Astec Industries Inc (ASTE) 2014 Q1 法說會逐字稿

Greetings and welcome to the Astec Industries first-quarter 2014 earnings conference call. 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. I would now like to turn the conference over to your host, Steve Anderson. Thank you Mr. Anderson, you may begin.

Thank you Brenda. We apologize. Apparently, the provider had some technical difficulties, but we are glad you're with us here today. As Brenda mentioned, my name is Steve Anderson. I'm the Vice President and Director of Investor Relations for the company. Also on today's call are Ben Brock, our President and Chief Executive Officer, Rick Dorris, Executive Vice President and Chief Operating Officer, and David Silvious, our Chief Financial Officer. In just a moment, I'll turn to call over to David to summarize our financial results and then to Ben to review our business activity during the quarter.

Before we begin, I will remind you that our discussion this morning may contain forward-looking statements that relate to the future performance of the company and that these statements are intended to qualify for the Safe Harbor liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions. 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'll turn the call over to David to summarize our financial results for the first quarter.

Thanks, Steve, and good morning everyone. Thank you for joining us this morning.

Our net sales for the quarter, $238.7 million compared to $247.8 million in the first quarter last year, that's a decrease of 3.7% or $9.1 million. Components of those sales, international sales were $63.2 million for the first quarter of 2014 compared to $85.9 million for the same quarter last year. That is a decrease of 26.4% or $22.7 million. International sales represented 26.5% of first-quarter sales this year and 34.7% of first-quarter sales last year.

The decrease in international sales from first quarter of 2013 to first quarter of 2014 were primarily in Russia and Canada, Europe, Australia, and in Africa. And these decreases were offset by increases in the post-Soviet states as well as in Asia.

Domestic sales for the first quarter of 2014 were $175.5 million, and that compares to $161.9 million in the first quarter of 2013. That's an increase of 8.4% or $13.6 million. Domestic sales represented 73.5% of sales, total sales, for the first quarter of 2014 compared to 65.3% of total sales for the first quarter of 2013.

Parts sales for the first quarter of 2014 were $69.3 million compared to $68 million in the first quarter of 2013. That's a 1.9% increase, or $1.3 million. Parts sales represented 29% of our sales in the first quarter of 2014 compared to 27.5% for the same period last year. Of course, segment revenues are attached to the press release.

You will notice that we are now reporting in different segment formats than in previous years, and we discussed this change in our 10-K for the year ended December 31, 2013 as well as on previous conference calls. We have attached the recast quarterly segment information for the last three quarters of 2013 as an addendum to the press release financials for your convenience.

Moving onto gross profit for the quarter, we were at $56.8 million compared to $58.6 million in the first quarter of 2013. That's a decrease of $1.8 million, or 3.1%. The gross profit percentage was 23.8% this year compared to 23.6% first quarter last year. Part of that increase was due to a change in our absorption variance. Our absorption variance actually was at $3.3 million unabsorbed for the first quarter of 2014 compared to $6.6 million for the first quarter of 2013, so we had a positive change in that of $3.3 million, or 50%. The positive changes occurred across most of our companies.

SGA&E for the quarter was $43.4 million, or 18.2% of sales. That compares to $40.4 million for the first quarter of 2013, or 16.3% of sales. That's an increase of $3 million or 190 basis points as a percent of sales.

Now, the driver for that, the primary driver, in the quarter was ConExpo expense of $4 million. That was offset by decreases in other selling expenses across the company. And on an after-tax basis, that ConExpo expense recognized in the first quarter of this year equated to about $0.12 per diluted share.

Operating income decreased to $13.3 million in the first quarter of 2014 compared to $18.2 million in the first quarter of 2013, a decrease of $4.9 million, or 26.9%.

The effective tax rate for the quarter was 32.2%. That compares to 29.8% as the effective tax rate for the first quarter of 2013.

Now, as many of you already know, the R&D credit has yet to be renewed for 2014. Therefore no credit has been claimed during the first quarter of this year. However, in the prior year, Congress had approved the R&D credit for both 2012 and 2013 in the first quarter of 2013. As a result of that, we had recognized not only the credit for the first quarter of 2013 last year, but also $1.2 million of R&D tax credit related to the 2012 year which was included in the first quarter as tax provision of 2013.

