Astec Industries Inc (ASTE) 2018 Q1 法說會逐字稿

Greetings, and welcome to Astec Industries' First Quarter 2018 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to Steve Anderson, Vice President, Director of Investor Relations. Please go ahead, Mr. Anderson.

Okay. Thank you, Rob. Good morning, and welcome to the Astec Industries conference call for the first quarter that ended March 31, 2018. As Rob mentioned, my name is Steve Anderson, and 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 minute, I'll turn the call over to David to summarize our financial results and then to Ben to review our business activity during the first quarter.

Before we begin, I'll remind you that our discussions this morning do contain forward-looking statements that relate to the future performance of the company. And these statements are intended to qualify for the safe harbor liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions.

Factors that can influence our results are highlighted in today's financial news release and others are contained in our annual report and our filings with the SEC. As usual, we ask that you familiarize yourselves with those factors.

So at this point, I'll turn the call over to David to summarize our financial results for the first quarter.

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

Net sales for the quarter were $325.5 million compared to $318.4 million in Q1 of '17, a 2.2% increase or $7.1 million increase in sales. International sales were $55.4 million in this quarter compared to $64.9 million last year, a decrease of 14.7% or a $9.5 million decrease. The decrease in international sales quarter-versus-quarter occurred primarily in Australasia, in Canada, Mexico and Russia. Those decreases were offset by increases in South America, including Brazil and the post-Soviet states.

For the quarter, international sales decreased in the Infrastructure Group and the Energy Group and they increased in the Aggregate and Mining Group. International sales were 17% of sales in this quarter compared to 20.4% of sales in Q1 of '17.

Domestic sales were $270.1 million in Q1 of '18 compared to $253.5 million in the first quarter last year, an increase of 6.5% or a $16.6 million increase in domestic sales. Therefore, domestic sales were 83% of sales this quarter compared to 79.6% of Q1 '17 sales. And for the quarter, domestic sales increased in the Agg and Mining Group and in the Energy Group and decreased in the Infrastructure Group.

Parts sales were $88.1 million this quarter compared to $81 million in Q1 of '17, an increase of $7.1 million or 8.8% increase. Parts sales represented 27.1% of our quarterly sales this year compared to 25.4% of sales in Q1 of '17. For the quarter, parts sales increased in each of our groups.

Foreign exchange translation had a positive impact on sales for the quarter of approximately $2.2 million. That is if this year's rates were equal to last year's rates, sales would have been $2.2 million lower.

Gross profit for the quarter was $78 million compared to $75.8 million in Q1 of '17, an increase of 2.9% or a $2.2 million increase. The gross profit percentage then was 24% for the quarter compared to 23.8% for Q1 of '17. That gross profit included an absorption variance of $4.4 million this quarter under-absorbed compared to Q1 of '17 when we had over-absorption of about $700,000. That's a negative change in the absorption variance of about $5.1 million.

SGA&E was $52.1 million in Q1 this year. That represented 16% of sales compared to Q1 '17 SGA&E of $53.1 million or 16.7% of sales. It's a decrease of $1 million in dollar terms and a decrease of 70 basis points as a percent of sales.

Recall that we did have ConExpo last year of about $4.3 million in the quarter. That would have been a comp of $48.8 million in Q1 of '17. The increases in this quarter are that we bought RexCon in October of 2017. That added about $1 million to SGA&E this quarter. And payroll and related benefits are up, our headcount is up and so is our commissions and things of that nature. So payroll and benefit-related costs were up about $2.2 million in the quarter.

Operating income was $25.9 million in the quarter compared to $22.7 million in Q1 of '17, an increase of 14.1% or $3.2 million increase. Interest expense was $150,000 compared to $265,000 last year for the quarter, and the primary driver of that interest expense, recall, we do have debt in Brazil. It's about $3.4 million this year, it was about $6.3 million last year. That is there to finance their building, fixtures and inventory.

