself with those factors.

At this point, I will turn the call over to David to summarize our financial results for the fourth quarter and the full year of 2013. David?

Thanks, Steve. Thank you everyone for joining us this morning. I will walk through the financial analysis quickly here. For the quarter, net sales were $223.9 million in Q4 of 2013 compared to $227.6 million in Q4 of 2012. That is a decrease of 1.6%,or $3.7 million.

International sales for the Q4 of 2013 was $81.35 million, compared to $98.6 million in Q4 of 2012. Now, that's a decrease of 17.4%, or $17.1 million in international sales.

International sales were 36.4% of our Q4 net sales. compared to 43.3% of Q4 2012 net sales. The decrease in International sales for Q4 2013 compared to Q4 of 2012 occurred primarily in Mexico, Australia, Africa, Asia, India and the middle east. Those decreases in most geographic areaswere offset primarily by increases in the post-Soviet states.

Domestic sales for the fourth quarter of 2013 from $142.4 million,compared to $129 million in the fourth quarter of 2012, an increase of 10.4% or $13.4 million. Domestic saleswere 63.6% of Q4 2013 net sales compared to 56.7% of Q4 of 2012 net sales.

Part Sales for the fourth quarter of 2013 were $56.8 million and that compares to $58.1 million for the fourth quarter of 2012. That's a 2.22% decrease, or $1.3 million. Part sales were 25.4% of quarterly sales in Q4 of 2013, compared to 25.5% of net sales in Q4 of 2012.

On a year-to-date basis, sales were $933 million, compared to $936.3 million for 2012. That's just a slight decrease of $3.3 million.

International sales on a year-to-date basis in 2013 were $333.9 million,compared to $363.8 million in 2012. That's a decrease of 8.2%,or $29.9 million. The decrease on a year-to-date basis from International sales occurred primarily in Australia, Canada, Mexico, Europe and Brazil and the rest of South America. These were offset by increases in the post-Soviet states, in the West Indies and in Russia.

International sales were 35.8% of net sales on the year-to-date basis in 2013, compared to 38.9% of sales on a year-to-date basis in 2012. Domestic sales on a year-to-date 2013 basis, $599.1 million, compared to $572.5 millionin 2012. That's an increase of $26.6 million,or 4.6%.

Domestic sales were 64.2% of our overall net sales in 2013 compared to 61.1% of our total sales in 2012.

Part sales in 2013 were $246.9 million,compared to $245.9 millionin 2012. That's an increase of just 0.4%, or $1 million. Part sales for 2013 were 26.5% of total sales, versus 26.3% of total sales in 2012.

All sales information for all the segments is attached to your press release financial statements for both the quarter and year-to-date.

Gross profit for the quarter was $47.3 million,or compared to $48.3 million in Q4 of 2012, a decrease of $1 million, or down 2.1%. Gross profit percentage then is 21.1% for Q4 of 2013 versus 21.2% of Q4 in 2012. Basically flat.

The absorption variants in Q4 of 2013 was just over $7 million under absorbed and that compares to about the same number $7.7 million under-absorbed in Q4 of 2012. It's a positive change of $400,000 in absorption in Q4.

On a year-to-date basis gross profit was $207.1 million,compared to $208 million in 2012. That's a decrease of $900,000 or just at 0.4%. Gross profit on a year-to-date basis as a percentage was 22.2%,compared to the same number, 22.2%, in 2012.

On a year-to-date basis under-absorbed overhead increased to $26.6 million in 2013 compared to $11.7 millionin 2012. That's nearly a $15 million increase in un-absorbed overhead.

SGA&E for the quarter was $36.6 million or 16.4% of sales compared to Q4 of 2012. The dollar amount was $39.8 million, or 17.5% of sales. That's a decrease in quarter versus quarter of $3.12 million, or a decrease of 110 basis points. The primary drivers during the quarter of the decrease in SG&A were pretty well spread out but some slight decreases in commissions expense, payroll and related expenses and health insurance expense. On a year-to-date basis SGA&E was $151.4 million,

or 16.2% of sales, compared to $156.8 million or 16.8% of sales in 2012. That's a decrease of $5.4 million.