Net income attributable to controlling interest for the first quarter of 2014 was $9.5 million compared to $13.2 million in the first quarter of 2013. That's a $3.7 million decrease, or 28% decrease. Earnings-per-share for the quarter on net income attributable to controlling interest was $0.41 compared to $0.57 in the same period last year, a decrease of 28.1%.

The backlog at the end of March of 2014 was $299.6 million compared to $276.5 million at the end of March 2013. That is a $23.1 million increase, or an 8.4% increase. The international backlog at the end of March 2014 was $102.7 million compared to $109.2 million for the same date in 2013. That's a decrease of $6.5 million, or 5.9%. Domestic backlog at March 31 of this year increased to $196.9 million compared to $167.3 million at March 31, 2013, a $29.6 million increase or a 17.7% increase. The March 31, 2014 backlog of $299.6 million compared to the 12-31-2013 backlog of $290.2 million, shows that there is a $9.4 million increase or a 3.2% increase over the backlog at the end of 2013. Now, if we were to include, and we did a press release and notified everyone that we did purchase Telestack at April 1, and so we don't include their backlog in the March 31 backlog that we are presenting. However, if we did include that backlog, then we would be sitting at $309.5 million of backlog entering into the second quarter of 2014.

Our balance sheet remains very strong. Our receivables are at $109.1 million compared to $104.6 million at the same date last year. That's an increase of $4.5 million. Days outstanding increased slightly to 40.6 days outstanding compared to 37.1 at March 31 of last year. Our inventory is at $361.2 million at March 31 of this year compared to $326.1 million at March 31 of last year. That's a $35.1 million increase. A little more than half of that increase is related to the pellet plant. Those inventory balances result in 2.1 turns this year compared to 2.3 turns last year.

We do owe $2.1 million on our credit facility, and we have -- but we are showing $45 million in cash and cash equivalents available to us at 3-31-2014. $36 million that we paid for Telestack was escrowed on March 31, and so it was unavailable for borrowings, but was not committed. It was just escrowed, and so it shows as cash. So it wasn't available to pay down on the debt on that particular day. So we did owe $2.1 million on our credit facility. We had $6 million of letters of credit at March 31, so that resulted in borrowing availability of $92.8 million.

Capital expenditures for the quarter were $8.4 million, and we are budgeted to spend approximately $39 million in 2014 on capital expenditures. Depreciation for the quarter was $5.2 million, and we are budgeted to depreciate approximately $24 million of fixed asset expense in 2014.

So that concludes my prepared remarks on the financial details. I'm going to turn it back over Steve Anderson.

Thank you David. Ben Brock is now going to provide comments on our first-quarter operations. Ben?

Thank you, Steve, thank you to everybody that has joined us on our call today.

With three main exceptions, we were generally pleased with our results during the first quarter. The first exception would be that our sales were down 3.7% versus the same period last year. The second would be that the expense of $4 million for ConExpo hit us during the quarter, which was expected, but still an exception for us. We were pleased with the show despite the $0.12 per share cost of it. And the third would be that R&D tax credits that we had in place for the first quarter last year weren't available to us this quarter. Last year's R&D tax credits would have amounted to about $0.05 per share this quarter, so our earnings per share for the quarter were $0.41 versus $0.57 in the first quarter of 2013. Adding ConExpo and R&D back in would've meant $0.58 this year, and that was on 3.7% less sales volume. So, we are pleased that accounting for ConExpo and R&D tax credit and our focus on operations is resulting in higher earnings and continuing operations for the second quarter in a row when taken versus the previous quarter in the prior years.

While we are pleased these numbers reflect improvement operationally, we are not satisfied with our sales results lagging last year's sales, and we expect to improve our shipments in the second quarter. Our sales were down 3.7% versus the same quarter last year. Our backlog was up 8.4% versus the same period.