The effective tax rate for the quarter was 23% compared to 34.1% last year. That decrease in the tax rate year-over-year is largely the result of the reduction in the corporate federal income tax statutory rate, and that was done by the Tax Cuts and Jobs Act of 2017. That rate included a couple of provision to return benefits, which drove it slightly lower than our expectation for the full year.

Over the remainder of the year, those benefits will become diluted by more income, and of course, the -- then the rate would -- we would expect it to rise slightly through the year and end up in the 24.5% range for the full year.

Net income was $20.3 million in the quarter compared to $15.1 million in Q1 of '17, a 34.4% increase or $5.2 million increase in net income. That yielded diluted earnings per share for the quarter of $0.87 compared to $0.65 in Q1 of '17, a 33.8% or $0.22 per diluted share increase in EPS. EBITDA for the quarter was $33.2 million or 10.2% of sales compared to $29.4 million or 9.2% of sales in Q1 of '17. That's an increase of 12.8% or $3.8 million increase in EBITDA.

Our backlog at the end of March was $444.9 million compared to $377.6 million at the end of March of '17. Recall that, that -- those -- all of my prior year numbers are adjusted for RexCon, which we bought in October of 2017. That increase in the total backlog was $67.3 million or 17.8% increase in total backlog.

International backlog at March 31 was $103.8 million compared to $71.8 million in March of -- March 31, 2017, an increase of $32 million or 44.5% increase in the international backlog. Domestic backlog was $341.1 million compared to $305.8 million at the end of March last year, an increase of $35.3 million or 11.6% increase in domestic backlog.

Excluding the pellet plant backlogs, the March 31 this year backlog was $378.3 million compared to $309 million at March 31 last year, a $69.3 million or 22.4% increase. Sequentially, the backlog at the end of March again, $444.9 million, and at December 31, 2017, the backlog was $411.5 million. That is a $33.4 million increase or 8.1% increase in the sequential backlog.

Foreign currency translation again had a positive impact on the backlog. If we had used the same rates as last year, the backlog would have been $4.2 million lower.

Our balance sheet remains very strong. Our receivables are at $153.9 million compared to $156.2 million at March 31 of last year, a decrease of $2.3 million. RexCon added $1 million of the receivables that are in this year's balance sheet.

Our days outstanding on those receivables were 41.7 days at March 31 this year compared to 43.2 days at March 31 of last year, a slight increase there. Our inventories at $411.2 million this year compared to $372.6 million last year, an increase of $38.6 million, and RexCon added $10.6 million of the $411.2 million in inventory that we have on the balance sheet this year.

Our turns are 2.4 turns and they were 2.4 turns last year at March 31, so this remained flat. We owe nothing on our $100 million domestic credit facility, and we have $41.9 million in cash and cash equivalents on the balance sheet. Our letters of credit outstanding are $9.4 million, yielding a borrowing availability of $90.6 million. And we currently have, again, $3.4 million of debt in Brazil.

Our capital expenditures for the quarter were $4.4 million, and for 2018, we're forecasting around $35 million of capital expenditures. Depreciation for the first quarter was $5.6 million, and we are forecasting for the full year about $23 million in depreciation.

That concludes my prepared remarks on the financial statements. I'll turn it back over to Steve.

Thank you, David. Ben Brock is now going to provide comments regarding the first quarter of this year's operation. Ben?

Thank you, Steve, and thanks to everyone for joining us on our call today.

As we commented in the release this morning, we were pleased with our result for the first quarter. Our earnings per share exceeded our expectations as they were aided by a favorable product mix and, as David mentioned, a lower tax rate. Our gross margin for the quarter was improved to 24%, which is progress toward our goal of 25% gross margin exiting 2018. Our EBITDA was 10.2%, which improved -- which is improved versus our EBITDA of 6.98% for the whole of 2017. We'll look to grow EBITDA as we grow gross margin.