The primary drivers on a year-over-year basis were decreases in R&D and in legal and professional fees. That was offset by a slight increase in payroll and related year-over-year.

Operating income was $10.7 million in Q4 of 2013, compared to $8.5 million in Q4 of 2012. That's a $2.2 million increase, or 25.9% increase.

On a year-to-date basis income from operations was $55.7 million compared to $51.1 million year-to-date 2012 for an increase of $4.6 million, or 9%.

On the tax line our effective tax rate for the quarter was 29.7% compared to Q4 of 2012 which was at 38.6% and this is tax on continuing operations only. The tax rate for the year was 32.7% versus 36.4% for 2012. The primary driver for those big drops from 2012 in both the quarter and year-to-date is the availability of the R&D credit which, as you may recall, was not available in 2012 and was only passed in early 2013 and so we got to take advantage of that in 2013 but not in 2012.

Net income from continuing operations was $8.3 million for the quarter, compared to $5.5 million for the same quarter last year. It's a 50.9% increase.

Earnings-per-share on net income from continuing operations, was $0.36 compared to $0.24 per share in Q4 of 2012. That's an increase of 50%.

On a year-to-date basis continuing operations income was $39 million, compared to $34 million on a year-to-date 2012 basis. That's an increase of $5 million or 14.7%. That resulted in earnings-per-share on that line item of $1.69 compared to $1.48 on a year-to-date in 2012. That's a 14.2% increase.

On the bottom-line net income attributable to controlling interest for the quarter was $8.3 million compared to $10.9 million for the fourth quarter of 2012. That's a $2.6 million decrease, or 23.9% decrease.

Earnings-per-share related to that line item were $0.36 in the current quarter compared to $0.47 for the same quarter in the prior year. It's a decrease of 23.4%. On a year-to-date basis net income attributable to controlling interest is $39 million, compared to $40.8 million in 2012, for a decrease of $1.8 million or 4.4%. The EPS related to those numbers is $1.69in 2013 compared to $1.77 in 2012,for a 4.5% decrease.

At, December 31, 2013 our back log was $290.2 million, compared to $263.8 million at the end of 2012. That's an increase of $126.5 million, or 10%. The international component of that at the end of 2013 was $89.8 million, compared to $107.2 million at the end of 2012, for a decrease of $17.4 million or 16.2%.

In the domestic portion of that at the end of 2013 was $200.4 million,compared to $156.6 million at the end of 2012, for $43.8 million increase or 28%. Back log by segment is also attached to your press release.

Our balance sheet continues to be very strong. Our receivables are at $94.8 million at the end of 2013, compared to $89 million at the end of 2012 for a $5.8 million dollar increase. Days outstanding crept up slightly to 38.5 days, compared to 33.3 days at the end of 2012.

Our inventories at $342.3 million at the end of 2013, compared to $312.7 million at the end of 2012. That's an increase of $29.6 million. That results in terms for 2013 of 2.2 compared to 2.4 for the year of 2012.

We owe nothing on our credit facility and we have $35.6 million in cash, and we also have some investments on the balance sheet. Letters of credit outstanding at the end of 2013 were $6.9 million yielding a borrowing availability to us on our $100 million credit line of $93.1 million availability.

CapEx in the fourth quarter was $5.6 million and for the year was at $27.7 million. We're looking in the range of $39 million for the year 2014 in capital expenditures.

Depreciation for the fourth quarter was $5.3 million,and for the year was $21 million and we're looking at around $24 million of depreciation expense to be recognized in 2014.

That concludes my prepared remarks on the financial details and I will throw it back to Steve

Thank you, David. Ben Brock is now going to provide some comments regarding the fourth quarter of this year's operations and will offer some thoughts going forward. Ben?