Regarding the sales environment that we're in here in the United States, reality continues to be that uncertainty created in Washington DC is continuing to make our domestic highway infrastructure customers feel uneasy about their major capital expenditures. And now their customers, which are the departments of transportation, are slowing or even in some cases stopping some lettings. This is adding to the uncertainty, especially with our hot mix asphalt plant customers.

Our customers are continuing to see a slow marginal improvement in the private sector, and we continue to hear rumors from contacts and industry organizations that the Highway bill is being discussed in Washington. As we said before, we would always welcome the long-term Highway bill with increased funding, but in the meantime, we are continuing to pursue new business with new products in the United States and we're working to grow our international effort.

The best example of our new products during the quarter is also the best example of our effort to grow international business. That example is our announced acquisition of Telestack Limited. Telestack is based in Omagh, northern Ireland. They engineer, sell, and manufacture material handling systems used in ports, large mine operations, and quarries.

We do not have viable large port and mining material handling systems available in any of our other 17 divisions. So with this acquisition, we've added not only new products, but also a manufacturing division in Europe that is delivering equipment to six different continents profitably. For more information on Telestack, they do have a really good website, and that website address is www.Telestack.com.

I was at Telestack last week, and I was pleased to meet a great team of people that had a great first quarter, and they have a good second quarter lined up. We expect Telestack to be accretive to earnings in the second quarter. They are not included in our first-quarter numbers, as David mentioned. They do have a backlog of $9.9 million, and he mentioned that is included in our total backlog.

As a new products update, first line of the Hazelhurst wood pellet plant continued to perform well during the quarter. And we will deliver line two during the second quarter, and then we will deliver line 3 in the third quarter. As a reminder to everyone, it is a new product that we have chosen to finance for 24 months. As a result, we will recognize this revenue as we are paid. This will have an effect on our cash and our inventory until it is paid in full. As a reminder the order for lines two and three was for $40 million. The start-up of the plant has created strong interest, and we expect to sell additional plants this year.

We mentioned ConExpo earlier in the call, and despite the cost, it was a great show for our company. We were pleased with the show traffic and the leads that we got from the show. We did sell equipment at the show. However, we do feel the benefits of the show will be seen in sales during the second half of this year. We are on the record as saying that we expected a good show and the show did meet our expectations.

I also visited our new Astec do Brazil manufacturing plant site during the quarter. We still expect the facility to open in the third quarter. We remain encouraged that we will see good growth in South America with opening this plant as a new player in the market with a base in Brazil.

Changing subjects, as everyone can see, we have changed our financial reporting groups as of this quarter's release. We have provided recast historical segment information for your reference. This change was not an overnight decision. We discussed it and decided on it during our corporate staff retreat last year. Our reporting groups now better reflect the industries that we have focused on serving for some time -- infrastructure, aggregate and mining, and energy.

The breakdown of the subsidiaries that are in our new financial reporting groups can be found on our corporate website homepage. That website address is www.AstecIndustries.com.

Looking ahead to the second quarter of 2014 and 2014 as a whole, we obviously have maintained a nice backlog and our new subsidiary Telestack has added $9.9 million to it as of April 1. From our last earnings release to now, orders have been steady with the exception of hot mix asphalt plants which have been challenging up until the last few weeks.

Our market share remains as strong as in the past in hot mix asphalt plants but with this hot mix plant market, it has been good to have the pellet plant business as an offset or of our Astec subsidiary. We see growth opportunities in oil drilling, pellet plants, large crushers for mining, higher restock for asphalt plants and small commercial paving equipment.

We also see synergies with Telestack in our aggregate mining group where representation does not overlap. We are also pushing to increase our part sales and competitive part sales. And we are continuing to work on our lean journey with regards to manufacturing and office operations.

We are also continuing to benchmark in new ways between our operations so we can prove our results together as a group through best practices transfers. We are on the record with regards to working on our absorption this year, and we are happy to report that we are over 50% better versus the same period last year on absorption.