As we mentioned on our last call, in support of our focus on better financial performance, we added a new Vice President of Global Operational Excellence during the first quarter this year. Our new VP was with us on our quarterly review trips earlier this month, and we're excited about our opportunities to improve gross margin, as mentioned, in addition to working to increase our inventory turns from our current 2.4 turns to 4-plus turns by 2020.

Our backlog at March 31 was -- 2018 was $444.9 million versus $377.6 million on March 31 last year. Our Infrastructure Group backlog was up 4% as the group continued relatively good order intake during the quarter, mainly as a result of good economic conditions and the Federal Highway Bill in the United States. Ex wood pellet plants, the Infrastructure backlog was up 7%.

Our Aggregate and Mining Group backlog was up 38.6% as the group experienced strong order intake for the same reasons. Our Energy Group backlog was up 35.8% as the group experienced very good order intake for products serving customers in the industries of construction, industrial, oil and gas. We also experienced increased quoting activity in the oil and gas drilling products.

Our domestic backlog was up 11.6% and our international backlog was up 44.5% year-over-year. Our increase in domestic backlog was primarily due to the current long-term Federal Highway Bill, steady state and local government infrastructure spending and good private sector work levels for the majority of our infrastructure customers. Our international backlog increase was a result of improved economic conditions generally around the world. Our Astec Do Brasil subsidiary continued to experience increased quoting activity.

Changing subjects to wood pellet plants. 2017 was an extremely challenging year to us with regards to these plants as we took significant charges last year related to getting the 2 plants we delivered, installed and getting them up to speed on production for our customers. As an update on our progress on the wood pellet plants, we've made good progress and believe our announced charges during 2017 are adequate to fulfill our commitments to our customers.

Updating our current pellet plant quote activity, we do have ongoing quote activity for new projects. However, as previously announced, we are not going to sign a new pellet plant order until we have finished at both of the current plant sites.

We believe we will be in position to add an order in time to deliver a complete plant -- a complete wood pellet plant in 2019. As a reminder, if we do get an order for another wood pellet plant, we will only do so as a supplier of equipment in accordance with our traditional equipment, parts and service offerings.

Changing subjects to the Energy Group. We experienced good sales activity during the first quarter for products targeted at the infrastructure, oil, chemical and food industries, which contributed to the increased backlog in the group. Sales of wood chippers and grinders also remained consistent during the quarter. Our concrete plants are built in the Energy Group and quoting activity is good for these plants. We are optimistic on our outlook for the Energy Group.

Our new product development continues in all groups, however, at a more typical rate versus the high rates of R&D in 2016 and 2017. Looking ahead to the second quarter of 2018, we believe our second quarter 2018 revenue will be slightly higher than our first quarter 2018 revenue. And with regards to earnings in the second quarter of 2018, we expect our earnings per share to be slightly better than our first quarter 2018 earnings per share, which was $0.87.

Our current outlook for the full year of 2018 is core revenues up 7% to 12% versus last year, with a much improved net income for the year versus 2017. Despite the gains we believe we will show in 2018, we still have opportunities to be an even better company for our customers. Our focus is producing -- our focus is on producing even higher-quality products than we already do for our customers while focusing on operational excellence.

We continue to see our vendor partners, especially those with products that contain steel, working to increase prices. We have also seen our steel supply vendors pushing for the same. We are working to offset these pressures through the operational efforts mentioned earlier, focused procurement efforts and price increases where possible.

From our last earnings release to now, orders have been steady in the Infrastructure Group, improving in the Aggregate and Mining Group and improving in the Energy Group. Orders have been up internationally. Bright spots for activity are hot mix asphalt equipment sales that includes asphalt plants and mobile equipment, concrete plant sales, soil remediation plant quoting activity, wood chippers and grinders, aggregate crushing and screening equipment quoting activity and international quote activity.

Year-to-date parts sales were up 8.8% versus last year and were 27.1% of sales versus 25.4% of sales in Q1 last year. Parts sales remain a key piece of our business, and we are focused on continuing to improve on our parts sales.

