Astec Industries Inc (ASTE) 2014 Q4 法說會逐字稿

Greetings and welcome to the Astec Industries fourth quarter 2014 earnings call. At this time all of the participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Steve Anderson. Thank you, Mr. Anderson. You may begin.

Thank you, Gina. Good morning and welcome to the Astec Industries' conference call for the fourth quarter and fiscal year that ended December 31, 2014. As Gina mentioned, my name is Steve Anderson, and I'm the Vice President of Administration 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 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 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 our qualify for the Safe Harbor liability established by the Private Securities and Litigation Reform Act. Any such statements are not guarantees of future performance and are subject to certain risks and uncertainties and assumptions. Factors that 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 what 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 2014.

Thank you, Steve, and we thank each of you for joining us this morning. We'll go will through the financial results here.

Net sales for the quarter were $239.5 million in the fourth quarter of worn 2014 compared to $223.9 million in the fourth quarter of last year. That's an increase of 7%, or $15.6 million. International sales were $87.9 million in 2014, Q4 compared to $81.5 million in Q4 2013. That's an increase of 7.9%, or $6.4 million increase. International sales represented 36.7% of Q4 2014 sales compared to 36.4% of sales for the same quarter last year. The increase in international sales in quarter-over-quarter occurred primarily in South America, in the Middle East, in Central America, and in Russia. These increases were offset by decreases in the post-Soviet states and in Australia.

Domestic sales for the fourth quarter of 2014 were $151.6 million compared to $142.4 million in 4Q of 2013. That's an increase of 6.5%, or $9.2 million. Domestic sales represented 63.3% of Q4 2014 sales, compared to 63.6% of Q4 2013 sales.

Part sales for the fourth quarter of 2014 were $63.8 million. And that compares to part sales of $56.8 million in Q4 of 2013, a 12.3% increase or a $7 million increase. Part sales were, then, 26.6% of our quarterly sales in Q4 2014, compared to 25.4% of sales in Q4 of 2013. On a year-to-date basis, sales were $975.6 million compared to $933 million last year. That's a 4.6% increase or a $42.6 million increase.

International sales in 2014 were $321.4 million. That compares to $333.9 million in 2013. That's a 3.7% decrease, or $12.5 million decrease. The decrease in international sales year-over-year occurred primarily in the post-Soviet states in Africa, in Australia, and in Canada. Those decreases were offset by increases in South America, in Asia, and in Russia. International sales were 32.9% of sales in 2014 compared to 35.8% in 2013.

Domestic sales for the year were $654.2 million compared to $599.1 million in 2013, a $55.1 million increase or a 9.2% increase. Domestic sales for the year are 67.1% of total sales compared 64.2% of total sales in the prior year. Part sales in 2014 were $254.7 million compared to $246.9 million in the prior year, a 3.2% increase or $7.8 million increase. Part sales were 26.2% of total sales had year compared to 26.5% of sales in the prior year.

Gross profit for the quarter was $53.1 million compared to $47.3 million last year in Q4 of 2013. That's a $5.8 million increase or 12.3% increase in gross profit. That made the gross profit percentage 22.2% for the fourth quarter of 2014 compared to 21.1% for the fourth quarter of 2013. Impacting that gross profit was a reduction in the unabsorbed overhead, and in Q4 of 2014 our unabsorbed overhead was just over $1 million, while it was $7.3 million unabsorbed overhead in Q4 of 2013. That's a positive change of about $6.2 million.

On a year-to-date basis the gross profit was $215.3 million compared to $207.1 million last year, an $8.2 million increase or a 4% increase. Gross profit percentage then would be 22.1% for 2014 compared to 22.2% for 2013. On a year-to-date basis the unabsorbed overhead was $12.2 million and that compares to $26.6 million of unabsorbed overhead in 2013. That is a positive change of $14.4 million.

I just want to point out that when you look at the segment revenues and profits and the reconciliation of the total segment profits to the net income as reflected in the financial statements, you will see some other large numbers for the elimination of intersegment profit. Those amounts are, reflect intercompany sales and the deferred profit on those sales and those occurred primarily in sales to Australia and to Brazil, but the biggest piece of that is the deferred profit on intercompany sales of equipment on the Pelletizer project. So that inventory is still sitting on the books and contains profit that certain subsidiaries have recognized. We obviously eliminate that in consolidation. Just wanted to point that out for you.

