Astec Industries, Inc. (ASTE) Q3 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the Astec Industries third quarter 2015 earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Anderson, Vice President and Director of Investor Relations. Thank you, sir. You may begin.

Thank you, Christine. Good morning and welcome to the Astec Industries' conference call for the third quarter that ended September 30, 2015. As Christine mentioned, my name is Steve Anderson. 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 third 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 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. At this point, I will turn the call over to David to summarize our financial results for the third quarter.

All right. Thanks, Steve and good morning, everybody. Thanks for being with us this morning. Net sales for the quarter were $211.4 million compared to $220.2 million in the third quarter of 2014. It's a decrease of 4% or a $8.8 million decrease. International sales for were $55 million compared to $77.6 million for Q3 last year. It's a decrease of 29.1% or $22.6 million decrease. International sales represented 26% of Q3 sales this year and 35.2% of Q3 sales last year. The decrease in international sales compared to Q3 of last year occurred primarily in Canada and South American countries other than Brazil and in Australia and those decreases were offset by increases in Europe, in Southeast Asia and in Africa. Domestic sales for the quarter were $156.3 million compared to $142.6 million in Q3 of last year. It's a 9.6% increase or $13.7 million increase. Domestic sales represented 77% of Q3 sales this year and 64.8% of Q3 sales last year. Part sales for the quarter were $62 million compared to $61.5 million for Q3 last year. That's an increase of slightly less than 1% or a $500,000 increase. Part sales represented 29.3% of Q3 2015 sales compared to 28% of Q3 2014 sales. The foreign exchange translation of our foreign entities sales had a negative impact on those sales for the quarter of about $5.3 million. Now that is if the current year sales were translated at last year's rates, they would have been $5.3 million higher. On a year-to-date basis, net sales were $768.1 million compared to $736.1 million for the first nine months last year, a 4.3% increase or $32 million increase. International sales, on a year-to-date, were $206.1 million compared to $233.4 million for the first nine months last year. It's a decrease of 11.7% or a $27.3 million decrease. The year-to-date decrease in dollars for the first nine month period comparably occurred primarily in Russia, in South American countries other than Brazil, in China and Southeast Asia and in Mexico. Those decreases were offset by increases in Europe and the Middle East. International sales represented 26.8% of sales year-to-date compared to 31.7% of year-to-date sales last year. Domestic sales for the first nine months of 2015 were $562 million compared to $502.7 million last year, a $59.3 million increase or 11.8% increase. Domestic sales were 73.2% of 2015 sales compared to 68.3% of sales for the same period last year. Part sales were $202.5 million for the first nine months of this year compared to $191 million for the first nine months of last year, a 6% increase or $11.5 million increase. Part sales for the year-to-date period were 26.4% of total sales compared to 25.9% of total sales for the first nine months of 2014. Again, the foreign exchange translation of the sales of our foreign entities had a negative impact on sales for the first nine months of the year of $12.6 million, if they had been translated at last year's rates at 9/30, our sales would have been $12.6 million higher. Consolidated gross profit for the quarter was $45.1 million compared to $43.3 million, an increase of 4.2% or $1.8 million increase in gross profit. The gross profit percentage was 21.4% compared to 19.7% for Q3 of last year. The absorption variance for the quarter was about $5.4 million unabsorbed overhead compared to $5 million number in the same quarter last year. So we had a negative variance there of about $400,000. The foreign exchange transaction gain or loss in the income statement was $267,000 this year in Q3 compared to $712,000 in Q3 of last year. Year-to-date gross profit was $173.4 million compared to $162.2 million last year, $11.2 million increase or 6.9% increase. That resulted in a gross profit percentage for the first nine months of 22.6% compared to 22% for the same period last year. The absorption variance this year was $9.9 million through the first nine months unabsorbed overhead compared to $11.1 million unabsorbed overhead in 2014, a positive change of $1.2 million. The foreign exchange transaction gain or loss that's in the income statement in 2015 for the year-to-date period is $817,000 compared to $1.02 last year. Those are all losses, by the way, on the ForEx. SGA&E for the quarter was $41 million compared or 19.4% of sales compared to $38.9 million for the third quarter of last year at 17.7% of Q3 2014 sales. It's an increase of $2.1 million or in percentage of sales terms, 170 basis points increase. The drivers of the increase in SGA Q3 versus Q3 are primarily repairs and maintenance expense and some payroll and related benefits expense, including health insurance totaling about $2.8 million. For the year, SGA&E is $128.1 million or 16.7% of sales compared to $122.5 million last year or 16.6% of sales to $5.6 million increase or flat as a percentage of sales. The drivers there, recall that last year we had ConExpo which