For the whole of 2018, we remain optimistic on our outlook. We believe all of our reporting groups have the opportunity to be up on sales and net income for the year. Acquisitions remain a part of our growth strategy along with organic growth. To that end, we continue to work on potential additions to the Astec family. However, we will only do so if the acquisition is a strategically aligned fit in the industries we serve.

That ends my comments on the quarter 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'll now turn it back over to Steve Anderson.

Thank you, Ben. Rob, if you'll open up the lines, we'll be glad to entertain questions.

(Operator Instructions) Our first question comes from the line of Larry De Maria with William Blair.

I wanted to see if you guys can be more specific on inflations in steel costs and where you're getting -- where -- how much portfolio maybe we're getting price increases? How much we're not.

And as it relates to getting towards 25%, what -- gross margin at the end of the year, what kind of risk does material cost play? Or are we more or less -- the industry is okay with putting through some price increases? So can you give us some more specifics on that, please?

Larry, this is Ben. We have, in the first 2 weeks of the quarter here, we visited with all of our subsidiaries, and we're seeing price increases on steel everywhere.

And -- but the good news for us is, if there is any, is that, by and large, we're covered as we buy ahead a little to -- through the end of this quarter. So really, the effect on us probably starts third quarter or fourth quarter, and the offsets are working on operations to be a little better and working on purchasing of other items a little better and then price increases that you asked about.

And we have done that on the pricing side. How much of that sticks remains to be seen. We did that mostly late in the first quarter.

Our competition, by and large, is doing the same because the steel cost is a real thing. For instance, we notified one customer that's a long-time customer of ours that we had increased prices and they said, "Well, your competitor, they did the same thing 1 hour before you called." So we do see that our customers, they buy steel, they understand the prices are going up so we're working on making those stick.

As far as the exposure is, for us, it's probably late third, early fourth quarter. But we feel like some of the things we're doing in the background to offset it will help us. We still have our target to exit the year at 25% gross margin in place.

Great. And as it relates to the competition doing the same, specifically as I don't know if you're referring to WIRTGEN, that's where obviously it's a cue point where people are trying to figure out what's going to happen now that they're under new ownership, but has that been a rational process so far?

Well, we've -- they've always been a main competitor, for lack of a better way to say it, and it's been about the same. We have seen areas where they've raised prices, where they used to -- but I would say, by and large, they're still a strong competitor.

They do have 3 of their -- a lot of the dealers for them in the United States are also Komatsu dealers. There was a public announcement that the 3 Komatsu-owned stores in the U.S. are moving away from the WIRTGEN brands later this year.

So that's got -- some of their network obviously is probably a little bit nervous about that, we would assume. But for us, it's still -- they're a strong competitor and we got to continue to fight them.

Okay. Is Komatsu an opportunity for you guys? Is that something that can be discussed at this point?

That's probably too early to tell for us, frankly. But we're happy with our dealer network as it stands, so we're pleased with where we are right now.

Okay. And then just last question. As it relates to pellet plant issues, you said you're, I guess, you're on track to potentially get an order for 2019 delivery.

But can you just be more specific? What are we waiting for? It sounds like the issues are behind you guys, but we need to see a little bit more before we can take an order? Or are we just -- where exactly are we? Are we 1 quarter away from trying to get an order? Or -- and how does that look?

Well, we want to be completely finished at both places before we take an order. And we feel like in Georgia, that we passed the test. We're meeting with them next week to talk through that.

In Arkansas, we actually have until June 19 now. We've had weather issues. We've had some mechanical issues, and we've modified some equipment. It is tight at Arkansas. We've got a pathway to finish but it is tight and so we're all hands on deck on that.

But we feel like with what we committed to, we have the -- the charge we took last year is adequate but we've got to finish. So we're all hands on deck in Arkansas and that's where we stand. We're just not going to take an order unless we do. And if we don't get one in time to deliver in 19, we don't. We just, we want to finish first.

Okay. But June 19 is kind of the next bogie for -- but that's the next deadline, and if you pass that, then you're in a better place to go out and bird-dog some new orders?