Thank you, Steve, and thank you everyone for joining us on the call today. If we were to be asked to summarize our feelings about the fourth quarter in one word, the word would be mixed. Sales were down 1.6% versus the same period last year and although our earnings-per-share on the continuing operations were at $0.36 versus $0.24 in the fourth quarter, of 2012.

If we were to be asked to summarize our feelings about our results for 2013 in a word, the word would be improving. Sales were basically flat versus 2012 and our earnings-per-share from continuing operations were $1.69 versus $1.48 for all of 2012, and our back log was up 10% versus 2012 and while it was a mixed quarter for us overall despite the increase in earnings, we did experience a year of improvement as a whole and we're encouraged about our opportunities to improve internally going ahead.

We'll talk a little bit more about that here later, but it's probably going to sounds like the movie ground hog day to everybody on the call, but the reality is that the uncertainty created by our representatives in Washington DC continues to make our domestic highway infrastructure customers feel uneasy about their major capital expenditures. This uncertainty remains in place despite the fact that those same customers are seeing marginal improvement in their private sectors. We're hearing rumors from contacts, and industry trade organizations that the Highway Bill is at least being discussed in Washington now, and while we would absolutely welcome a long-term bill with increased funding we're not sitting back and waiting on one.

We're pursuing new business with new products in the US, and we're working to grow our International effort. The best example of our new products is the startup of the first line of the Hazlehurst wood pellet plant during the quarter. The plants is performing well. It is state-of-the-art with regards to operating cost and environmental compliance. It is a product that we have chosen to finance for 24 months and after careful and conservative discussions with our auditor we have decided to recognize the revenue for this plant as we're paid.

The startup of this plant has created really strong interest in that industry and we expect to sell additional plants this year. In addition to this, the installation and start up went so well that the customer at Hazlehurst did order the next two lines earlier than we anticipated. That order was for $40 million and it is in our backlog at year-end.

The next best example of our efforts on new products is our booth at the Con Expo show next week. At this point we will be displaying 41 new products. That includes totally new products, and new innovations on products that we've will in the past at the show and a 40,000 square foot booth which will be our largest ever. As a member of the show management committee for Con Expo we do have information that tells us our timing is going to be right for the booth effort as the pre-show registrations indicate it's going to be a very strong show in terms of attendance. It's already the largest show ever in terms of the number of exhibitors and total square footage so we head out to Con Expo next week with expectations for a good show.

With regard to the International effort the best example that we have is that we do plan to have our new Astec ([inaudible) manufacturing plants operational in the third quarter. Coming from our nearly zero position in the market, we do sell some equipment in the market now, but in our nearly zero position, inherent from potential customers and Brazil, we are encouraged that we will see growth in Brazil and in South America with the opening of this plant.

The next best example on the International front is the revamping of our coverage in our mobile asphalt paving group. Our operation in Germany is making some headway forward in Europe and the group has entered a new International sales head he is re-constructing their sales coverage across-the-board.

Looking ahead to the first quarter of 2014, and 2014 as a whole. We obviously have a fairly nice back log to start off with. In reality for us it is a stronger back log because as a result of cutbacks in the military spending the Army has canceled it's future asphalt plant orders due to funding issues. We have $14.5 million in the back log for the orders that canceled that were renewed in December. The Army jobs were a variable margin jobs. The other reason we feel it's a stronger backlog is because we also removed the prototype pellet plant sale that was a $10 million order from our back log, because the customer could not fund the project and that too, was a low margin job.

In summary, while the back log is up to 10% versus 2012, we did consider it to be even better for us because the $24.5 million we removed at year end was replaced with normal margin jobs. We are very encouraged by this turn of events from a future earnings standpoint.

Customer orders have continued and been consistent since the first of the year. The industries that we continue to serve, or the energy infrastructure and mining industries, and our R&D work and product releases are focused in these areas. We are getting good feedback from the field from our customers on our new equipment, and we are getting new orders for many of these products now.

We do see growth opportunities in oil drilling in the pellet plants and the large crushers from mining and high recycle asphalt plants that will produce in the 65% and above range of hot-mix asphalt with the recycled asphalt. We also see opportunities in the small commercial paving equipment lines that were coming out of our Carlson group.

