Yahoo Finance Astec (ASTE) Bets on Improving Demand Amid Cost Woes
Astec Industries, Inc. ASTE is gaining from strong demand and record backlog, which is expected to translate into higher sales in the current year. It is well-poised to benefit from strong construction demand and increased U.S. infrastructure spending. Focus on acquisitions, growing part sales volume and international business, and launch of new products will also drive growth. While persisting cost inflation and supply chain-related issues will likely hurt results in the near term, its OneASTEC business model will help mitigate supply-chain and logistic disruptions.
Solid Backlog Levels Instill Optimism
Astec is gaining from strong demand and a record backlog for the ninth consecutive quarter. Its strong commercial excellence initiatives will position it to win new orders in 2023. Demand is particularly strong across the company’s Infrastructure Solutions and Material Solutions businesses. Higher spending on infrastructure in the United States is expected to be a major catalyst for ASTE.
The Zacks Consensus Estimate for Astec's 2023 earnings is currently pegged at $2.10 per share, suggesting year-over-year growth of 71%. The consensus mark for the same for 2024 stands at $2.60, indicating an improvement of 24% year over year.
Costs Remain Headwinds
Astec’s margin is bearing the brunt of cost inflation and supply chain-related issues. It is incurring higher expenses in an effort to meet elevated demand levels. Also, its ongoing investments in future growth initiatives have resulted in higher selling, general and administrative expenses. Astec utilizes steel as a major raw material to manufacture products. Steel prices had gained in 2023 on strong demand and continue to remain at historically high levels. The company anticipates steel prices to remain high in 2023 as well. Astec plans to continue to implement price increase actions to offset these costs.
Simplify, Focus and Grow Strategy to Aid Growth
In March 2020, the company launched its OneASTEC business model, with the strategic pillars of Simplify, Focus and Grow (SFG). The model has been instrumental in mitigating the current supply-chain challenges and logistic disruptions. These actions will drive greater efficiency, aiding the company in identifying multiple sources for critical components, strengthening the recruiting process and enabling it to meet growing customer demand. This model is designed to better set strategic direction, define priorities and improve overall operating performance. The company will continue to gain traction from this model.
Per the Simplify aspect, Astec continues to reduce organizational structure complexity and consolidate and rationalize its footprint and product portfolio. Per the Focus initiative, the company sold its GEFCO business which effectively eliminates Astec’s exposure to the energy industry. It continues to drive operational excellence across the organization and optimize the product portfolio. Through the Grow aspect, the company will focus on innovation, global expansion and disciplined and strategic acquisitions, among others. Currently, the company has two elements of the SFG program in operation, a standardized enterprise resource planning ("ERP") system and a gross margin generating lean manufacturing initiative at one of its largest sites. This ERP system will provide standardized processes and integrated technology solutions, enabling the company to leverage automation and process efficiency.
Astec acquired two premier full-line concrete batch plant manufacturers — CON-E-CO and BMH— in 2020 to strengthen the Infrastructure Solutions business and provide customers with access to the most robust line of concrete products in the infrastructure industry. It also acquired certain assets of Grathwol Automation, LLC, which is engaged in the business of developing and providing advanced telematics and remote diagnostics for construction equipment and related products and services. In April 2022, Astec acquired Canada-based MINDS Automation Group, Inc., a leader in plant automation control systems and cloud-based data management in the asphalt industry. This will position the company to expand its digital platform and better serve customers.
Astec also remains committed to growing its part sales volume and international business.
Price Performance
The stock has fallen 10.0% in the past year, compared with the industry’s 1.5% decline.
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Zacks Rank & Stocks to Consider
Astec currently carries a Zacks Rank #3 (Hold).
Some top-ranked stocks in the industrial products sector are OI Glass OI, Alamo Group ALG and Illinois Tool Works ITW. OI and ALG sport a Zacks Rank #1 (Strong Buy) at present, and ITW has a Zacks Rank of #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
OI Glass has an average trailing four-quarter earnings surprise of 16.4%. The Zacks Consensus Estimate for OI’s 2023 earnings is pegged at $2.57 per share. This indicates an 11.7% increase from the prior-year reported figure. The consensus estimate for 2023 earnings has moved 16% north in the past 60 days. OI’s shares gained 60% in the last year.
Alamo has an average trailing four-quarter earnings surprise of 6%. The Zacks Consensus Estimate for ALG’s 2023 earnings is pegged at $9.79 per share. This indicates a 13.6% increase from the prior-year reported figure. The consensus estimate for 2023 earnings has moved north by 7.5% in the past 60 days. Its shares gained 21.3% in the last year.
The Zacks Consensus Estimate for Illinois Tool Works’ fiscal 2023 earnings per share is pegged at $9.61, suggesting an increase of 4.8% from that reported in the last year. The consensus estimate for fiscal 2023 earnings moved 4% upward in the last 60 days. ITW has a trailing four-quarter average earnings surprise of 0.9%. Its shares gained 8% in the last year.
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