That's correct.

The next question comes from the line of Stanley Elliott with Stifel.

Following up on that wood pellet order, you said the charges you took were adequate. You said some weather -- some mechanical issues. Is that related to the same sorts of issues, which I believe was at the hammer mill press that you guys had last time? Or if you -- any color there would be great.

Well, Stanley, this is Ben. I think whenever we get into these, there's always something that will pop up. But thankfully, what has popped up, the mechanical issues that we've corrected have not been extremely major.

And so the hammer mills, that piece and all of that, we've equipped -- we've fixed. The extra backhouses we've fixed. But as you start up, sometimes, things happen like shafts on a drag will break, and you figure out how to correct that and fix that and have a long-term fix. So it's things like that.

We're in a position where we are -- we need to be cranking up and running full production and going through testing. And we've got a lot of people on-site to do that. Fortunately, for the charge that we took, or the commitments we made, we feel like we have adequate coverage. It's a little bit like an asphalt plant. Every now and then something pops up and you got to fix it fairly quickly and that's what we're doing as we get ramped up.

Perfect. And then earlier in the call, you had mentioned you're pushing the inventory turns, I believe, to 4x by 2020. Can you talk about the pathway to that? Maybe what level of investment is going to be required to get that, assuming that I heard all that correctly?

Stanley, a lot of it comes through better inventory management. You see where our inventory level is with David's comments. And part of that, we bought ahead some steel, which turns out, looks like it's going to be the right strategy.

But part of that was at Roadtec specifically. We built a lot of equipment ahead in anticipation of going live on a new ERP system. We have not worked through that inventory as quickly as we thought as you kind of got to guess what's going to sell. And they had pretty good quarter volume-wise but had to build a lot of it, too.

So we were probably -- we are a little heavy at Roadtec as far as that goes. And then we've done a decent job despite the steel buy-aheads of having our steel turns pretty good. But we, frankly, need to manage our purchase inventory a little bit better and then also flow through shops and cycle times.

And that's where our new VP of Operational Excellence is really going to help us. And the conversations with him flying around to the different companies the first of this month, and he was at one yesterday, I just think the opportunities to get there are very real.

And then lastly, conversations with customers. You had the World of Asphalt trade show. Maybe you could kind of share any pearls of wisdom that you're picking up in the field in terms of how people are thinking about kind of the year, the sentiment out there. Anything like that would be great.

Well, the customers that I've talked with at World of Asphalt and in between after World of Asphalt, general sentiment remains strong, good confidence.

Just -- and one of the conversations with one of the customers was centered around an asphalt plant and delivery on that, and what's the increase on steel and talk through that. And he was like, "Well, I'll be okay because there's good work and that sounds okay." So I just -- it still feels pretty good.

I was on the phone with a customer last night and asked him how things were going. He said, "It's going great if we can just get the rain to stop, we'll be great." There's been a lot of rain in the southeast.

Our next question is from the line of Mig Dobre with Robert W. Baird.

Ben, just looking at the 1Q results, your earnings, $0.87. Really materially better than what you're guiding to initially for $0.77. And I'm just sort of wondering, from your perspective, what worked out better than you expected in the quarter? Was it a factor of revenue, something else within the cost structure? How did it all play out?

Mig, it's interesting. We had order creep, but what didn't creep out was really good product mix that we performed a little better on. And that was -- that contributed to it.

And then the other thing that helped us, the lower tax rate helped us, frankly. But it helped us inch our margins up. Still hard work to do to get to 25% exiting the year, but that was generally it.

And it's -- it was very pleasing that slightly more would have not been as high as we got for sure. But it was unexpected, frankly, but we welcomed it and that's really what it was.

I see. Is there something at segment level that you can call out in terms of the mix? Because related to this, I'm wondering as we're thinking about the rest of the year, if we should be anticipating any specific mix shift that would impact margin.

