Astec Industries at Sidoti Small-Cap Conference: Strategic Growth Plans

On Wednesday, 19 March 2025, Astec Industries (NASDAQ: ASTE) presented at the Sidoti Small-Cap Virtual Conference, providing insights into its strategic growth plans. The company highlighted robust performance in its Infrastructure Solutions segment, while acknowledging challenges in Material Solutions due to dealer destocking and high interest rates. The management expressed cautious optimism, emphasizing future growth through strategic acquisitions and operational excellence.

Key Takeaways

• Astec Industries reported annual sales of $1.3 billion and an EPS of $2.45.
• Infrastructure Solutions saw strong demand, while Material Solutions faced dealer destocking.
• The company is focusing on parts and service business growth and strategic acquisitions.
• Astec aims to leverage its strong balance sheet for international expansion and automation.
• The management team is committed to improving consistency and operational excellence.

Financial Results

• Fourth quarter EPS reached a record $1.19, driven by demand for capital equipment and parts.
• Full-year sales were $1.3 billion, with an adjusted EBITDA margin of 8.6%.
• Despite higher income tax and interest expenses, the company maintained a strong balance sheet with $88.3 million in cash and $139 million in available credit.
• Free cash flow exceeded $32 million, supported by effective working capital management.

Operational Updates

• Infrastructure Solutions: Net sales increased by $37 million, with a record EBITDA margin of 21.3% in Q4.
• Material Solutions: Faced challenges with lower capital equipment sales and flat aftermarket parts sales.
• The company is enhancing sales and operations planning and focusing on new product development and international expansion.

Future Outlook

• Astec plans to grow its parts and service business for consistent results.
• The company is targeting acquisitions that align with its "Rock 2 Road" strategy, particularly those with strong parts and service components and international manufacturing capabilities.
• Investments in automation and improved working capital management are expected to increase free cash flow in 2025.

Q&A Highlights

• Infrastructure Solutions: Consistent demand for asphalt and concrete plants, with normal lead times for asphalt plants.
• Material Solutions: Encouraging order intake early in the year after a decrease in dealer inventory.
• The management is focused on using the balance sheet for strategic acquisitions and automation.

In conclusion, Astec Industries is poised for strategic growth, leveraging its strong financial position and operational improvements. For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Sidoti Small-Cap Virtual Conference:

Steve Farazani, Analyst, Sidoti: your question and we’ll get to as many questions as we can, time permitting. I’m Steve Farazani, an analyst at Sidoti. So pleased to be joined by Aztec Industries, STICREIS, ASTE. We’re joined by CEO, Jako Lundemurver, and and the rest of the team will introduce, coming off a month ago reporting a massive four q. People wanna know what’s next to come for from Aztec and, here to explain it and talk about where things stand with the business and give you an overview.

Let me turn it over to to CEO, Jaco. Jaco?

Jako Lundemurver, CEO, Aztec Industries: Yeah. Good afternoon. Thank you, Steve. Good afternoon, everybody, and thanks for joining us today. You know, we have our safe harbor statement up there.

I assume that everybody have familiarized themselves with that. On the call with me today, we have Steve Anderson, who’s responsible for Investor Relations here at Aztec and we have Brian Harris, who’s our CFO and Brian will cover the financials part of this presentation. I think I want to start by just introducing the company on a high level. Aztec Industries are based here in Chattanooga, Tennessee. The company was founded in 1972 and last year we reported sales around $1,300,000,000 EPS of $2.45 and we had an adjusted EBITDA margin of 8.6%.

We have just over 4,000 employees around the world and we operate with two segments. Our infrastructure solutions segment is focused on asphalt plants, concrete plants, and road construction equipment for the infrastructure industry. And that is supported by our material solutions group that is primarily focusing on crushing and screening. The infrastructure group is about two thirds of our business and material solutions around a third of the business. We do about 80% of our business in North America and about 20% outside of The U.

S. From an industry point of view, one of the questions we get a lot about is what makes us excited about Astec and the future of Astec. And I think all of us that’s based here in The U. S. Have a very clear understanding of the state of infrastructure.

We feel that this is a really good industry segment to be present in. We believe that The U. S. Will have to invest in infrastructure for many years to come. And currently, as everybody know, we have a federal funding IIJA program in place that will expire in September of twenty six.