SGA&E for the quarter was $41.1 million or 17.2% of sales compared to $36.6 million for the fourth quarter of 2013 or 16.4% of sales. That's a $4.5 million increase or an increase of 80 basis points as a percentage of sales. The reason for that increase, the primary drivers for the quarter, is the addiction of Telestack at April 1 of 2014 and payroll and related expenses also increased during the fourth quarter of 2014 over the fourth quarter of 2013. For the year SGA&E was $163.6 million or 16.8% of sales compared to $151.4 million or 16.2% of sales for the year-to-date period in 2013. That's a $12.2 million increase. The primary driver on the year-to-date basis in SGA&E is payroll and related expenses, the addiction of Telestack, again. Recall that we had CONEXPO earlier this year and so that was -- that was $4 million -- $4.25 million in the current year. We had incurred some cost last year so that increase was $3.5 million net increase, and increased research and development cost for the year.

Operating income for the quarter is $12 million, compared to $10.7 million in the quarter last year. That's a $1.3 million increase or 12.1% increase. For the year, operating income was $51.7 million, and that compares to $55.7 million last year, a decrease of $4 million or 7.2%.

The interest expense line has jumped up just a little bit in the fourth quarter. Interest expense is $345,000 compared to $7,000 last year and for the year $720,000 compared to $423,000 last year. The driver behind that is that we did have, we did dip into our credit facility in intra-quarter periods -- so during those months in the middle of the quarter we had to dip into it just a little bit -- and we also have some outstanding debt in overseas locations, primarily in Brazil, and those amounts are for the construction of the building in Brazil and our facility there. Those amounts reflected in these condensed consolidated financial statements in the short-term and long-term liabilities because they're relatively small amounts.

Other income for the quarter was about $0.5 million dollars and for the fourth quarter of 2013 was income of $1.1 million dollars and on a year-to-date basis $2.9 million of other income compared to $2.8 million last year. Recall that that other income is primarily generated from license fee income and investment income where we have investments in our captive insurance company.

The effective tax rate for the quarter was 30.4% and that compares to an effective rate last year in 2004 of 2013, 29.7%. The effective rate for the quarter was impacted by the passage of R&D tax credit in the fourth quarter of 2014 so we got to recognize our R&D credit all in one quarter during 2014. You may recall that in 2013 it was -- it was enacted for both 2012 and 2013 early in the year so it was in the first quarter of 2013 where we recognized two years' worth of R&D. And that's reflected in the year-to-date -- or the full year effective tax rate. You will see that for the current year it's at 36.2% and in the prior year it's at 32.7%. The primary driver there again is the enaction of the 2012 and 2013 R&D credits in the early part of 2013.

Net income attributable to controlling interest is $8.5 million in the fourth quarter of 2014 compared to $8.3 million in the fourth quarter of 2013. That's a 2.4% increase. And EPS for the quarter is $0.37 compared to $0.36 last year fourth quarter. Year-to-date net income is $34.5 million compared to $39 million last year. That's a decrease of $4.5 million or 11.5% and that makes EPS for the year $1.49 compared to $1.69 last year.

When we discussed the backlog numbers recall that our backlog has been adjusted in the prior years for the addition of Telestack. So not only are they reflected in the current numbers, we went back and recast the prior year numbers so that you get a true apples-to-apples comparison on the backlog. So our backlog at the end of 2014 was $332.1 million dollars, a record backlog and the backlog at the end of 2013 was $298.2 million. That's an increase of $33.9 million, or 11.4% increase. The international component of that backlog this year was $109.7 million. That compares to $97.5 million of international backlog at the end of 2013, a $12.2 million increase or 12.5% increase. Domestic backlog at the end of this year was $222.4 million and that compares to $200.7 million at the end of 2013, a $21.7 million increase or a 10.8% increase. The December 31, 2014 backlog of 332.1 million, compares to September's backlog of $295 million and that is a $37.1 million sequential increase or 12.6% sequential increase.

Typically here at the fourth quarter press release we also disclose to you the January backlog because we do have those numbers in and consolidated. So the January 2015 backlog is $335 million and that compares to a January 2014 backlog recast to include Telestack of $291.4 million. That's a $43.6 million increase or 15% increase in January versus January backlog.

Our balance sheet remains to be strong. We have receivables of $107.3 million. That compares to $94.8 million in the prior year. That's an increase of $12.5 million. Our days outstanding are at 41.5 compared to 38.5 last year. Our inventory is at $387.8 million compared to $342.3 million at the end of last year. That's a $45.5 million increase but recall that included in there is the addiction of Telestack, which is about $3.6 million here at the end of the year plus the Pelletizer inventory that still sits in our inventory on our books. It makes up the vast majority of the rest of what difference.

Our inventory turns are at 2.1 compared to 2.2 in the prior year. We owe nothing on our hundred million dollars credit facility and we've got $13 million in cash and catch equivalents plus we've got another $1.9 million in investments. Outstanding letters of credit here at the end of year are $12.6 million so that gives us borrowing availability on our domestic facility of $87.4 million and again we had about $10.9 million of debt overseas in primarily in Brazil and those again are reflected in the balance sheet and other long-term -- other short-term and long-term liabilities.