I think in the second quarter, it's going to be a similar mix, and that's why we say slightly better than this quarter. I think the revenue will be slightly better as well. And I think when you look at it, the Aggregate Group had some good -- pretty good mix. They did more unit sales at crushers than project sales and that always helps them. And also, we do fairly well on our track equipment and they had a good quarter on that.

In the Energy Group side, a lot of what has helped us is GEFCO has improved quite a bit and got to profitability in a good way. The pumper trailer sales are good, got some backlog there. They've worked through a lot of inventory with that because we had some pumper inventory in engines and that type of thing. So that really specifically helped us during the quarter as well in the Energy Group.

Okay, I see. And when you were talking about the outlook for the full year of 7% to 12% as well as your -- that's for growth. And as well as for margin exiting the year, gross margin of 25%. To be clear, we're not including the wood pellet plant revenue recognition into that in the fourth quarter, right?

That's correct. That's correct.

Okay. Then with that being said, understanding that Q2 is going to be somewhat similar to Q1, is there a sense whether or not we should be sort of thinking about a seasonal dip in gross margin in Q3 before a rebound into Q4? Is that how you think about it?

Or a little... I was just wondering if you sort of expect just kind of a more linear progression in terms of gross margin improvement through the year.

Right. I do think we'll see a bit of a revenue dip in the third. And that's pretty normal, but I think we'll be able to hold our margins up a little better. And we're going to have -- we're fighting off steel. I mean, that's for sure, but I just think we're going to be a little bit better there.

Right. I mean, historically, it looks to me like that was kind of the case of seasonality. I just want to make sure we have the expectations set properly. Then lastly, on SG&A, you're running north of 16% as a percentage of sales. How do you think about this line item longer term as a percentage of sales? And what can you do to potentially manage this down over time?

Mig, it's David. The SG&A, yes, you're right. And we're about 16% this quarter and have been higher than that. And long term, I expect this line item to be bouncing around 16%. We want to keep it under that. That would be our goal.

Part of the interplay of first quarter always is a strange quarter because of the interplay of -- that's the quarter that we do things like pay out profit share and so there are increased 401(k) contributions and FICA taxes and unemployment taxes, and all that stuff sort of piles up on you in the first quarter.

We did have a show in -- a couple of shows expensed in this quarter, Intermat and World of Asphalt, had some expenses in this quarter that didn't exist in Q1 of last year. Of course, last year had ConExpo in it. We do have increased overhead -- I'm sorry, increased headcount as well, especially with the addition of about 80 folks at RexCon, which we bought in October of last year.

So I would expect long term to see this thing running slightly sub-16%, but I do expect it to be in a dollar -- from a dollar perspective, higher as our sales grow. It tends to grow with that. It includes commissions and travel and all that sort of thing. So I would expect -- we're managing it to be sub-16%, but I do expect it to grow in dollar terms.

The next question is from the line of Jon Fisher with Dougherty & Company.

Just going back to your rain comment a little bit ago, just the overall weather outlook in the quarter. When you talk with customers and you get feedback from the sales forces, have there been much in the way of delayed projects or pushouts due to weather? Or was January and February good enough that things actually remained on schedule through Q1?

Jon, this is Ben. I have not personally heard customers saying that's pushed them out. And on the equipment side, it has stayed steady. So I can do some double checking on that, but I have not necessarily heard that personally.

Okay. And then just from a cash standpoint, no cash flow statement yet. I can see that in the 10-Q. But just the cash level for the end of the quarter was a little bit lower than what I expected. And was just wondering, from a payable standpoint, kind of understand and appreciate the explanation on inventories, but just wonder if there was anything one-off from a payables standpoint or expense or anything that caused that cash level to drop from the end of last year.

No, there was nothing in particular. We did have to pay some taxes, make some estimated payments there. Based on this year, our expectations are a little higher than the full year 2017 turned out to be.

We did add to some inventory. And certainly, the acquisition of RexCon last year took a chunk out in the fourth quarter. And so we haven't necessarily made that back up yet, but those are -- it's sort of normal cash flow during the quarter. It wasn't anything really oddball.