was about $4 million charge in the first quarter of 2013 and this year we have got, you would recall discussions last quarter computer and consulting type expenses related to ERP implementations, increased health insurance expense and various payroll and benefits related expenses, in addition to repairs and maintenance expense during the quarter, which totaled about $9.8 million. Operating income for the third quarter of 2015 was $4.1 million compared to $4.4 million last year in Q3. That is a $300,000 decrease or a 6.8% decrease. Year-to-date operating income was $45.3 million compared to $39.7 million last year, an increase of $5.6 million or 14.1% increase in operating income. Interest expense for the quarter was just over $500,000 compared to the third quarter of 2014 interest expense was $193,000, a $312,000 increase. And on a year-to-date basis, it was $1.222 million compared to $375,000 last year, an $87,000 increase. The primary driver of that interest expense is currently the debt that we have in Brazil to get that facility built and up and going. Other income, net of other expense, for the third quarter was $844,000 compared to $860,000 for Q3 of last year and year-to-date it was $3.2 million compared to $2.4 million for the year-to-date period last year. The primary source of that other income is license fee income, investment income kept at our capital insurance company. But do recall that earlier this year, the year-to-date amount in 2015 includes key main life insurance proceeds that were recognized in the first quarter of approximately $1.2 million. The effective tax rate for the quarter was 52.5% compared to 64% in Q3 of last year and the year-to-date effective tax rate was 38.8% compared to 37.9% for the year-to-date period last year. So the effective tax rate, again and the explanation is the same for both third quarters, was impacted by the net operating losses of certain of our foreign companies in foreign tax jurisdictions that could not be utilized to offset the taxable income here in the U.S. And there were various true-up adjustments related to prior year tax filings. So also recall that neither of the years during Q3 had the research and development tax credit in it, since that credit was not approved by Congress at September 30, in either of 2014 or 2015. Net income attributable to controlling interest is $2.3 million in the third quarter of 2015 compared to $1.9 million in the third quarter of 2014. It's a $400,000 increase or 21.1% increase. Diluted earnings for the quarter were $0.10 compared to $0.08 in Q3 of 2014, a $0.02 increase or 25% increase. On a year-to-date basis, net income attributable to controlling interest is $29.2 million compared to $26 million last year. It's an increase of $3.2 million or 12.3% increase in net income year-over-year. Diluted earnings per share for the year were $1.26 compared to $1.12 last year. That is a $0.14 increase or 12.5% increase. EBITDA for the quarter was $10.8 million compared to $11.2 million last year, a decrease of $0.5 million dollars or 4% decrease. On a year-to-date basis, EBITDA was $66.1 million compared to $59 million for the first nine months of last year, a $7.1 million increase or a 12.2% increase. The backlog at September 30 of 2015 was $245.6 million and that compares to $295 million at September 30, 2014, a $49.4 million decrease in backlog or 16.7% decrease. International backlog at September 30, 2015 was $58.1 million compared to $105.8 million at September 30, 2014, a decrease of $47.7 million or 45.1% decrease. The September 30 domestic backlog was $187.5 million compared to $189.2 million at 9/30/14, a decrease of $1.7 million or slightly less than a 1% decrease. Sequentially, the September 30, 2015 backlog compared to the June 30, 2015 backlog of $229.5 million is a $16.1 million increase or a 7% increase. The foreign currency translation impact on the backlog compared to 9/30 last year was a decrease of $7.4 million. So if they were, again if the backlog was translated at last year's rates for our foreign subsidiaries, it would have been $7.4 million greater. Our balance sheet continues to be very strong. We have receivables of $105.2 million compared to $108.8 million at 9/30 of last year, a decrease of $3.6 million. The days outstanding are 45.9 this year compared to 45.5 last year at 9/30. Inventories at $384.5 million compared to $370.4 million at 9/30/14, a $14.1 million increase. The turns are at two compared to 2.1 turns at 9/30/2014. At September 30, we owed $1.3 million on our $100 million dollars domestic credit facility and we had $14 million in cash and cash equivalents. Our letters of credit outstanding were $14.5 million and our borrowing availability is again $84.2 million at 9/30/15. Capital expenditures were $4.8 million for the quarter compared to 2015 and capital expenditures for the year-to-date period through the first nine months is $15.5 million. Comparing that to the budget for 2015 that we have discussed previously of $30.2 million. However, we don't believe that we are going to end up spending that much. We think we are going to end up somewhere in the $20 million range. Depreciation for the quarter is $5.1 million and for the year-to-date period it was $15.5 million. We had budgeted for 2015 $23.1 million in depreciation but with the sale of the Loudon facility and the reduction in fixed assets there, we believe we will end up somewhere just north of $20 million in depreciation for the year. That concludes my prepared remarks on the financial details. I will turn it back over to Steve.