Capital expenditures for the year were -- sorry for the quarter were $6.3 million and for the year were $24.8 million and we do expect -- we forecast about $30 million of CapEx in 2015. Depreciation for the quarter was $5.4 million and on a year-to-date basis was $21.3 million and $23 million of depreciation in 2015.

That concludes my prepared remarks on the financial statement so I will turn it back over to Steve.

Thank you, David. Ben Brock is now going to provide some comments regarding fourth quarter had year's operations as well as offer some thoughts on ongoing events. Ben?

Thank you, Steve and thanks to everyone for joining us on our call today. As we mentioned in our earnings release this morning, we were pleased with our fourth quarter results and we were also pleased with our record setting backlog, which along with our current prospects, has us optimistic for the first half of this year. Our earnings-per-share were $0.37 a share in the quarter versus $0.36 per share in the fourth quarter of 2013. On a year-to-date earnings-per-share was $1.49 for 2014 versus $1.69 in 2013.

Our year-to-date EBITDA was $77.43 million versus $79.69 million. As a reminder from David's comments and as our calls this year -- past year we did have three unusual items that affected our year-to-date EBITDA -- that CONEXPO expense, the fair market inventory write up at Telestack for acquisition accounting, and a foreign exchange loss which totaled about $1.5 million. The fair market value writeoff of Telestack was $1.418 million. The total of the three unusual items equals $7.17 million. Adding that back to our year-to-date EBITDA of $77.43 million would have given us a year-to-date EBITDA of $84.6 million, versus the $79.69 million last year. So that would have been an increase of $4.91 million dollars versus last year. So that would be an increase of 6.2% without the unusual items versus the sales increase of 4.6%. So we're pleased to report that operationally we have improved versus last year.

Our backlog at December 31 was a new record at $332.1 million dollars which was up 12% versus last year, and as David mentioned, our backlog at January 31 stayed strong at $335 million. Regarding the sales environment that we're in here in the United States, it just continues to be that uncertainty created by the Washington, DC representatives continues to make our domestic highway infrastructure customers feel uneasy about major capital expenditures. The encouraging news for us is that as we have mentioned on last quarter's call we do continue to hear from our infrastructure customers, that they are experiencing good business levels and have backlogs of work to do particularly on the private side. This continuing development is exciting for our business and while it will take a long-term highway bill to speed growth in really large CapEx in the Infrastructure Group, we are encouraged that our customers' equipment is running at higher capacities now and we are quoting more large projects this year versus the same period last year.

With regards to the highway bill, we are keeping close contact with our elected representatives in Washington DC and we're encouraging our customers, our vendors and our other industry members to do the same through our company-sponsored "Don't Let America Dead-end" effort. More info on that effort can be found on our website dontletAmericadeadend.com. We are cautiously optimistic that there will be a long-term highway bill of some kind passed this year. We would always welcome that long-term bill with increased funding, but in the meantime we do continue to pursue new business with new products in the United States and we are maintaining our international effort.

We are pleased to see our international backlog up in the quarter versus last year. I have visited the Hazlehurst wood pellet plant earlier there month and line one continues to run to capacity. Line two is installed and will be in testing during this quarter, and line three is being installed as we speak. As a continuing reminder it is a new product that we have chosen to finance for 24 months and as a result we will recognize the revenue for the plant as we're paid. This will have an effect on our cash and our inventory until it's paid in full. As another reminder the order for all three of those lines was for $60 million dollars.

The start up this pellet plant has created strong interest, and we do expect to sell a new plant near the end of this quarter are early second quarter. Internationally given the well documented issues globally with regards it to currency swings and politics we are -- we were pleased to see our quote activity continue to stay level during the fourth quarter along with our international backlog increase.

On the energy side we remain challenged in our drilling and pumping equipment with regards to shipments and margins in Q4 and we are not immune to the current low oil prices with regards it to our oil drilling and pumper business. As a result of the low price of oil and overcapacity at our GEFCO Loudon Tennessee facility, we regretfully informed our employees at the Loudon facility that we would be closing the facility effective at the end of May this year. The product lines and related inventory at Loudon will be relocated to our GEFCO Enid facility. The main products -- product lines at Loudon are the oil drill rigs and pump trailers.

This move will result in a Q2 charge of approximately $1 million. However, it will result in a cost savings in 2015 that will outweigh the Q2 costs of closing a facility. The difficult decision will affect approximately 75 employees at Loudon. We will do our best to place those employees with other Astec Industries companies as we're able to.

In other energy group news we saw continued strength in heaters for gas processing operations and increased sales of wood chippers and grinders. So despite the tough decision with regards to Loudon, we are optimistic on our outlook in the energy group.