We also see room to improve internally through a more targeted lean efforts and increased focus group activity. We're also moving to benchmark in new ways between our operations so that we can improve our results together as a group through best practices transfers. As and example, our division Presidents will meat together twice this year, our sales managers will exchange best practices in one meeting this year, and we will provide in-house training to all of our divisions departmental heads during the year. This investment in our people will yield the results in the future.

Obviously, from David's comments, absorption is a key area specifically targeted for improvement in 2014. These meetings listed above will be quick and to the point. We really don't have a time to waste in meetings, but if we can get value out of them, we will hold them and they will be quick and to the point.

Looking to the whole of 2014 we expect to improve our performance in 2013. This is despite the current state of the Highway Bill in Washington DC. Our customers are experiencing improved profit market and we are focused on selling existing and new products, not only in the US, but around the globe as well. We are growing our business in energy mining on the two industries that are not dependent on the Highway Bill.

Finally, as an update, we completed our management transition plan announced in April of last year with the new role. My role changed to President & CEO of the Company. Rick Doris' role changed to EVP and COO of the Company. Don Brock changed to Chairman of the Board, and Norm Smith changed Vice Chairman of the Board and Group President of the Mobile Asphalt Paving Group. This has been a good transition. We continue to benefit as a Company by having Dr. Brock and Mr. Smith active with us.

Dr. Brock is working on sales and R&D projects as he continues to mentor Rick and me. Norm Smith is working close with the Mobile Asphalt Paving Group and on sales as whole, in addition to that effort.

That ends my comments on the quarter and the year and what's in front of us. I want this thank everybody again for taking the time to be on the call with us and thanks for your support as we move ahead. I will now turn it back over to Steve Anderson.

Thank you, Ben. We'll start the Q&A session of our call now. Christine will open up the queue for the Q&A. We would ask that you limit yourself to two questions, and then a follow-up and then jump back into queue so we can keep that rolling along. We appreciate your help with that. At this point, Christine, if you would open up the first question we would appreciate it.

Thank you. (Operator Instructions). Thank you. Our first question comes from the line of Jack Kasprzak, with BB&T. Please proceed with your question.

Okay. Thanks. First question is on SG&A in the fourth quarter it was down in dollars. It was also down in the third quarter. I know you're going to have Con Expo expenses in Q1, but excluding that, is the run-rate of SG&A now closer to the $36 million, $37 million per quarter range?

Yes. We noted that the main drivers there were R&D and that was a big one for the year. We had a huge R&D push on these pelletizer and other similar products that we were pushing that were 9, 10, and 11 and so that run-rate got up there, but we are bringing that back down somewhat. I think we're targeting something less than what we've been spending on R&D.

Okay. Thanks. You guys made a lot of comments on what you're seeing in the market and the outlook, which is appreciated. As noted your Q4 sales are about flat, your sales for the full year 2013 are flat with 2012 given where the back log is and maybe a little better private tone. Do you think 2014 will see a little bit more meaningful sales growth opportunity versus what we have seen for the last couple of years?

Jack, this is Ben. We would say, yes, it would be up slightly. Of course, the pellet plant orders are a little larger than an asphalt plants order and we're going to obviously be pushing that pretty hard to try and get another one in this year if we can. The activity on that is good. I was at a pellet conference last week and the projections for the need for pellets are still high and we do have customers coming to the site to see the plant in the coming weeks. So yes, we would think that there's an opportunity to be up slightly here this year.

Okay. Great. That does is it for me. Thank you.

Our next question comes from the line of Mig Dobre, with Robert W. Baird. Please proceed with your question.

Good morning everyone. This is Joe Grabowski, sitting in for Mig. Just want to confirm then on the $20 million to $22 million of revenue for the wood pellet plant, none of that was recognized in the fourth quarter? And maybe walk us through how it's going to be recognized over the next 24 months.