Okay. And then just the incremental $1 million in SG&A from RexCon, is that something that's kind of permanent now? Or is it just something that was temporary short term that can be worked through over the course of the year?

No, that's going to be a permanent addition. I mean, obviously, their SG&A will fluctuate from quarter to quarter but that's what it was this quarter. So I would expect it to be in that range on an ongoing basis each quarter.

The next question is from the line of Brian Sponheimer with Gabelli & Company.

Just from a strategic perspective, and I appreciate the color on any WIRTGEN changes with their new parent. You've added an operating czar, so to speak. Is there any discussion as to the need to also get bigger to get at least some scale benefits that may have been relatively lost now that WIRTGEN has Deere?

Well, as far as Roadtec goes, the strategy to get bigger there was through the distribution that we've done. We've gone to a dealer network. We've done that over a few years. We didn't know that Deere was going to buy WIRTGEN when we started that process but that will be helpful to them.

The other thing that will be helpful as we work to grow and get more size is the international plan that we're working and we'll start opening regional offices, which will help us be closer than we already are to our customers, which slight changes to our products for the international market that we have not necessarily done a great job of over our whole history. But I think having those guys in the regions focusing on that a little bit will help us get that size as well.

I would say that we can actually get bigger with our existing footprint, particularly at Roadtec with the work that our -- the operating person will work with. That's probably our very first big project, will be Roadtec as far as that operational site goes.

So -- but I would still say we've had to compete with them for many years before Deere bought them. And they were a multibillion-dollar company at the time, and we were certainly holding our own in the markets where we're serving and mainly U.S., Canada and some Latin America. But we're going to look to grow that footprint and do that through some product changes and working on the facilities where we compete with them.

The next question is from the line of Mike Shlisky with Seaport Global.

I hopped on late. So if these have been answered, just feel free to have me go to the transcript. First off, want to ask about you had mentioned you're looking to improve your inventory turns, which is great news, of course.

I was -- can you just give us a little more color as to how you plan to get there? Is there anything that you're doing at the warehouse level? Or is it more just ordering in advance of the -- is it more ordering your parts at the same time of the order of the -- from the customer?

And if you do get some good takeout of inventory and fast return, is there any plan for any kind of -- for any of the cash that you could squeeze out as a result?

Well, this is Ben. I think we've got quite a few opportunities, I think, with regards to the inventory turns. And we've done a -- and we started working on lean probably later than most of our competitors and did an okay job at that.

I think we actually might have done better than we give ourselves credit for because when we were doing it, we were in tight markets and we were able to maintain market shares and in our margins, well not exactly where we wanted them, held their own through the down cycle.

However, as we've gone to a bigger up cycle and looking at where the opportunities we could get better on, bringing in the new VP of Operational Excellence with his experience and he's got a lot of good experience and worked it through and helped a lot of companies, it's just given us another look from the outside and opportunities to get better in cycle times and purchasing. And basically, the whole order process from when the sale's taken and gets it all the way through to, to when we ship it.

So it's some just in time, it's some quality and that's quality from the actual order all the way through engineering to when it gets on the floor. We just see a lot of opportunities to increase our turns that way.

So I -- it's a multipronged effort. And I'd love to zero in on one thing, but it -- I think if there was one thing we can certainly manage our purchase parts on hand a lot better, I do think we've done a decent job on steel at most of our places. Some better than others because some are closer to the steel source than others.

But I just think we've got a lot of opportunities through just getting better at managing what we're holding onto and our cycle times through our shops.

And as far as the cash that might result, what -- is there a plan for it?

I think we're early enough into this that we don't have -- and I know we are -- We're early enough into this, we don't have that yet. But there'll certainly be at a point when we -- he just really fully started with this March 1. So we're just getting our arms around that. We'll probably have that in a few months, but I think it's just too early for us to put a number out like that.

Okay, got it. Want to ask secondly about labor availability. Some of your facilities domestically are in smaller cities. I wanted to make sure, are you seeing any issues with getting enough labor, getting enough people to build your previous backlog here?