Our new facility in Belo Horizonte, Brazil did open during the fourth quarter. While Brazil's current economic issues are well-documented, we remain optimistic on Brazil over the long-term. As a reminder we built -- we will build equipment for the agri-processing, mining, and a small asphalt plant in this facility to start.

Looking ahead to the first quarter of 2015 and the rest of the year, we have once again increased our backlog and we have mentioned that stable quote activity internationally. From our last earnings release to now, orders have been good for the last three months with the exception of compete hot-mix asphalt plants which have continued to lag historical levels due to the highway bill uncertainty. Oil drilling and pumper equipment have also lagged as well and that's reflected in our decision with regards to Loudon.

We see growth opportunities in pellet plants, large crushers for mining, higher recycle asphalt plants, small commercial asphalt and aftermarket parts and service sales. We see the potential for a long-term highway bill with increased funding to be passed this calendar year.

Part sales in 2014 did increase 3.22% versus 2013. We remain committed to improving our part sales volume in the long-term along with working to increase competitive part sales.

We are continuing to work on our Lean journey with regards to manufacturing and office operations. With we are seeing some results of our Lean efforts show up in higher margins in the quarter. We continue to focus on margins and we will work to make this a trend, not a one quarter bump.

Looking together whole of 2015 we are cautiously optimistic. We expect to continue to improve on operational performance versus 2014. With our division's current backlogs and delivery schedules, we are optimistic that our first quarter will be improved versus this past quarter and that our first half will be a good first half. And again, this is despite the current state of the highway bill in Washington DC. Our customers are experiencing improved product markets. We are focused on selling existing and new products not only in the United States but around the globe. We're also growing our business in energy and mining, two industries that are not necessarily depend went on our highway bill. Acquisitions remain a key piece of our growth strategy along with organic growth and you new product introductions and targeted sales growth efforts in both 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 back over to Steve Anderson.

Alright. Thank you, Ben. Gina, if you would open the line for questions, we will be ready to field those.

Thank you. At this time we will be conducting a question-and-answer significance. (Operator Instructions). Our first comes from the line of Mig Dobre with Robert Baird. Go ahead with your question, please.

Good morning, gentlemen.

Good morning.

So I have a lot of questions here. I guess the -- maybe the biggest one for me, pretty good backlog numbers without a doubt and, apparently, trends are still decent through the quarter. So I'm wondering, Ben, when you're thinking about the full year thinking about 2015 as a whole? How do you think about the revenue potential here?

Me, I still think for us the summer is always going to be our challenge and what could help us will be potential pellet plant order and/or a highway bill. And we need to manage through the summer better if there's not a highway bill. The money will be there. I mean Congress has proven that they will vote an extension what keeps a baseline in the $40 billion range and with private markets being okay that can be manageable but we experienced a rough third quarter with how things were going, especially in the Astec division.

But it feels a little bit better. Our customers are doing well. I have been with a lot of them during the quarter and in January. So we see an opportunity to have, like I say in the comments, cautiously optimistic for the year. If there's not a highway bill we will need to manage better because what would happen is, as you heard in David's comments is our absorption did come down but our margins came down with it during the third quarter and we will just have to manage that better if there's not a highway bill or a large pellet plant coming through Astec Inc.

I appreciate that and to be honest with you, I wish you had been a little more specific in your commentary, but I understand you are, maybe a little bit limited. Sort of sticking with this line of thinking on margins -- in the infrastructure group, pretty meaningful improvement in gross margin. I'm not just talking sequentially, I'm talking year-over-year also in spite of an 11% revenue decline.

So, are we talking about a shift in mix here? Is pricing getting better? I know you called that out last quarter as an issue. How do we think about the sustainability of gross margins into next year?

I think in the first half it's sustainable. There is a little bit product mix as you mentioned. Little bit of our Lean efforts staring to show up and I think -- we are in the buying season for asphalt plants. So it always feels a little better around here in the winter. But it's the work that we are getting is our main product on work here at Astec division. The mobile side has stayed fairly strong. The small pavers have done very well for Carlson. So, it is a combination of those really Mig. I wish it was just one but it's kind of everything of coming together during that quarter and starting off this year.

And what about pricing?

We are still in a competitive pricing situation on asphalt plants. And we have done a little bit better on parts but on the plant side, it's still pretty tough. But again, we are -- even though we're competitive, and it's tough on the parts, back to your point on product mix, it's just been more main line equipment and just a little more volume coming out of that plant and that helps us.

All right. And then before I get back in the queue, just shifting over to your energy segment. I'm trying to make some sense here of your really strong orders and backlogs. You're up 54, up 98% year-over-year, you're calling out that oil and gas headwinds but obviously there are some other things that are contributing to this segment. What is it -- and again how do you think about 2015 as a whole?