Looking to the whole of 2014, we expect to improve on our performance versus 2013. We also expect to have a strong second quarter that will make up for the ConExpo expense and R&D tax credit that is not in place and put us ahead of last year's first-half results. And this is despite the current (technical difficulty) Washington DC. Our customers are experiencing an improved private market and we're focused on selling existing and new products not only in the United States but around the Globe. We are working to grow our business in energy and mining, two industries that are not dependent on the Highway bill.

And again, we are pleased with the addition of Telestack to the Astec family of companies. Telestack has great people, new port material handling systems that we did not have in our product line, a manufacturing footprint in a cost effective region of Europe and a global customer base spread over six continents. And that customer base includes several of the largest mining companies in the world, which we feel will only help us as we release more products targeted at large mines in the future.

Acquisitions remain a key piece of our growth strategy along with organic growth through new product introductions and targeted sales growth efforts, both in the United States and international markets.

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

Brenda, if you would poll for questions, we would be glad to answer any questions that come through.

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

Good morning everyone. My first question just on the international sales which were down pretty sharply in the quarter, you called out some of the regions and mentioned currency. But I was just wondering if there was anything else that you noticed, given that it was a sharp decline. Were there some order push-outs? Is this part of why you expect Q2 to be stronger? Because this I guess this interaction will bounce back in Q2. Is just more color maybe helpful?

Sure, Jack. This is Ben. In Europe in the last couple of weeks, I can tell you for our equipment sales it's just been tough. So for that, particularly on the asphalt plant side, it was a really tough year last year, and it hasn't started much better this year.

The good news is we are quoting some more, so we will see if that translates into orders. The exchange rate there is favorable if the business is there. So we're cautiously optimistic about that in the second half.

Generally, we'll see some more shipments in the second quarter there, but globally, in Australia for instance, the country has been okay even with the mining being down, but the infrastructure part of it in talking with our guys, and I haven't personally been there this year yet, but it's just been a slow go. But in talking with them this week, they are seeing an increase in activity. So we think maybe the second half it will come back a little bit.

Okay. Thanks for that. Just on the Highway bill issue, I guess I'm a little surprised to hear the comments about state DOTs maybe slowing lettings just because I wouldn't think that there would be that much optimism, if that's the right word, around a new Highway bill. Wouldn't everybody just basically be expecting a flat or slight increase in funding? Sort of the status quo that we've had is just don't -- I guess I'm a little curious why you think that there seems to be this reaction when I wouldn't think that there would be much chance for anything different than a funding level where we have been, we just sort of plod along like we have been.

We would agree with that. We think the reality that they are looking at from a budgeting standpoint is they see their money running out by September 30 from the federal government, and so they kind of knee-jerk a little bit. The flip side of that is there are some pockets where states have tried to take their destiny in their own hands, like Virginia and Pennsylvania and Indiana, with some tax measures. And those areas seem to be going okay. Pennsylvania for sure has some activity for us. We feel like there will be at least a continuing resolution at flat. And if there was a long-term bill, I think the president's last thing that I read when I was traveling was maybe it's a six-year flat bill. Well, that would be okay too, because that would at least provide the baseline mentally that our customers are looking for. So, we continue to push with them through organizations and clients to Washington to try to get at least some kind of dependable bill going. But I would agree, we will probably see a resolution at flat before the next bill.

Okay, great. Thanks. That does it for me.

Mig Dobre, Robert W. Baird.

Good morning gentlemen. So, if we can sort of go back to kind of (inaudible), you had obviously good tone there and you had good conversation. You also mentioned that you expect sales related to this show to maybe come in the second half of 2014. I guess I'm wondering what gives you that confidence, and can you talk a little bit about sort of the sales process that you normally see at one of these tradeshows?

Sure. Kind of what we saw, and our backlog is up a little bit, part of that ConExpo, not all of it, but part of it was -- and we've also seen that with the private work being up, if we can -- with the state work that has been there, the private is a little bigger margin for particularly our hot mix asphalt customers. And so while they don't have the long-term vision maybe on the large CapEx items like I mentioned in the comments, one of the things that they are doing is they are buying some local equipment. So like our Roadtec division is doing pretty well.