Within that package was dedicated amount of money focused on improving infrastructure. We’ve seen quite a bit of that money flow through to the market, although there’s still quite amount of money that needs to flow through. From a long term perspective, even with this bull, we believe that the state of infrastructure in The U. S. Have just stabilized or even further deteriorated.

And we are very bullish that in the future infrastructure spending will continue to be a focus. It’s actually one of the areas where we have bipartisan support and we’re looking forward to see what President Trump announced here in the next hopefully a couple of months around infrastructure spending. Brian, why don’t you take the financials and then I’ll conclude at the end.

Brian Harris, CFO, Aztec Industries: Okay. We can go to actually the next slide, Yako, and I’ll summarize things there. Yes, so you can see here fourth quarter is highlighted with very strong results for the fourth quarter mainly due to increased demand for both capital equipment and our aftermarket parts. We saw adjusted EBITDA and adjusted EBITDA margins benefited from favorable volume, pricing and mix. Adjusted earnings per share were $1.19 and that was a record as well.

So record financial results for the year, full year. EBITDA dollars and EBITDA margins grew slightly. We had favorable pricing, but some of that was offset by volume mix and manufacturing inefficiencies and, of course, the impact of inflation, which lingered during the year. A full year earnings per share decline that you see there was primarily driven by the impact of increased income tax, interest and some other expenses. If we go to the next slide, this is where we show the results for our Infrastructure Solutions segment.

Again, higher net sales for the quarter due to strong domestic capital equipment and moderate increases in our aftermarket parts sales. But for the year, the net sales increased by $37,000,000 or about 4.6%. The operating adjusted EBITDA dollars and margins were affected positively by the volume that we saw in the fourth quarter. Pricing and operational excellence initiatives and tight expense management also contributed. The fourth quarter EBITDA delivered a record margin of 21.3%, reflecting very strong execution of our plans.

If we go to the next slide, we can see the Material Solutions segment. Again, adjusted EBITDA dollars and the margins negatively impacted in the quarter. And that was really just due to lower capital equipment sales. I think we’ve seen continued to see the impact of some destocking and higher interest rates, and we’ll talk a little bit more about that later. Aftermarket parts sales in this segment were relatively flat, but still at good levels, again, reflecting the fact that there’s a lot of equipment in use in the field.

And some of the negative impact of the volume was offset by tighter cost control. If we go to the next slide, just a summary of our balance sheet and liquidity. You can see that we do have a very strong, healthy balance sheet just now available. Cash of $88,300,000 available credit of $139,000,000 almost $140,000,000 and total availability of $228,000,000 So free cash flow in the quarter was also strong at a little over $32,000,000 And that was really a result of sound working capital management as we got towards the end of the year and driving up the cash flow. And we I don’t think we’re going to talk too much about our guidance.

That number is already out there, so I won’t go into that at this stage. I’ll maybe just hand back to Jakob for some summary comments before we go to Q and A.

Jako Lundemurver, CEO, Aztec Industries: Yeah. No, thanks, Brian. And maybe just as the intro to this slide, when I took over the role here about two years ago, there was a very clear message from the markets that Aztec has been an inconsistent performer in the past. And as a team, we’ve focused a lot on that over the last two years. We’ve had two pretty decent years behind us and the team is continuously focusing on further driving that consistency.

We’re doing it through focusing on our parts and service business to grow that and sales and operations planning so that we have ability to give better outlooks to the market. And we also spend a significant amount of time over the last two years to clean up some of the legacy issues that we had. And now I think we are in a really good business to take a step into the growth base of our company. And there’s quite a few things that we are very excited about for this business. We talked earlier about the favorable customer segment that we’re in, but we also have some good sentiment from our customers.

I’ve been on the road quite a bit this year and we attended our annual dealer meeting, World of Concrete, National Asphalt Paving Association and all of those were quite positive with our customers being cautiously optimistic. Of course, quite a few of those things happened in the very early part of this year and the tariff discussion has definitely come up since then. But overall, we have a good segment that we operate in. We have good customer sentiment right now. And as a team, we are now focusing on driving that operational excellence in our manufacturing areas.

It’s another area that will help us to become more consistent in the future. From a growth point of view, we are very excited about new products that we have announced and that is still in the pipeline. Next week, our industry is getting together in St. Louis for the World of Asphalt show and we’re very excited about some of the new products that we will showcase there. I already talk about parts, parts and service revenue.