Okay. Thank you, David. And now Ben Brock is going to provide some comments regarding the third quarter of this year's operations. Ben?

Thank you, Steve. Thanks to everyone for joining us on our call today. As we mentioned in our earnings release this morning, we were pleased with our third quarter results given the headwinds that we are facing and lower oil prices, the global mining slow down, the strong U.S. dollar and the absence of a long-term Highway Bill in the United States. We were pleased with our year-to-date earnings per share which were up 12% versus last year and the third quarter earnings per share were $0.10 a share versus $0.07 in the third quarter of last year for an increase of 25%. Our year-to-date earnings per share of $1.26 versus the $1.12 last year was an increase of 12.2% and our year-to-date EBITDA is at $66.1 million versus $58.9 million last year for an increase of 12.2%. Our backlog at September 30 was $245.6 million, which is down 16.7% versus last year. Our domestic backlog was down about 1% year-over-year and our international backlog was down about 45% versus last year. The international backlog remains down about the same percentage that it was down at the end of the second quarter, primarily due to the strength of the U.S. dollar and the global mining slowdown. Regarding our international sales, quoting activity in that side of our business remains active. Our Astec do Brazil facility is in the process of building a large aggregate processing plant and two hot mix asphalt plant orders. Our domestic backlog was down at the end of the third quarter. However order intake has been good in our infrastructure and aggregate group since October 1. Order intake in our energy group has remained soft. We continue to hear from our infrastructure customers that they are experiencing good business levels in the United States, particularly on the private side of work along with good maintenance contracts and states that have increased funding through gas tax and/or other mechanisms. This has been generally good for our infrastructure business. However, large capital projects are hampered by the lack of a long-term Highway Bill in the United States. While it will take a long term Highway Bill to bring sustained growth in those large CapEx spending projects for our infrastructure group customers, we have seen a slightly stronger hot mix asphalt plant market this year versus last year. With regards to the Highway Bill, we continue to stay in close contact with our elected representatives in Washington DC and we are encouraging our customers, vendors and other industry members to do the same through our Don't Let America Dead End effort. More info on this can be found on our dontletamericadeadend.com website. The current Highway Bill extension expires on October 29. We anticipate that Congress will pass their 35th straight extension before it expires. We believe this extension will be very short, about a month in length which will give Congress one last chance to pass a long-term Highway Bill by the end of this calendar year. Our optimism on a long-term bill passing this year remains in place. However, should one not pass before this calendar year-end, we do not envision Congress passing a long-term bill in 2016 due to the presidential election year. As we work and wait on a long-term Highway Bill, we continue to pursue new business with new products in the United States and we are maintaining our international effort despite the challenge presented to us by the strengthened U.S. dollar and depressed mining industries in some of our key markets. Our lower backlog in international is a direct result of those two developments. Our lower backlog in domestic was primarily due to the lack of a long-term federal Highway Bill and low oil prices. Updating everyone on our pellet plant that we delivered to Hazlehurst, Georgia. In addition to line one that is running, line two is now running and has also met the production target in early startup. Line three is nearly installed and full and near the testing phase. We did experience a slight delay in line three as we focused on line two startup. As a continuing reminder, it is a new product that we chosen to finance. As a result we recognize the revenue for this plant as we are paid. This will have an effect on our cash and our inventory until it is paid in full. And as a reminder, the order for all three lines was for $60 million. As for the timing of this recognition of revenue, we have verbally agreed with the customer to allow them more time before taking us out of the financing. We anticipate the final agreement to reflect full payment by mid-2017. As a reminder, the interest rate on the note is 6%. Our agreeing to the longer-term will help our customer obtain more favorable financing by mid-2017, if not before. We announced the sale of a new $30 million pellet plant during the third quarter to Highland Pellets. We are working to ship this order in the fourth quarter this year. And we expect the gross margin on this sale to be in line with our infrastructure group gross margins. Based on our current pellet plant quote activity and lengths of time it has taken from quote to contract on our previous orders, we believe that we