That's a great question and Rick, you may want to comment to this. The biggest thing that happened to this during the quarter is we got a large $25 million order from a large oil producing company that, we can't tell you who it is but it's one that you know, I mean that the globe knows and that was for gas process here, processing up in Canada. And Rick, you may want to comment on the other group.

Well in addition to that, the wood chipper and grinder markets improved and we improved our market shares in those markets. So that also contributed pretty significantly to the increase in the backlog for the quarter.

Can you talk at all about, what drove that $25 million order? Is this new product introduction on your part or is that -- really any color there would be helpful?

The customer is building a new plant and so we got eight heaters to go into that plant.

All right, I'll jump in the queue. Thank you, guys.

Thanks, Mig.

Our next question comes from the line of Jason Ursaner with CJS Securities. Go ahead with your question please.

Good morning.

Good morning.

Just following up on maybe the last question, when you look at the domestic orders in the backlog for the year end, again, is the lower oil helping your contractors in the asphalt side, maybe do some more miles? Or just any additional commentary on what you see driving the strength there for equipment orders through the end of year.

Jason, this is Ben. We're seeing that, that's helping them on their bottom line. There is a little more backlog particularly from the private side. Some of the states that taken on more funding on their own like Pennsylvania and Virginia. We talked about several times on these calls and the market is, that's starting to show up some big, pretty big lettings, but not needle moving lettings that are like the federal highway bill for the long term.

So it's fairly good in pockets, it's not everywhere, as far as the state money goes. But on the private side in general, the National Asphalt Paving Association Annual Meeting at the end of January, there were customers there from 42 states and the feeling is just generally better and have little work going into the year and having pretty decent year as last year. So they're doing little bit better than us.

Okay. And the year-over-year comparison, now that these orders are coming through for a bit of lead time -- any, is there any concern the contractors last year and may be hold off and anticipation of CONEXPO and that plays at all into the year-over-year numbers?

Well, I don't know about the CONEXPO side. I think there is definitely pent-up demand and just a little bit of work probably got us a couple of deals that maybe wouldn't have happened last year. But again historic versus historical sales levels of asphalt plants this buying season, its sill lagging.

Okay.

On the mobile side, it's still pretty strong as it has been.

Okay. And in terms of cash flow, looks like pretty much breakeven for the quarter and for the full year excluding Telestack again pretty much flat. Just working capital investments seem like they're taken up a lot of cash, most of that in inventory. How are you thinking about current working capital levels and cash flow going forward?

A lot of that you are seeing there is pellet plant. And so that's a lot of money tied up. The sale was $60 million and when you get that back we'll look a lot better. I don't know, David, if you have another comment on that.

It's something that we talk about and monitor on a fairly regular basis. And we have in the past when we get appropriate discipline and need to apply appropriate discipline -- our guys are pretty good about generating cash and pulling it out of the balance sheet. So right now, we really allow, because of our internal metrics, allow folks to buy a little more inventory so that they can deliver more quickly to customers and also they're investing in R&D and in product development, so that's eating a little bit. But you're right, we do watch that AR and the inventory numbers pretty closely.

And at this point you wouldn't expect the customer on the wood pellet to get financing until line three is in or are they going to do it line by line?

It will be 2016. We have mentioned that in the past that, all three lines should be running mid year so we're still very -- I hate to call it working the kinks out, but when you start up that much iron you go through that process. And it will probably be running strong by the end of the third, the latest. We have learned a lot in line one that's been fixed for lines two and three. So that's a good and bad thing. But if we -- they need to running to get the financing in place, all three lines, because they want to finance it all in one shot.

Okay.

We knew that going in. I'm sorry, we did know that going in, Jason, I'm sorry.

No, no problem. I will jump back in the queue, and let some others get a chance.

Thank you.

Our next question comes from the line of Nick Coppola with Thompson Research Group. Go ahead with your question please.

Good morning.

Good morning.

On SG&A you called out in your few opening comments Telestack and payroll and related expenses, and so was there anything unusual in either of those items? Or were you running about where you expect to be trending in Q4? And as a follow-up to that, what kind of SG&A leverage do you expect in 2015?

No, there was nothing unusual in those. They were added together and they were the vast majority of the increasing SGA&E. And we do expect -- I would expect, trending that we would be in that probably $41 million range on average going forward, I think that's probably of fairly safe number right there.

Okay, that's helpful. And then what are your infrastructure customers, particularly those within energy-intensive states, reporting back to you? Do you notice any negative impact on either private, on the private/public side for infrastructure and places like, place like Texas from lower oil prices?

Nick, this is Ben. I talked to a few contractors from Texas meeting I referenced for NAPA in Florida, and they have a long term concern that is immediate, they didn't see anything this year, the ones that I talked in. I didn't really talk to any from North Dakota or South Dakota but near that region we are installing a very large asphalt plant right now in Minnesota which is probably the worst price to be selling an asphalt plant right now. I think it was minus 35 the other day. They couldn't even starting the welding machine on site. We haven't heard much other than concern for 16 out of that, is what they said.