So the confident side of that really comes more from the private continuing to see some slow movement upward. For instance, here in Chattanooga, we are getting really local now. But we have a good friend that's in the concrete business, and he can't quote fast enough. So, there's pockets where that is happening, and when you combine them all together, that's what gives us the feeling that we will continue to see orders as a result of the show. And generally that's what we heard from customers at the show, that their private side was getting better.

Okay, I see. And I guess I'm also a little bit confused with regards to overall activity for the roadbuilding industry because I guess, from the information that I have available, it seems like activity is actually picking up, and there is certainly a need after a really rough winter in most of the country to patch up some roads and highways. And Highway obligations certainly are pointing in the right direction. So what are you seeing that's different from that, I guess?

For instance, our sales rep in Arkansas mentioned a few jobs that were taken off of the bidding as a result of -- pointed right at funding. Now, on the flipside, the maintenance side, at the end of the highway builds, typically we do see a lot of mill and inlay work. For example, and of course I'm again staying close to home, in Alabama, they've got like a 30-mile stretch where they're doing a mill and fill on a section. So we have seen that on the maintenance side. But it's the longer-term larger projects that we are seeing that are kind of slowing down.

Okay. I understand. Then just two more questions from me. I want to go back to the Telestack acquisition. And I'm wondering if you maybe can give us a little more color on the accretion we should be expecting, or anything around margins, multiple date economics of the deal.

On the Telestack acquisition, they are about probably a $25 million to $30 million company, fairly profitable and good gross margins that will be right there in sort of our wheelhouse as far as our margins on equipment, what you've seen for those mid-20% target margins. And again, a lot of it depends on volume. And -- but they are profitable. I don't know that we can say exactly how accretive, but they are profitable, and we expect them to be accretive.

Is this going to be part of the Aggregate and Mining segment?

That is correct. They will be in the Aggregate and Mining segment.

All right, great. Then my last question for you, David, I'm looking at the inventory, and I appreciate the color on what drove half of the increase year-over-year. But nonetheless, even excluding these pellet plants, inventories continue to increase. So, from your perspective, what are you aiming to do with working capital going forward? What is an appropriate turnover level, if you would, for inventory?

Yes, we certainly are not exactly happy with two turns. We've always -- historically we would love to be at four. I think three is realistic for us, but part of that increase is due to some rental equipment as well. We are growing the rental fleet especially in our German location. That's just kind of the way business is done there. We do have some consignment lead on the ground in Australia, and so growing these international locations is a little tougher than being able to just produce it right away and sell it domestically. So we've got some finished goods.

The growth that you see in that inventory is primarily finished goods and rental. It is not -- width has remained fairly flat. It's grown slightly, and purchase parts and raw goods have grown slightly. But the biggest piece of it is, of course, the pelletizer and then some additional finished goods and some rental equipment.

Great, thank you.

Ted Grace, Susquehanna.

Hey guys. How are you doing? The question I was hoping to ask is just on the quarter, my recollection is at the end of the fourth quarter when you reported the results business got off to a good start from an order perspective. And I was just curious if you could talk about how March, or January, February and March compared and how you might -- a little more color on April in like there is some reason to be encouraged. But could we maybe just start there?

Sure Ted. I guess obviously the biggest thing would be that the backlog is up, so that would be reflective of kind of how the order taking was. Now, again, up until the call, the asphalt plant market has just been tough. And so we have -- that order intake slowed pretty good in the late part of the first quarter. However, I would say that since April, we have picked up quite a few plant orders. They are not all US. So I'd say just one US. They are international. But we were pleased with that.

There was a little bit of concern at Astec's subsidiary, and not that there isn't still a little bit more but because the leads are a little bit better now, and I don't know what it was but, in the first quarter, particularly the last part of the first quarter, it was a little back and forth with them. But generally when you look at the backlog as a whole, it's been okay on order intake.

And what about in AMG? And if you could just talk a little bit about maybe mobile asphalt paving?