will sell our next pellet plant in the first half of next year. When we secure the next pellet plant order, we will announce it to the market. With regards to international sales overall, given the well documented challenges globally with regards to the U.S. dollar strength, global mining and politics, again for us, particularly in Russia, we remain challenged for the moment with regards to sales internationally. We remain committed to growing our international sales over the long term and we will continue to maintain and as we have mentioned before, in some cases increase our service and sales coverage around the globe. On the energy side, we remain challenged in our drilling and pumping equipment with regards to shipments and margins in the third quarter and we are not immune to the current low oil prices with regards to our oil drilling and pumper business. As a reminder, as a result of the low price of oil and over capacity at our GEFCO Loudon facility, we regretfully informed our employees at the Loudon facility earlier this year that we would be closing the facility effective at the end of May. This closure was completed on May 31. The product lines and related inventory at Loudon had been relocated to our GEFCO Enid facility in Oklahoma and the main product lines at Loudon were oil drill rigs and pump trailers. As an update on the Loudon facility and as David mentioned late in his comments, we closed on the sale of the facility last week. The sale was for $10 million. We expect to have a gain of approximately $450,000 on the sales of this facility. In other energy group news, we saw stable sales in heaters for food processing and chemical plants and reasonable sales of wood chippers and grinders. We remain optimistic on our outlook in our energy group in the long-term. Looking ahead to the fourth quarter of 2015 and the start of next year, we have seen lower backlog at the end of the third quarter. However, we are encouraged by our opportunities on pellet plants, recent hot mix asphalt plant activity and our new product development in all groups. We believe that our fourth quarter 2015 will be in line with our fourth quarter of 2014 and that we will remain ahead of our year-to-date performance last year at the end of the end of the fourth quarter this year. As mentioned earlier in my comments, from our last earnings release to now, orders have been slower during the last three months, mainly due to the strong U.S. dollar, the Highway Bill extension, oil prices and the global mining slow down with the exception of three areas as mentioned, the complete hot mix asphalt plants which have been okay during this season so far and to this day, but have also continued to lag historical levels due to Highway Bill uncertainties, our wood chippers and grinders business and with pellet plant coating activity, which increased during the quarter. We continue to see growth opportunities in pellet plants, large crushers for mining despite the industry and the mining industry being down, high recycle asphalt plants, small commercial paving equipment, concrete production facilities and aftermarket parts and service. As a reminder, we delivered our first large concrete production facility during the second quarter from our CEI division. We see concrete plants as a growth area starting in 2016, but we are excited to have our first new plant from CEI delivered to our customer. The plant was sold for $1.7 million. Part sales increased in the third quarter by 1% versus the third quarter of 2014. Our year-to-date part sales have increased by 6% versus last year. We remain committed to improving our parts sales volume in the long term along with working to increase our competitive part sales, not only in the United States but around the globe. We continue to see results of our lean effort helping us be a better company and we continue to focus on our gross margins well. Looking to the whole of 2015, we remain optimistic that we will end the year ahead of 2014 despite our backlog level at the end of the third quarter. And again this is despite the current irate state of the Highway Bill in Washington DC. The majority of our customers are experiencing a stable private market and we are focused on selling existing and new products not only in the United States but around the globe. Although, as we mentioned, we are facing a currency challenge at the moment internationally. We are also focused on growing our product sales targeted at multiple energy segments that are not dependent on the Highway Bill. Given the backlog in headwinds we are facing, we are working to manage the business to the market conditions where business warrants. To that end, we have had staff and/or work hour reductions at the most affected divisions. Acquisitions remain a key piece of our growth strategy along with organic growth through new product introductions like the CEI concrete plant and our new Astec Double-Barrel XHR high recycle asphalt plants, along with targeted sales growth efforts in the United States. That ends my comments on the quarter, the year and what's in front of us. Thank everyone again for taking the time to be on our call and for your support as we move ahead. I will now turn it back over to Steve Anderson.