Yes. Sure. Absolutely. We will confirm that was not recognized in the fourth quarter, number one. Number two, we are looking at essentially recognizing it on an installment basis as we go forward. The facts and circumstances being what they are with us financing and things of that nature. New product, we wanted to get it out there, it's a business decision, and we will be recognizing revenue on an installment basis and as we said, we're doing the installation and construction financing, the customer is working on permanent financing and so, as the facts change then we'll follow the accounting rules and recognize the revenue.

Okay. Okay. That makes sense. Then on the $40 million of add on orders. Do you expect those to be financed also? How do you expect those revenues to be recognized?

I think it will be in a similar fashion right now unless the facts change I think it will be treated similarly.

Okay. And do you know when those $40 million of additional revenues will begin to be recognized? Will they fall into 2014 or when will they at least start?

We'll probably start recognizing some late 2014. We will have a to get it in and get it up and running, but it went very well going in, in the last year so we expect is it to go as well with having a history of putting it up we think it will go well this year for those two lines.

Okay. On the asphalt Army plant that was going to be recognized in the first quarter of 2014, is that still going to come through?

No. I have some general frustrations with our United States Army from a supply incentive standpoint that our ([inaudible) delayed again. It's going to be hopefully the next few weeks according to our guys and they also have the option in the contract to delay the taking of it so we think at this stage that they will take it in August.

Okay.

And I hate to say more to come, but it seems like that's how it is with them. That is $6 million in revenue now at that point. So it's not very big, but it's there, it hasn't been recognized.

Okay. Thank you. Last question for me and then I will jump back in queue. It seems like the orders in the fourth quarter in the aggregate in mining group were stronger than they had been trending the last few quarters. Just was wondering where you are seeing the strength in that group?

Part of what you're seeing there is they have their national dealer event and you have seen some dealer orders come across.

Okay.

And so that's mostly what you see. Although, we did have some good orders on major quarries one down in Oklahoma and one in Pennsylvania. So we have a seen some other orders outside of that, but the bigger driver of that was more in the dealer order side.

Okay. Alright. Thank you very much.

Thank you.

Our next question comes from the line of Jason Ursaner, with CJS Securities. Please proceed with your question.

Good morning. On the wood pellet plant, as you begin to recognize revenue, what do you expect the margin to be as it comes in?

Actually it's going to be normal equipment margin, major equipment margin. So for us it's mid 20's to 22's.

Very good.

My understanding was there was the punch press had been part of the challenge on getting is out and getting the margin up to where you want it. Over time, are you still working on that piece of it and would you expect the margin to keep moving higher or that's at a final margin on where we should expect wood pellet in the future?

Well, on the press side we decided to go with an outside vendor so the press whether not affect margin going ahead at all. That's the only piece of the plants that we won't be building going ahead. So we are using a press out of Germany. The call press.

Okay. But so the rest of the system, is there still room to be improving it, or did you get all of the out on the prototype or is there still room for improvement?

Jason, again, this is still Ben. I would say we have room to improve margin on it and we typically see that on any new products. The first one will come our a little bit lower margin and then we improve them over time as we get some repetition. To tell that you every single thing fit when is it got to the site would probably not be the truth, but what did fit was very easily fixed, so it went very well. So we do have room to improve as we go ahead.

Okay. And then, overall as you're thinking about growth for 2014, you talked a little bit about the volume side and where you can expect orders. What are you seeing on the pricing side? And then I guess maybe in particular, on the mobile asphalt, gross margin there was a bit lower so was that a pricing issue or is that maybe more selling out of inventory where you had manufacturing cost causing that?

Well, that's a good question. I think everybody sitting around the table would agree with this that it was a very tough market last year and it was a tough year. When you look at our results we feel pretty encouraged by them because we do see pricing pressure and particularly in the mobile group. They have some strong European competition and then they have got some competitors that are doing a lot of rent to own through their dealer networks so we have seen that pressure and we have worked through the tier four part. Most of our iron that's come out of the mobile group now is due to tier 4 process so we do expect to see margins get a little bitter in at that group but certainly they faced a lot of pricing pressure and particularly also with the rent to own market. Although I would add we do feel like our pavers are gaining market share and we are doing a nice job with it and the new pavers have been well received.