Okay. That's helpful.

The other thing, I would add to that, it's not a part of the question is that in talking with people on energy side and kind of trying to get a feel for how long the oil industry, the issue could be there, our general feeling and talking with people is that, it's about an 18 month issue as far as oil prices and coming back. And that's just in talking to lot of people. There is not science behind that. That is just a lot of conversations.

Okay, that's helpful. And then my last question for, just looking for any more color about Brazil. It sounds like you finally got that up and running. What does early performance look like there? And kind of just color about what's going on down there and may be any ability to or of a desire to add product lines down the line?

Well everybody knows how the economy is going down there so perfect timing to open a plant in Brazil for the economy. It's not great. So it's going to be a struggle this year and the way we are trying to offset that struggle is that fit to few more products that we would build through the plant there.

We had the one small asphalt plant that is we call a Voyager that's really built in our Dillman operation transferring the drawings down and then we're now talking about one other size plant for that operation that would sit well in Brazil. And then we've also discussed potentially maybe one or two Roadtec pieces. When we designed the facility, we designed it to be flexible to build multiple divisions' worth of equipment. So it's going to be a struggle though in year one, there is no doubt.

All right. Thanks for taking my question.

Thank you.

Our next question comes from line of Ted Grace with Susquehanna. Go ahead with your question please.

Good morning guys.

Good morning.

Ben or David, I was holding to get some perspective on thinking about margins in 2015. I know you made some comments on SG&A and kind of a $41 million run rate being kind of a reasonable run rate, if I heard that correctly.

But I was just wondering, when we look at 2014 on 5% sales growth, we are kind of flat gross margins in low 22% range. Operating margin is compressed about 50 basis points. Could you just give some kind of handholding or framework kind of think about, for how you are thinking about the opportunity from margin expansion both at the gross and the operating lines in 2015?

Ted, this is Ben. We think we will be improved in the first quarter particularly against the first quarter of 2014 on margin. We're trending in that direction. To predict back to historical highs in the 25%, 26% range I think, we feel early but we're certainly going to feel like we're going to be above fourth quarter margin of last year and first quarter margin of last year.

On the first quarter is that, are you talking operating, or is what due to kind of the CONEXPO easy comps so to speak or are you talking about the gross margin and underlying profitability is actually better?

That's gross margin and underlying profitability as being a little better.

Okay. And when you think about the big puts and takes behind mix, could you just maybe walk us through or bridge us through how you're thinking about materials or under-absorption on revenue growth in those dynamics? I think that kind of handholding would helpful for people, as they think about framing out their 2015 estimates.

Sure. We have seen steel kind of come down during the fourth quarter. We think that it will be stable in the first half and so we are -- that's a good and bad story that's nobody else is using much of it, but it's good helps us and but we see it being stable for what we know at the moment.

Your other question the materials and?

Absorption.

Absorption. That will be okay in the first half. I think it will be probably we were this year. We'll keep it in mind.

Any other big puts or takes with kind of the cost of good lines we should be mindful of?

I think just, as I mentioned we have been working on our lean effort, I think we starting to see that in our margin little bit. Volumes helps us, as you can -- when you walk through our plants, which we have done a quite bit in January too, you can see difference that has started to take shape.

Okay. The second thing I was hoping to kind of zero in on and I apologize if I have somehow missed this. But within the aggregate crushing and screening products within the aggregate mining group, can you talk about just the domestic environment for that product line and then maybe that the outside US opportunities or kind of the environment fields for the kind of the core aggregate products?

Sure, timing is perfect, because I just spend a week traveling and visiting some customer sites where we are putting in a big quarry at Oklahoma, near Durant, Oklahoma. It's a large crushing system. And traveled with the more the stationary aggregate group and the portable aggregate group during that week. So they have really been kind of been an unsung hero for us over the last few years. They have been very steady as a group. Their backlog is of a little bit, but it is a little bit more manageable for them as a whole.

We are still challenged with pretty good backlog levels on the portable side, particularly in the washing equipment. Talking with the customers and talking with a few of our sales reps traveling around with some windshield time -- generally the feeling is pretty good for domestic. And of course we have seen some nice releases from some of the larger aggregate suppliers that have come out in the last month or so. So our guys are generally upbeat about domestic.

Outside the USA there is still a concern about Russia even though we have done generally okay in Russia. What happens for us is there is not a lot of great local manufacturers of the equipment we build in Russia. So that's why we have been, maybe have been able to hold on a little bit there, with the politics that's up there, we're keeping it an eye on it.