All right. Christine, we are ready for questions if anyone has some.

[Operator Instructions]. Our first question comes from the line of Schon Williams with BB&T. Please proceed with your question.

Hi. Good morning, gentlemen.

Good morning.

Good morning.

I wanted just a little bit more clarity on the push-out on the pellet plant in Georgia. I just want to make sure I understand. So construction is still set to be finalized in mid-2016, but the customer has asked you to delay until 2017 in terms of final payment. Is that the correct interpretation?

Yes, Schon, this is Ben. We will probably have it all running by the end of the first quarter, all three lines. They asked us for more time to get a more favorable rate from their bank. They are talking to a couple of banks. We have a 6% note on it. And at the end of the day, they got us into the business. They helped us a lot. They help us on the $30 million order with site business with that customer. So we verbally agreed with the interest rate being where it was, we thought it was the right thing to do. I think they could potentially take us out earlier than mid-2017, talking with them, but that's what they have asked for and we are still working through the details. But that's essentially where it will end up and they have sold well over 100,000 tons of pellets out of line one and they are selling pellets out of line two already. So we are encouraged about where they are and we felt like it was the right thing to do with them.

Okay. Do you have any concerns that there's any, I guess, financial distress that this customer, that they wouldn't be able to eventually pay on this order?

No. No, we don't.

Okay. That's helpful. And then I wonder if we could just dig into what the aggregate side of the business looks like versus mining? I mean I would suspect that, obviously based on your commentary, the mining side is quite weak. But is the aggregate side of the business actually running off and then that's just being more than offset by the down side in mining? Maybe just a little bit of commentary there. And then I know that weather was an issue with aggregates in the spring. Is that still an issue, as we have moved into the summer and the fall here? Just any commentary there would be helpful.