Finding welders and fabricators, we haven't had as much trouble as we have with machinists. Probably, the toughest labor market having just gone to almost all of our places in the -- went to all of our places in the U.S. and Canada in the last 3 weeks. Yankton, South Dakota is probably our toughest labor market.

Everywhere else, it seems like we can get welders and fabricators. It's still taking us a little longer than it did in the down cycle when we needed people. But again, it's the machinists and that skilled trade that's the tougher person to hire right now.

The next question is from the line of Brian Rafn with Morgan Dempsey.

Question for Ben. In some of our conversations with your customers, when you look at demand for hot mix asphalt plants or some of the road-building equipment from, say, Roadtec, is your sense that your customers are replacing obsolete equipment or do you think they're actually expanding capacity?

Brian, I think right now, I would say we're at about a half and half. There's still a lot of older plant replacements and then we are seeing new plants, new production or portables looking for a new -- maybe new markets for people that are established, maybe, in a metro area.

Got you, got you. What -- you were talking about some fairly nice ramp-up and bid quote activity in the oil and gas side or the energy side. What specific products -- you mentioned pumpers, trailers. Anything else that's seeing some interest?

Both rigs and pumper trailers, but more pumper trailers than the drill rigs.

Okay. What -- as you guys kind of ramp up, any capacity utilization bottlenecks? Are you running any multiple shifts in any of your subsidiaries? Any overtime? How do you see 2018 building out?

Most of our divisions are running some level of overtime right now. Some of our capacity constraints that before we might have felt like we were fully constrained at a plant or close to high, high utilization, our minds have changed on that a little bit with our new look, with the operational fill-up. So -- but I would say utilization is fairly high at most of our facilities.

Got you. Relative to the pellet plants, as you guys move through the first couple of plants that you put out, over the life of those plants, how much did you guys focus on service parts? How much service part repair, replacement, how much of that on the pellet plant side is available versus your normal infrastructure side?

We see it as being about the same. We don't put any -- we try not to put any too specialized purchase parts on the plants because we want them to run and they need to be able to get them. But we do hold the inventory for support of parts.

But we think it'll be in line with our normal run rate on parts for -- asphalt plants would be a good example. All other plants do are targeted to run higher hours per year. So the potential is there for a little bit more, but we still think they'll be in line.

Got you. And what are, from a strategic standpoint, kind of a future runway for the pellet plants? Is -- are you seeing -- would you see over the next 3 to 5 years or might you see 5 or 10 or dozens? How big of a footprint would there be a market domestically for those pellet plants?

Well, for us, I mean, I'm just speaking for Astec, once we're through what we do and we offer the plants that we -- the plants as they run, we see it as a potential of being about $100 million a year business for us.

There could be more plants sold than that, and there should be based on the projections of pellets needed for the production needed for pellets in the U.K. and Japan particularly. But I -- for us, we see it as a potentially $100 million a year business.

Okay. And then just on the Infrastructure side, what -- any specific products on the road-building side, I'm thinking pavers versus screeds or anything stand out demand-wise?

It's pretty steady right now. And in pavers, we feel like we might be even taking a little market share. But in plants, we're maintaining our traditional strong market share, and it's active. Although to the earlier question of would there be a little seasonality in the third quarter, we think there probably will be a little bit of that per normal on the asphalt side.

Okay. And then on the hot mix asphalt plants, what's kind of the mix between fixed site versus mobile?

I don't have any scientific data on that. I'm going to -- my gut tells me right now we're about 70% fixed and 30% mobile.

Great quarter, guys.

At this time, I will turn the floor back to Steve Anderson for closing remarks.

All right. Thank you, Rob. We appreciate your participation on this first 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 May 8, 2018, 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 7 days.

All that information is contained in the news release that was sent out earlier today. So this concludes our call, and thank you all. Have a good week.

Thank you, everyone. You may disconnect your lines at this time. Thank you for your participation.