Got it. Okay. The other group had a pretty significant increase in sales but had a little bit lower margins. Wondering what went into there, whether it was Peterson or Australia.

Yes. It was definitely Peterson. We talked about in the comments there, Jason, on the sales that we were down a little bit in Australia which is the market for Astec Australia so Peterson had a good quarter.

Okay.

Australia is really, with mining being off a little bit down there, that's where it's been more of a struggle. The AUS dollar has been not as good but it's still in range. We should be okay once it comes back and we do have a some activity there now.

Got it. Okay. Appreciate the details and good luck at Con Expo, guys.

Thanks, Jason.

Our next question comes from the line of Ted Grace, with Susquehanna. Please proceed with your questions.

Thanks, guys. Congratulations on the quarter.

Thanks, Ted.

Maybe we could start with the AMG group. Very solid incrementals at 59% if my math is right. Somewhat robust top line. Can you just walk through from a profitability and a margin standpoint what really helped that, and start at that point?

When you talk about that group, it's a straight forward product mix and volume. They've been blessed with back log and knowing what's ahead of them and what they have sold has been pretty well will-house equipment so they have been in the right places at the right time on the sales side. That's pretty much the major part what's driven their success.

I think David mentioned earlier in the call that the large screens were part of the mixed benefit there, but specifically can you just highlight what products you're referring to just for clarity sake?

Sure, Ted. Their track-9 sales have been very good and their conveyor sales have been good. And that's the track-9 would be site specific crushing or screening, and that may be where you get picking up on the screen side. They have done well of getting screens to help size materials that maybe they needed to size that they weren't. We had one that was in a mining opportunity where they had some over burden that they couldn't get sized right and they had to get a screen out there. So that's just one example of a lot of them. But those are the main products, the tracks, and that would be crushers and screens and then track-9 conveyors alone.

Okay, and just for clarify sake again, when we say mining are we talking conventional mining or are we talking quarries and aggregates?

When I say mining, that would be like opening up a traditional mining where they would bring in track mining crushers to open the mine.

Yes.

Or sometimes they will do the track mining crushers. They've got a lease agreement on a mine and they need to go over with a portable crush and spread to have some production out of that mine. And then if we talk aggregates, when we say quarries, when I say it, we're into the quarries and the traditional rock for infrastructure building materials.

Okay. And then on the order front, nice quarter in December. Can you highlight where the strength was either by end market or geography? Was that more on the aggregate side, or was that a couple nice mining wins, conventional mining? How would you herd us to think about 2014 for AMG?

Well, for them mainly on the quarry side that's why we still think we have a pretty good opportunity in the mining side going ahead. And then as far as the regionals, David mentioned some of those in his comments that typically it's still where there's natural resources like oil and gas, it's still okay for us and still going pretty good.

Okay. And then the last question I will ask before I get back in queue. You mentioned you were just at a convention for the pellet press industry. Can you just talk about the opportunity in the pipeline that you're seeing now and what you think. How are you going to encourage investors to calibrate the potential for orders in 2014 beyond the two you just announced?

Right. They do the projections and you got to be careful because you've got consultants giving a lot of projections on tonnages but one of the presentations was from a gentleman from a utility in the UK and he was talking about the needs for the pellets and one of his slides, and it may have been the guy before him, but he said that's not the right number. So is the demand by 2020 I think it was would be up to 27 million tons. I have seen slides saying it's quicker than that and the current demand is about 5 to 8 million tons just for the UK. Now, if you did the math on the plants and the size, you would say there would be 30 to 40 sizable pellet plants sold similar to what's going in Hazlehurst. Would be 60 ton in our plants that would go in on equipment side in the $60 million, $70 million range.

Okay. That's helpful. Guys, congratulations. I will get back in queue.

Thanks, Ted.