It’s something that I’m very focused on and there’s a great opportunity for us to grow. International expansion, another opportunity for us as we are a small player outside of The U. S. And then Brian touched on our strong balance sheet and we definitely have an opportunity to use our balance sheet and to grow this business through acquisitions that will make sense and acquisitions that will be accretive from day one. So, yeah, good position overall.

Really proud of the work the team have done so far over the last couple of years and we’re looking forward to continuously executing our strategy. So, Steve with that I think we’re ready for questions.

Steve Farazani, Analyst, Sidoti: That’s great. Thanks so much, Jakob, Brian for that overview. As a reminder to everyone if you have any questions press that Q and A button at the bottom of your screen, type into the question and we’ll read as many as we can, time permitting. Why don’t I kick things off, Jako? I don’t want to overstate this, but but there has been a little bit of a tale of two segments for Astec, obviously, why don’t we touch the strong one first, Infrastructure Solutions.

I think when I talk to investors, a lot of people think of you as asphalt and concrete plants. And one thing, good quarters, bad quarters, the one consistent has been the demand for your asphalt and concrete plants. Can you talk a little bit about how that’s running now and what you’re thinking about for demand and why that specifically has been so consistent?

Jako Lundemurver, CEO, Aztec Industries: Yeah. No, Steve, good question and I will say I’m very proud of the work our teams have done there. We’ve seen a consistent improvement in performance on those product lines and we have a very strong market position there and so we’re leading with technology, we’re leading with customer service, We have a great parts and service business there. So it’s just a well rounded product portfolio. It’s mature and our operational excellence teams have done a lot of good work driving the margins in that business in the right direction.

One thing that is maybe not that known is that we actually have a pretty sizable piece of that business is our mobile road construction equipment side, which has actually been a little bit softer as part of the interest rate environment and the dealer environment. But despite that, the infrastructure solution business has done really well. We’ve had a very strong couple of years out of COVID. We came in the year with decent backlog for that business. Our concrete plant backlog, there’s a couple of our facilities that sold out for the year and so we think that will continue to be strong.

On the asphalt plant side, we’re more back to normal lead times and so we still have opportunity to take orders for the third and fourth quarter of this year. But it doesn’t take a lot to fill the facilities, three or four big plants and you get there very quickly. So we’re still encouraged about that. As I mentioned on our last earnings call, we were encouraged by the bookings in the first six weeks of the year and we see no reason why that will not continue.

Steve Farazani, Analyst, Sidoti: Should we be paying attention and how close and I’m sure you are closely paying attention to highway funding because we’re we’re we still got some time but but where do you think we are and how can that affect things?

Jako Lundemurver, CEO, Aztec Industries: Yeah. No. Always, Steve. I mean, it’s always a positive boost for Aztec when a new highway fund is announced. Going back to my earlier slide around the general state of infrastructure in The US, I say, but with tongue in cheek, but if we don’t get another bull and a big bull and our government stops spending on infrastructure, I think we have bigger problems than just what is the state of business for Astig.

So I think we will always have some form of funding. It might vary a little bit, but we cannot afford not to invest in our infrastructure.

Steve Farazani, Analyst, Sidoti: Okay. Now flip over to Material Solutions, which has been a little bit softer. Can you talk about, are we do you have any signs that we could be nearing an inflection point? And for folks who are a little bit newer to the story, can you explain why there is that difference between those two segments and what’s going on?

Jako Lundemurver, CEO, Aztec Industries: Yes, absolutely. So, traditionally, the material solutions business is a business that goes through dealers. Typically, dealers will put our equipment to work through rent to own programs. So after COVID, we saw a huge order intake that drove our backlog through the roof. And obviously, we started to pump out a lot of equipment and the dealer inventory started to build up and not just us, but from all OEM suppliers.

And the dealers quickly started to run into their upper ends of their credit limits. So, although the equipment is running and it’s very visible, if you look at our parts business, that was pretty stable last year, And then if you look at some of our big public companies like CRH, Vulcan, they’ve had pretty good business on the crushing and screening side. The dealer network was flushed with inventory and that created then a backlash to us where we didn’t get the replacement order. So as interest rates are stabilizing and I think our customer base are getting used to higher interest rates, We’ve seen quite a nice reduction in dealer inventory in December, again in January. And in the earnings call, we made a comment that we were encouraged by the level of order intake for the first six weeks of the year.