The mobile asphalt paving Roadtec, they have, like I mentioned earlier, they have done fairly well. We feel like we might be increasing our paver market share a little bit, and the material transfer vehicles are moving with them, or what we call the shuttle buggy. Still an opportunity to do a little bit better with them, we think, in Europe. But Astec Mobe Machinery, we were over there visiting with them. And like David mentioned, that is a rental, kind of a rent to own type market. There are some things we can do a little bit different to try to help our paver and screed business there (inaudible) because we can have pretty good margins on the screeds if we can have the tractor to go with them. So we are working on some creative ways to start moving those screeds to help them.

And then on the mining side, the aggregate and mining, can you maybe characterize how the quarter progressed and how April is feeling?

They had a good quarter internally, what we would call our aggre-con group, mobile kind of track mounted crushing equipment, conveying equipment did well. The major projects lowered our aggregate mining, what we call aggregate mining, internally. Did well on orders. It's kind of taken a little bit of a breather in the last few weeks, but the leads are okay in talking with them in the last week or two here. So generally, it's okay with those groups.

Okay. David, could you maybe highlight kind of the impact of FX, both on international sales, kind of the reported number, and then also how it impacted backlog, international backlog?

Yes. We had strengthening in primarily just Europe and the Sterling, the British pound. Australia, Canada, South Africa, Brazil, all those weakened. And so it's kind of a mixed bag simply because we do quote in US dollars in a lot of places. And when we quote out of South Africa, we will quote in rands, but they don't necessarily carry a huge backlog from time to time down there. So, I would say that the ForEx didn't have a huge impact on the backlog. So the impact on the P&L for the quarter was very small as far as what we recognized in transaction expense. So the biggest piece just runs through what we call OCI. The conference of income is when we translate the balance sheet over, and that's just part of equity. So -- I'm sorry, go ahead.

I didn't mean to interrupt you. The last thing I was hoping to ask is just you guys obviously had pretty solid gross margin versus our expectations, and incremental gross margin was about 20%, which we thought was strong. Could you just maybe give us a sense for what you are seeing on the cost side? And as the absorption obviously was a nice positive variance. But what are you seeing both on the material side and the input cost side kind of broadly, and how should we think about that over the course of 2014?

This is Ben. Steel is going up is what we are seeing. And that is something that we are working with all of our division heads to keep an eye on as we are quoting for the second half. We are generally locked in through the first half on our pricing, but we are seeing a pretty good increase on steel. It's not showing up so much in our components, but overall we are watching steel pretty tight. As far as what that means for us in the second half, we're going to have to try to get the pricing in the second half to be able to offset it.

How does the pricing environment feel, and then I'll jump back in queue.

It's still tough, particularly in the asphalt plants where there's not many being sold. So that side of it is very tough. We are seeing a little bit of pressure on the aggregate and mining side too. So we are still fighting every deal. With our market share being as good as it is, it's still every deal has one or two or three of us on it, or two or three of us on it.

And just quickly, you said pricing pressure is still pretty tough in AMG?

Yes.

Okay, got it. Listen, thank you very much. Best of luck this quarter, guys.

Jason Ursaner, CJS Securities.

Just a follow-up on ConExpo from before, a few years ago, I remember you providing some detail on firm orders that came out specifically from the show which had been a surprise at the time just because it is more of a tire-kicking tradeshow. Was this more similar to some of the older shows where maybe you wouldn't have gotten orders directly at the show? I'm trying to balance the backlog figure that was pretty positive and how much ConExpo would've played into that (multiple speakers) what you said with more maybe overall sales strategy with leads translating to orders as the year progresses.

I would tell you it was between the last time ConExpo and ones where it was just a show where people came to kick tires. It was right in the middle of that, frankly, which was still pretty good. I'll tell you we're talking to our guys and I've tried to spend time in every portion of our booth. And we had a 40,000 square foot booth with almost all of our divisions displaying. And it was very active, and we were selling equipment that was on the floor. Roadtec had a good show selling equipment they took out there. Some of the pieces we took out there needed to go home and get finished out. We had 41 new products, so some of those got to come back to their respective factories to get through the R&D process, but it was a good show. It was right in the middle of what you heard last year -- three years ago from our calling the good doctor and a tire kicking show. So when you look at the increase in the backlog, I don't have hard numbers for you, but my gut would say the probably maybe about 25% of that increase came off the show, and the rest was through our normal selling channels.