Sure, Schon. This is Ben again. We have been to all our divisions in North America in the last three weeks and visiting with our aggregate group guys. In the summer, we had the traditional summer doldrums and on top of that internationally with mining being off, that affects a lot of different things. So it effects our infrastructure side too which would be the quarry-type aggregates for that type of construction and then you have got the building construction that goes off with that in some of our key markets. So it was almost a perfect storm. We had a few of our guys say, we are glad the third quarter is behind us and the mention that I had about orders being pretty good since October 1, the aggregate group has seen a much better order intake since the October started. So when you look at the mining side, you have got prices for iron ore and copper and commodities being down, but the fact is that the larger mines are pushing volumes higher to try to make up for it which is maybe a crazy way to I think of it, but the other thing that they think of is trying to push out some of their smaller competitors with higher cost while it's down. Our estimate, traveling around, talking with our guys is that, global mining may be running at about 60% capacity utilization with the exception of those large mines that are just going all out. Iron ore, two years ago, was at $200 a ton and it's up $50 right now. And a lot of that is China, but it affects a lot of things more than just the mining side and areas where mining goes down. And so that affects the aggregate side too. So we have been hurting in some those key markets where mining is big and that hurts aggregate and infrastructure really. We do hear from some of our guys that they are hearing that if we could see some type of come back in mid-to-late 2016. In the meantime, we are focusing on bringing out some new products to try to fill some niches and keeping our guys focused on getting all we can in the United States while it's been stronger. Although it took a break during the third. It seems like the buying has started back up here after October 1.

All right. Thanks, guys. I will get back in the queue here.

Thank you.

Our next question comes from the line of William Bremer with Maxim. Please proceed with your question.

Good morning, gentlemen.

Good morning.

Good morning.

First, let's go into the infrastructure group. Can you walk me through your backlog there? It came in very, very solid, in our opinion. Do you have a sense on, primarily in the infrastructure group, how is pricing and the bookings of the current orders being affected there currently? And if we could take that into the other two segments as well.

Sure. This is Ben again. The pricing side, given that the same environment that we are in all, our of our competitors are in. So the pricing is tough. It's a buyer's market for our customers and they know it and it is tough and it doesn't matter which group it is. So that would answer the pricing part of the question. For the backlog side of the infrastructure group, part of that is the pellet plant, which is $30 million. The margin line of that should be in line with the margin you are seeing in the release for the infrastructure group. And so that's where you are probably seeing a good bit of that. The asphalt plant market has been better than this time last year. So a little bit of that is in asphalt plants, which in addition to that, some of that would bleed over into the energy group through CEI, the asphalt tanks and heaters will come through on some of those plants.

All right. Ben, you mentioned that the fourth quarter will be equivalent to the fourth quarter of 2014. Are you talking net income here? Or are you talking top-line revenue?

On the net income side. And we have a chance to approach the volume. But a good bit of that does, we have got to get the pellet plant out to get there. It's really interesting, we have to balance everything with 18 divisions and 16 manufacturing plants. Some are doing better and others, if you just sitting here in Chattanooga at the Astec plant, you would feel like the world is pretty good because they are all out trying to get the pellet plant out.

So you are looking to get the $30 million pellet plant realized in the fourth quarter, not necessarily the first quarter of 2016?

That's correct.

Okay. Thanks, gentlemen. I will hop back in queue.

Thank you.

Our next question comes from the line of Mig Dobre with Robert W Baird. Please proceed with your question.

Good morning, everyone. This is Joe Grabowski sitting in for Mig this morning.

Good morning.

Good morning. I guess just I would start with a big-picture question. Your backlog domestically was down 1% year-over-year, but if you back out the wood pellet plant, it was down more like 17% year-over-year. How would you rank the headwinds that the domestic business is facing right now? No Highway Bill, energy slowdown, mining slowdown. How would you rank those headwinds as you look at the backlog being down that much, again ex- the wood pellet plant?