So, Steve, I feel a lot better about that business than just three, four months ago.

Steve Farazani, Analyst, Sidoti: Okay. Fair enough. Talk to me about the balance sheet, which has been through it all very, very strong and you had a really nice cash flow quarter in 4Q. I mean, all around strong 4Q. How are you thinking about that balance sheet?

You haven’t necessarily taken advantage of it lately. Is there something out there that you’re considering or how are you thinking about the balance sheet today?

Jako Lundemurver, CEO, Aztec Industries: No. Great question. And Astec has been very fortunate that we’ve had a strong balance sheet for many years. Coming out of COVID, inventory increased quite a bit and there was a while that we had to use our revolver to finance that inventory, but we’ve had a really nice reduction and there’s more room to go. So we further see some reductions in inventory.

And when I took over, Steve, like I mentioned earlier, we really focused on creating that consistency in our business. And although we still have work to do, I think we are well positioned now to use the balance sheet and we’re going to do it in a couple of areas. Investing back in our business, we have great opportunity to further use capital to create some automation in our factories. And then we see some big opportunities for us to use that capital in acquisitions. And I will say we have a very structured process.

We’re very clear filters and we are looking for businesses that will fit into our Rock 2 Road a view of the market and maybe some adjacencies. We are looking for businesses that have a very strong parts and service component and we’re also looking for businesses that can give us an international manufacturing footprint. So we’re very selective, we have quite a few opportunities that’s out there and our team that we have today is very experienced with deal making. We have a good acquisition playbook. So, yeah, I think the stage is set for us to go and do something.

Steve Farazani, Analyst, Sidoti: How much of it is exploring specifically and you may mentioned for instance parts and services but how much of it is strategic versus do you consider roll ups? In fact, we have a question about whether you see opportunities for roll ups within paving, which has been smaller for you. Yeah. I mean, it’s the answer specifically, but generally the question.

Jako Lundemurver, CEO, Aztec Industries: Yeah. Yeah. No. There’s definitely opportunities in both. There’s a few areas where there’s product gaps that we can fill with acquisitions.

In certain cases, we are a small niche player that adding a company or two can help us to strengthen our market position. I think we’ve demonstrated that on the concrete plant side over the last few years, adding three businesses together and there’s some more opportunities there. So Steve, both of those scenarios can play out for sure.

Steve Farazani, Analyst, Sidoti: Okay. You touched on it during the presentation, but I know it’s been important to you in in the two years you took over, Jaakko, and I know there’s been progress. We saw some of it in April. But in terms of you you shot a couple of plants around even before you took over in terms about getting production efficiency back to a level that you felt was,

Jako Lundemurver, CEO, Aztec Industries: absolutely. Yeah. We closed two factories. One was in the material solution side and I will say, I think we are over that. We’ve done a really good job getting our parts business on track that was highly affected by that.

And so I feel much better around that. The plant that we closed in the infrastructure solution side was on the mobile paving side and we moved that into one of our other facilities and, it created a real big challenge for the organization. Our team have done a really good job here in the last six to twelve months, but we still have quite a bit of work to do. And, I will say that’s an area where if we can increase our output twenty, thirty, 50 plus percent, we feel confident that we can sell it. The market is there and we have enough of brand recognition in the market that we can go and get that volume.

So big opportunity for us and that is obviously in the infrastructure results today. So if we can further drive that in the right direction, it will have a positive effect.

Steve Farazani, Analyst, Sidoti: You also touched on during the presentation trying to generate more consistent results. That’s certainly I’ve touched on that with you personally, Jaakko, in terms of something I hear from investors a lot because you will have these big quarters, then we’ll see. Now there is some seasonality in that business in your business. And with the asphalt and concrete plants, those tend to be larger projects that can hit a quarter and not hit timing wise. Is there a way to improve that consistency?

How do you do it? I know parts helps.

Jako Lundemurver, CEO, Aztec Industries: Yeah. Yeah. I mean, for me, a couple of things, Steve, is is growing the parts business as much as we can because that will give you consistency. One of the things that we lacked in the past was a very clear sales and operations planning process. So today, I will say our financial team, together with our sales team, is getting much better at forecasting what sales we’re gonna get.