Okay, appreciate that.

I am pure gut on that, but that's about what I would say it was.

Understood. Then with the new combined segment groups, I'm wondering if maybe you could provide a little more detail on the mobile piece of the infrastructure group now. The margins there, still challenges coming out of some European competitors with the tier 3, tier 4 switch, or is that kind of done now?

The tier 3 tier 4 piece is very small now and most everybody is in the tier 4. Most of what we are facing is some of our competitors on particularly the mobile side doing some creative rent-to-own type work, and we wonder if there's ever a bottom with some of our European competitors. So that's really more where the pressure is coming from there. Although I will say that they are tracking, their margins are tracking in the right direction. They're coming up.

Okay. And on the demand side, the mobile piece, I know you said the private side is doing a bit better, but on the public side, that business seems to have been off since all the paving jobs with the stimulus funds were completed over the last couple of years. I'm just wondering, in your view, how much a new Highway bill, whether it was at a flat level or even maybe a little bit of an increase, how much would that really move the business versus some of the demand generated from non-Highway bill projects?

I've always said that if you look at historical, some of the ways some of this economy maybe changes but historically continent asphalt production for instance, 50% typically would come from governmental side and 50% of that production would be private work. With the private coming back, which has been down, if we could have a stable federal bill, it may only typically be 50% of the mix but it would be about 90% of the hope. And so that is just mentally for our customers looking at investing $3 million to $6 million in an asphalt plant, a three- to five- or a six-year bill, even if it was flat, would do wonders for their psyche and then their desire to go ahead on a major asphalt plant purchase. And there is some pent-up demand. Our parts business has been very good at our asphalt Astec division, and that's really a reflection of people fixing things versus necessarily buying them. So we think it would help quite a bit.

Okay. And just the last question for me, you guys obviously completed Telestack, which seems to be a nice tuck-in and is pretty close to the core. I'm just wondering overall acquisition strategy, how is the pipeline looking, are there other assets out there that are similar to that in terms of trying to be active in continuing to make acquisitions.

I don't think it's any secret it took us a while to find them. But we are continuing to look, and there are some opportunities that we continue to look. As we mentioned in the comments, that's part of our long-term growth strategy, and yes, so there are some opportunities to handle it. With acquisitions, as time goes on, some just fall right into place and work really well, and some just kind of go away, but we are continuing to look for sure. We are very active.

This is Steve. We have done six over the last seven years, so we continue on that path.

Got it. Appreciate that guys, thanks.

Nick Coppola, Thompson Research.

Good morning. Going back to ConExpo, what kind of interest did you get on your 41 new products, and how should we think about new product iterations driving growth for you?

We actually had great feedback. We probably have a piece or two that were outside of their normal market range. The people carrier here at the show, we had the BTI people carrier and also its underground mine truck. Basically not many of those customers were at the show, but the feedback from the people that made it to the show is very good. In GEFCO, we had the 20-K vertical rig that their sales reps were wondering why they were there. But then as the show went on, a lot of the quarry customers that we have those units, and so they came away excited.

So, generally, as you walk through the booth, we get feedback on what we had, and so I think really they're going to be well received. There'll be some time to get some of those things going in the field, but it was a really good feedback on the new equipment. As a reminder, some of it was brand-new equipment and some of it was significant changes enough that we call an existing piece of equipment new or we felt comfortable saying it was new. But it was a good --

Carlson is another good example. They're a small paver. They had their CP-75 and their CP-90 at the show in their booth. Their section of our booth might have been the busiest in the entire show all the way through. And their paver that was new that had the rubber conveyor as the mechanism to move asphalt back to the screed was a big hit. And they have a very nice backlog and they did have some sales directly as a result of the show. So I think generally across the board, it was very well received.

Okay. That's helpful. And then on weather, how did weather impact you in Q1? Clearly domestic sales were up pretty nicely, about 8% year-over-year, but wondering if weather may have had any positive or negative impact on either quarter.