Our next question compensation do light in of Walter Liptak, with Global Hunter. Please proceed with your question.

Hi. Thanks. Good morning. I wanted to ask about your comments on the road bill and just the timing of it again this year. I imagine we will hear more about the political role going into the spring and is it set for a vote over the summer or is it in September?

Well, the current bill would run out the end of September and it depends on who you talk to. I mean we get mixed bag as we talk to our representatives and we talk to the associations and some associations see a pathway to a potential vote in the summer and then you talk to some and they will tell you well, we're looking at maybe one or two more extensions before a bill. So that's why in the comments we say our focus is to try despite the Highway Bill, work on energy and mining and where we can sell and infrastructure keep going and come out with new products because there is work going on. I mean the private side is coming up a little bit. In the good times the private side would have been 50% of the hot-mix reduced and then the government type would be about 50% and of course that dropped off pretty good when the economy turned. Really for us we kind of saw it turn in late 2008 and 2009. That's coming back a little bit so what's helping but for the long-term CapEx purchases they like to see the security of that federal bill. So where we can help is coming out with plants that do more recycle that help them compete with the concrete and that type of thing and that's what we're focused on for that segment and then keep working on energy and mining.

Okay. Okay. Great. And then I wanted to ask a question about Con Expo. It would be great it see the new products out there, but I remember in prior Con Expo's that there was a level of expense that filters through in the first quarter. I wonder if you can give us an idea of what that spending is going to look like, or SG&A for the coming quarter.

Sure. It's going to be somewhere in the range of $3.7 millionto $4 million for our expense out there. That seems high to me but when you get out there and you see the effort and what we do at the show it's probably the right amount and it's the right exposure. With our decentralized model we do take a lot of different sales reps that maybe a centralized model wouldn't bring that might have more dealer representation so the direct sales effort and we end up bringing more people. The good thing is, though, as we mentioned in the comments we've got a good expectations for attendance and our mobile group particularly thinks this could be a good slow for them so we're looking for are forward to it.

Okay. Good. Okay. Thank you.

Thank you.

Our next question is a follow-up question from Jack Kasprzak, with BB&T. Please proceed with your question.

Okay. Just a question on order patterns. In years where you have Con Expo, I think that sometimes it gets a little lumpy in terms of customers waiting and maybe they go to the show and then place an order. Given your comments about order trends so far in the quarter being pretty consistent with what you have already seen and yes, your back log was already up at the end of the year. Is this a little bit of a different order pattern than you're used to maybe over the last one or two Con Expo shows?

I would say just to centralize is it would vary by each division even. But I would say in my history it seems about the same. It doesn't seem over the top. I mean, it's consistent.

Okay. Fair enough. Thanks.

Our next question comes from the line of Barry Haimes, with Sage Asset Management. Please proceed with your question.

Thank you. I had a question relating to road repair. I know the Highway Bill is an issue but just in terms of the harsh winter that we've had compared with a mild winter last year, and I certainly by me up in the north east the roads are pretty beaten up. Is that the kind of thing where you are starting to see some activity or inquiries or is it too early? Any feel you have for how the harsh weather might impact your business this year. Thanks.

Hey Barry. This is Ben. It's interesting that you say that because I can promise you I've sent a letter to our representatives about what's coming in the spring because when the freeze thaws, there will be a lot of pot holes. We've been pretty lucky in the US to have some warm winters in the last five or six winters so it could give them a little momentum on a Highway Bill. We've had some hope that might, but we haven't seen any orders as a direct result. I mean I think most of the orders we've will are just normal buying. We haven't seen anything buying because of the weather, but when I wrote the letter 70% of the United States was under snow cover and it was going to 80% because we were going to pick up eight inches of snow the next day, which we did. It was kind a hit home type deal. You're touching on something that we're trying to talk to our representatives about.

Thank you.

Thanks.

Our next question comes from the line of Jon Evans, with JWest. Please, proceed with your question.