Outside the USA for the aggregate mining side, Brazil is in that group, so as we start growing there, that will help. Again I think that will be a challenge for year one, but there is still a lot of work in Colombia coming up. And so we're staying impacted there and [indiscernible] has been good for us. Not so much Middle East and not so much Africa but Europe we are starting to get a little more activity. And I think that's a lot because of Telestack being in the region and people paying a little more attention to us is the having manufacturing in that region and Telestack is in that group and there is start looking at ways to incorporate some of their crushing equipment in the systems that would incorporate Telestack equipment.

So, I wouldn't say that we're over the top saying that international is about to boom for any of this. But that were pleased that we're making a little more headways versus maybe last year at this time.

Okay. And then last one if I can squeeze it in, for 2015 when we think about the impact of FX, given lot of the manufacturing's in the US, how would you encourage people to think about kind of A, how it's impacting your sales ability on transactional basis, just being at a disadvantage? And then B, just as we think about the impact of the FX on your revenue from a translational and the effect it would have in profits for 2015, could you just little handle there?

Sure, it's painful. The Australia with Astec, Australia at Aussie dollar this morning was $0.77 when I took a peek this morning that is painful for gaining equipment. So although those guys or holding on and had compared to what's happened to them on the volume side, they held on okay through the last year. And the Canadian dollar at $0.79 does not help. And then the euro even at $1.13 we seem to be getting some deals.

So it's a concern for us. And we'd like to see if it will better in Australia talking with those guys -- I'm going to go down there Sunday and spend some time with them. But it's a challenging time there, but there is some opportunities for as there too. In any market somebody is buying, and have got to try to to get in front of them and earn the business. It's a challenge to us but we are still as you can see at our backlog we are still selling.

Yes, all right, that's very helpful. Best of luck this quarter and safe travels down to Australia, Ben.

Thanks, Ted.

Our next question is from the line of Brian Rafn with Morgan Dempsey Capital Management. Go ahead with your question please.

Good morning guys.

Good morning.

Give us sense, that you mentioned, Ben, talking about your expectations for this time I guessing at six year highway bill. Any thoughts on the size, the numbers you are hearing? Is it more of that $245 billion to $275 billion? I heard the Army Corps of Engineers talk about $500 billion? And then if that actually flows through on a six year bill, what kind of pent-up demand might you see from some of your road builders actually kind of releasing some orders.

That, if you take what we are hearing, we are hearing everything from a four year to six year bill at an average of $50 billion a year. That's kind of what we have been hearing. And I kind of think sometimes is it's who talks to the last guy last. But that's kind of generally what we are hearing. We are hearing the gas tax doesn't have a lot of legs, but we're hearing there is tax code changes on to it, to try to make it happen, it's kind of what we are hearing.

And so if -- let's say that happens an it's a four to six year bill and what with that mean for us, particularly on the infrastructure side, I think it means that we would see a pretty good quick order run for about three months, because there is a plenty of people who would love to do something right now but need that bill to feel comfortable. And then I think we would see a little break while everybody figured out, where is that money hitting and where is that money going and where the jobs going to be let. And then I think we see few years of pretty good activity in infrastructure group.

Our customers are doing fairly well and I think they'll move quickly. And then 80% of our business is probably held companies, where you are dealing with one decision maker at the top that can make a quick decision. So I think we would see a quick increase and then kind of little break and then have a pretty consistent run through for a few years.

Okay thanks I appreciate that. If you look at Carlton and Roadtec and you look at let's say we take a worst case scenario you don't get highway bill. Washington continues to stumble along. There have been extensions like you said. They've been pretty spot on with that. If you don't see your releases how over the next few years, how strong does that argue for repair parts? Because sooner or later the equipment is going to break down and if you want jobs there's a lot of discounting -- I mean how much demand for repair parts? And have you seen that delta change off as we haven't had a six year bill and repair parts have been pretty strong?

I think we seen a delta in that December and January. Parts on the year were up. I think there will be a good opportunity for that in either case in the second half and through the winter next year. Because that it's going to come and we're in pretty good position in the infrastructure group for that I think we've got room to improve that in energy and aggregate side. The aggregate side has come along on that, but we still got room for what we would call boots on the ground they're direct in front of customers working for the parts business.

Go ahead.

Yes I would I just did go ahead I want to finish.

Well I just say that Astec had a really good parts year last year and starting off really strong this year.

Okay and then just, Ben, from the standpoint of 50,000 foot view what kind of capacity utilization are you seeing across some of your subsidiary companies? Or how many ships that you are running? What's running fairly strong and what's running with fairly low capacity?