We are hopeful that it will have positive impact as more people drive their cars into the big potholes.

Right.

We haven't seen that yet, but it only seems logical. As bad as our roads have gotten here, I can -- in the Northeast, when you travel, they are pretty rough too. We haven't seen a direct impact of that yet. We tried to avoid mentioning in our comments weather-related issues, but it probably delayed some orders on the mobile side. It delayed a few shipments, but we always have some shipments that kind of slide quarter-to-quarter. So we would say that it probably delayed a few orders and probably delayed a few shipments, but we are going to make up (technical difficulty)

(technical difficulty) -- in Q1.

Yes, maybe a little more than normal, but not enough that we felt like mentioning it in our comments.

All right. That's helpful. And then the last question from me is on wood pulp plant inquiries. I heard your comments that having a plant up and running is helping with interest. Where are you getting interest and how do you think about the ramp for growth there? Any color would be appreciated.

Sure. Capacity-wise we can handle cover of orders without any problem with Astec Group and then there are several divisions of equipment that their pieces are small enough they could handle the additional volume, so the people that we have a customer coming in tomorrow to look at the plant, and there one of the top three producers of pellets on the globe. So that doesn't mean they're ordering tomorrow, so please don't take it that way. But that's the type of interest we have. All the major players are making their way to Hazelhurst, and that's why we are encouraged that we could sell another plant this year yet.

For the product that's coming out, our process is making a beautiful pellet, absolutely beautiful with high durability, which is one of their big measures of the pellet. They're also, the way they're coming out with their -- the color of the pellet is a big deal when you get into the residential pellet market, and they got a little bit more per ton in the residential market. And so the look of this pellet really gets our Hazelhurst fellows very excited because it looks the part and the durability comes with it so they are very excited about that.

That's great feedback. Thank you.

Morris Ajzenman, Griffin Securities.

Just as a follow-up on the wood pelletization initiative. Are the customers all intermediaries, or do you have any conversations with new customers such as (inaudible).

At the conferences, the pellet conferences, there was one in Atlanta, one in Miami. There was one in London a couple -- maybe the last couple of weeks. We talked to the utilities that only in their inquiry of what we are doing and how we are proceeding on our plant, but we are not selling the plants to the utilities at this point. That doesn't mean that we wouldn't have a lead down the road where one might want to invest in the US and kind of control their feed supply of pellets. To this point, it's been companies that are in the business of just supplying the pellets to the utilities. And typically they have an intermediary that's kind of a trading company so they can get paid at the court. So, we are selling to companies that either own forest or have an agreement with fiber supply around the specific site in Europe forest, and typically near a port because transportation is a huge deal, and the cost to transport a ton of pellets becomes a huge deal. So typically it's private companies that are doing -- getting the business of supply pellets to utilities, and/or residential.

(technical difficulty)

Specifically targeted to usually Europe.

Switching gears, just one other question. Let's use Telestack as an example. I think you stated the acquisition cost was barely $6 million. Can you just run through whether Telestack or any acquisition you've made in the past or those in the future, what sort of return on capital you look at in an acquisition? Multiple EBITDA? Maybe you can give us that for Telestack, just some benchmark. When you look at an acquisition, outside of having a very good fit with the company and its lines of business, what sort of return objectives do you have and how many years out would it take to get there?

Our return on capital employed we stated in the past doesn't change with acquisitions. So it's a 14% return on capital employed, and then a 14% on cash flow number. Of course, we also we measure that metric for our profit-sharing, so we also have safety as the third piece of that measure. Our history, we try to stay in the 5% to 7% range of the EBITDA, so that's kind of where we are in this deal.

5% to 7% at acquisition or 5% to 7% a company is irrelevant?

Acquisition.

Okay. Thank you.

Thank you. And it seems we have no questions at this time. I'd like to turn the floor back over for any additional comments.

We appreciate everyone's interest and your participation on this first-quarter conference call. As our news release indicates, today's conference call has been recorded. A replay of the conference call will be available through May 6 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 concludes our call. We appreciate your attendance and have a good week. Thank you.