Can you just talk a little bit about the oil and gas side? I've been on some of the equipment companies et cetera, they're talking about a more positive North America spend environment, especially with the acceleration in natural gas prices. Can you help us frame what you're seeing potentially from your customers and maybe also why you haven't had as much success as you initially thought you would have in that business?

Yes, John. This is Ben. We would tend to agree with them on our oil and gas heater business. That has continued to be strong. We were with our sales group in the last couple weeks that provides the rigs and our sales quoting is up, but we do have new technology and that takes a little bit more selling and we're working on that. We have great products there and we're working to get a few of them across the line, but we have seen a little bit of and increase in the quote activity but not the actual sales yet on the rigs. Again, on the oil and gas heaters, that's remained good. But we do think as the price goes up the rig sales will come with it. In the meantime, we've been developing auxiliary equipment to go around the rigs and that would be the pumpers and the tanks that go with them so that should help us in the long run, too. The other thing to note in the underground group is it's not just oil and gas. We do have a line of water well drill rigs and that business is starting to come up, particularly with the private work.

Great. Thank you so much.

Thanks.

Our next question is a follow-up question from Ted Grace, with Susquehanna. Please proceed with your question.

I was hoping to get some flavor on how we should think about domestic versus International sales as we look forward. International sales are flat sequentially down year-on-year, the backlog as you highlighted was down mid-teens. Can you speak to what your outlook is for the businesses domestic versus International as we head into 2014?

Well, we have definitely seen in the numbers our domestic as a percentage is up and Europe has just been week for us, but it seems to be the mobile group and even in the asphalt that the plant side we're seeing some opportunities now. We're going to work to get that percentage up this year, Ted. Our goal is to have a bet much better mix than what we had in this year and I think the work that we're doing on the mobile side as we mentioned in the comments with the new VP of sales, they're making some headway. Some of the headway is in Latin America where they have not been strong. I wouldn't say they didn't have a heart beat but they're seeing more of a heartbeat.

Okay. And then the other thing I was hoping to follow up on is you talked about the conservatism on the Highway Bill and the fact that you're focusing on things you can control. You mentioned the MAPG group was optimistic on Con Expo so I'm assuming that would have a positive ([inaudible), at least on people replacing equipment. But, can you speak to just the tone, or the sense that you're picking up from talking to both contractors and state DOTs on the uncertainty and how they may react? Because highway contractor work has actually been pretty strong and I guess I would be curious to get your sense if those numbers are sustainable or as we get closer to an expiration if highway DOTs start to pull back?

Just like when you talk to different divisions of us, it depends on where you are a little bit because in some places the states have started to try to take over the funding and get more control more of their destiny, like Virginia. They effectively went away from the gas tax and turned it over to a sales tax to generate more revenue and as that flows through they're going to have a very nice five year run. Pennsylvania went to the wholesale tax with their retail tax on gas and so they've got a potential going ahead pretty good. So there's going to be pockets where that happens. There is opportunities where that happens. As far as the Highway Bill, if it's just a longer term, it's just a minimum piece. Even though the private is up a little bit and if you're in these states, you feel better. Across the board, there's nothing like a long-term Highway Bill for our customers feelings.

Sure. That's understandable. Best of luck this quarter, guys. Thanks again.

Thanks, Ted.

Our next question is a follow-up question from Mig Dobre, with Robert W. Baird. Please proceed with your question.

Hi everyone. It's Joe again. Just a quick follow-up. I was hoping you could talk M&A pipeline and what sort of deals you might be looking to get done in 2014?

Sure. This is Ben, Joe. We continue to look and we're looking in the mining and the energy and the infrastructure areas. We're not looking to go get outside of those areas and if we can find a strategic fit and things work out we're not a afraid to do it. We just keep looking.

Okay. Great. Good luck.

Thank you.

Mr. Anderson, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Alright. Thank you, Again, we appreciate everybody's participation on this fourth quarter conference call. Thank you for your interest in Astec. As our news release indicates today's conference call has been recorded. A replay of the conference call will be available through March 11, 2014 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. This will conclude our call. Thank all of you and have a good week.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.