We still have a long way to go, but it’s getting much better. And, I will say, Brian since Brian joined, he’s brought a lot of knowledge to the team. As you can see this year, we’ve changed the way we’re giving guidance. And I think Brian is going to help us to be much better communicators if we see maybe a slow quarter coming and things like that. So we’re really working it on all fronts.

And, but I will emphasize that we can see a quarter where two or three asphalt plants move out of a quarter and it has a $20,000,000 or a $30,000,000 swing. And if we can look at our businesses in two halves of the year, I think it will be much more consistent and we’re going to work on getting better at communicating. So Brian has brought a lot of that to the team already and I think that will help us a lot.

Steve Farazani, Analyst, Sidoti: If we could touch on, I know Brian is a couple of quarters in now but there’s also want to ask about working capital management and cash conversion efforts there.

Brian Harris, CFO, Aztec Industries: Yeah. It’s, it we’re definitely gonna see some improvement here, I think, in in 2025. And there’s a couple of reasons for that. One is a continued focus on working capital management. We’ve created a shared services back office now that’s focusing on AR, AP.

Our procurement teams are negotiating with our vendors to get extended terms on the best terms that we possibly can. For our plants, our big asphalt plants, we collect 30% upfront anyway. So we’re always kind of collecting cash in advance. But also compared to the prior year, we’ve put some of the legacy issues that had cash settlements behind us, so they won’t recur against some of the legal settlements that we have. We’re curtailing or trimming the pace of spend on our ERP project as we get further into that.

And eventually, that will taper away as we get further into the project. So together with improved EBITDA and some work still to do on our finished goods inventory, but I think all of those combined will just help us generate more free cash.

Steve Farazani, Analyst, Sidoti: Excellent. I know we are running out of time, but we have to touch on this. I hate to do it. It is the last question, but but but, Jaakko, if you can talk about how you’re managing tariffs and and what you think the impact can be.

Jako Lundemurver, CEO, Aztec Industries: Yeah. No, Steve, it’s definitely a topic of the day. I can tell you that. So, I will say, we are in a much better position today than what we were during the previous round of tariffs, what we were during COVID. And I will say one of the really good things that came out of the One Aztec environment was the creation of our One Aztec procurement organization and we have a very knowledgeable team, we have a specialist just on import tariffs and we’ve created a task force internally where we meet every day to discuss the latest and a couple of things.

From a parts pricing point of view, we’ve got a clear direction there. If we get component price increases, we’re gonna pass it straight on to customers and that’s not something that we necessarily did during COVID. So that’s 30% of the business. Our procurement team as a portal where we can see every one of those as they happen and as they play out. From a capital equipment point of view, we have been proactively communicating with customers, telling them about the potential increases that can come from tariffs.

We’ve actually spelled out to them what we see as a first step, so customers are very well aware. And the moment we feel these are gonna be permanent, those will go into effect. So I want to say we’ve been very proactive. Now, will it affect us one way or another? Yes, in the short term, but we are doing everything we can to minimize it.

We’ve worked too hard over the last two years to improve margins to give it up. And I think the team is well positioned to do that.

Steve Farazani, Analyst, Sidoti: We are a little over time, so any closing thoughts before we wrap this up, Jakob?

Jako Lundemurver, CEO, Aztec Industries: Steve, thank you for the opportunity and everybody, thank you for attending. I will just say, I’m very proud of this business. It’s a really good organization and the management team that’s here, we know what good looks like in this industry, we know where we need to be to be in the top quartile of performance and that’s what we focused on is to make it one of those companies. So looking forward to, deal with you in the future.

Steve Farazani, Analyst, Sidoti: Thank you. I know there were a lot of questions. I’m sorry if we didn’t get to all of them. Certainly, you can reach out to us at Sidoti or Steve Anderson at Aztec. I’m sure we’ll we’ll try to get all questions answered.

And, thank Jaco and Brian for being here today. Hope hope everyone found it as informative as I did. Learn something new every time. Aztec Industries, thanks so much. Thanks for everyone for watching.

You too. Have a great day.

Brian Harris, CFO, Aztec Industries: Yep. Bye.

Steve Farazani, Analyst, Sidoti: Thank you.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.