Yes sure. I would say we're probably today run and we've been probably last year we were running at 60% to 65% range overall, we were probably in the 70% range -- not to 75% but somewhere between 70% and 75% right now. Obviously with what we were doing in Loudon, that and that's pretty good indicator at Loudon that utilization there is not good. And truthfully it's not great in Enid. This news would help us in Enid with an increase in man hours to the shop. Now I'll say that with an asterisk, because the oil and gas industry, as is pretty well-documented, is off right now. But we did have a water drill rig that we have we're starting to build at Loudon that was 30-K they were moving to Enid help their volume too. So we think it will help us not only unless what we're doing with Loudon, it will help us in Enid with more man hours.

Thanks guys.

Thank you.

Our next question is a follow-up question from the line of Mig Dobre with Robert Baird. Go ahead with your question please.

Yes, thanks for taking my follow-up. Just a little more color maybe on the aggregate mining segment. I'm wondering can you parse out some of the moving pieces on your margin in the fourth quarter? It's been a little bit shy of what I personally expected. Also looking at this segment, margin here's been between call it 9.5%, 9.8% over the past three years. Is there any reason to think that we should be seeing that number change in 2015?

Hey this is Ben. I don't think we'll see a change very much in 2015. I think when you look at aggregate group and what they delivered and I guess I'm just lucking into the answer just because I was traveling with them. But that project was -- a large project in Oklahoma was a bit piece of that and that there was a new equipment on that new designs, new conveyer designs, through Telsmith group, and that is showing up in the margin. And whatever we have first we always take a little hit on margin.

The other thing that's happening on aggregate on the mobile side, on the KPI and JCI side, they're doing more development on their global track units. And they're doing some work to be able to get those to break down and going to containers and so they'll be able to ship a little easier and more economically to get outside the US and be competitive. And a little bit of that showing up too.

Okay.

They're going to be okay this year on margin though.

All right I appreciate that. And I remember Ben you said in the mining accounted for a third of this segment's revenue. Has there been a mix shift in 2014 and notable mix shift does that any kind of we should be aware?

If there is a shift it's more to the aggregate side in this year. And we got a large 900 crusher that Telsmith, and it's ready to go and we're, we think -- I hate to go over the top and say we got a home for it, but we think we got a home for it. And we would like to get that installed before the middle of this year at a place and get it tested out, and start proving ourselves in those 900 to 1200 horsepower crusher segments of the market.

That will help us grow the mining side and then being in Brazil and being next to the mine, and being able to build right there will help us long term. I don't think it moves a huge amount this year down there given what's going on.

Yes. But is it fair to say that mining is, I don't know may be closer to quarter of the segment at this point?

I think so. I don't have the exact number here, Mig, but my gut feels that it may be about right.

All right. And then, I'm looking to clarify something is that I'm little confused with regards to your EPS comments for the first quarter. Are you -- to be clear, are you saying you are going to be up sequentially and year-over-year in terms of earnings?

In the first quarter versus the first quarter of last quarter we should be up.

Okay, all right.

Is that your question?

Yes, that is my question. And the last one is on the potential wood pellet plant order that you said, you could get either may be late 1Q or early 2Q. Can you remind us may be size the order of the potential there, the way the revenues going to be recognized, and maybe the way you foresee the revenue flowing through the various segments?

We are renegotiating that. It is probably the three lines or so, so similar to what we have at Hazelhurst with some extra auxiliary equipment. So it's going to be a little more money. And it's going to be partially in the fourth quarter, and the balance and the first and second of next year. There is a lot of moving parts to those and working on back pages and that kind of stuff. That would be where it would be if we were successful.

And in terms of that flows at segment level for revenues?

Well it would be mainly all in infrastructure group through Astec because all of those companies that would be affected would sell into Astec. So, and most of it probably 90% of that would be going through Astec Inc. and then you would see it small pieces to show up and aggregate mining group and energy because Heatec supplies the [indiscernible]. The good news about that is we're not financing that. So, we are setting up the terms so we can recognize that as we ship it. So that would be, that would feel lot better.

Sure, in theory, if you're able to financing on or the customer can get financing on the plant that you already have in Hazelhurst and then we are talking about this one as well, that could potentially be a pretty meaningful swing to the out-year number right?

Yes.

So, as these things develop, it would be helpful to get some press releases or some kind of update maybe in the quarter on this?

If we got the order and it was firmed up, we would do a release on it.

Thank you, guys. Good luck.

Thanks Mig.

I would now like to turn the floor back over to Mr. Anderson for closing comments.

Thank you, Gina. We appreciate everyone's participation on our fourth quarter conference call. And thank you for your interest in Astec. As our news release indicates, today's conference call has been recorded. A replay of the conference call will be available through March 10, 2015. 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.

So, this will conclude our call. Thank you all. Have a good week.

Thank you, Mr. Anderson. This will conclude the teleconference. Thank you for participating. You may disconnect your lines at this time. Have a great day.