This is Ben again, Joe. The Highway Bill just is really a big headwind, because our customers for large CapEx projects want to have that security over a longer-term for their planning. So these two, three, four months extensions just wreak havoc on the ability of those guys to really plan out. Part of what I think we are seeing for the uptick in the plant business here, just a slight uptick, is there has been lot of line maintenance contracts for the asphalt side and they have a pretty good market on the private side. So I think our customers are doing better than we are and I think we are seeing a little bit of the pent up in demand come through and plants have run more in the last couple of years. I think we are just seeing some of that come through. So that would be number one. Oil prices would probably be number two, but it would be number one in the energy group. That's been the big drag there. We are focused on working to grow our backlog, but the headwinds we mentioned are real and challenging. We are facing them. Our competitors are facing them. But we are being realistic about it and we are managing the business to the environment we are in. We had a headcount at the beginning of the year that was approaching 4,000 in January and so we are under 3,800 today. Our shop utilization is around 60% as a whole. Now it differs by division, I think average in and out it would be about 60% and right now it looks 100% here in Chattanooga, but that would be the exception. But we are managing hours in our shops in addition to the headcount work that we fortunately had to do and we are working on expenses. But at the same time, we are staying focused on new products. We have got a lot of R&D going through. We have applied for several provisional patents during the quarter. So the R&D continues. And that's another way to help get the volume in the down market, so long as those products will help our customers be more successful. I mean they have got to have an economic return for once. So we are working on that. The concrete plant is one great example of that because it will allow our customers to use less cement in their concrete, which is their highest cost input item at $150 a ton. So that's the type of things that we are working on to try to help on the backlog and get through what we are in the middle of.

Thanks for the color on that. Maybe probing a little more on the Highway Bill, you are still optimistic that we could get a long-term bill, I guess, at the 11th hour. I know you have spent a lot of time in Washington DC. I would just be curious to your thoughts, the retirement of John Boehner, is that potentially a negative for getting a Highway Bill by the end of the year? Or maybe even a positive that he might get it through as he is leaving?

It's interesting you mentioned John Boehner because I was in our congressman's office as he retired. So that was an interesting visit. Congress is a mess. So I cannot even get a replacement for Boehner. But when you look at it, both sides concede that they need to pass a long-term bill. And the paid for has always been the issue and in the talks that we have had and that's why we think we expect an extension by October 29, is what we are hearing from our discussions. The committee has released a bill. The T&I Committee released a bill. They will probably do the extension and then the House will pass a six-year bill and then it will go to conference. And that's the best chance we have had in a long, long time, when you have got two six year bills in conference between Senate and the House. And that's where our optimism comes from. It's hard because I would like to use the word in confidence when I talk about our representatives in DC with regards to the Highway bill because it seems like that that would be the one thing they could all agree on and get done, because our country needs it.. I mean I probably travel as much as anybody around the country and our freaking bridges are in terrible shape. And so we have got to do something and I guess the sense is that then get it to conference that gives us a really good shot at a six-year bill. The asterisk on Washington DC is the fact that that's what it is. It's Washington DC and it always seems like it's on its way to fall over.

Sure.

I think this is as good a shot as we have had. The funding we might not love. I think the funding will be slipping. I think it's probably in the $43 billion to $44 billion a year on average range for highways. But if they could get past, it adds the missing stability that we need in our industry. And it will add to the states that have taken the matter in their own hands that have passed their own funding mechanisms, either be a gas tax or sales tax. So it would be extremely positive, even if it was in the $43 billion to $44 billion range for our industry.

Great. Okay. Well, thank you. One last question for me. With the downturn in energy and mining, has it made the M&A market more attractive? Are you seeing acquisition multiples come down and just the appetite for M&A here in the medium-term, I guess?

Well, we are not seeing multiples come down. The private equity continues to keep those higher. But as far as opportunities, we are definitely active. Our strategic goal is to work to add 5% volume a year through acquisitions. We do have opportunities to do that in 2016. So we are not going to necessarily, we won't do it for our ego. It's got to be a fit. It's got to be strategic and it's got to be in areas that we cover energy, infrastructure or aggregate mining. But we do have those opportunities and we are working on them.

Sure. Okay. Thank you. Good luck in the fourth quarter.

Thank you.

Our next question comes from the line of Stanley Elliott with Stifel. Please proceed with your question.

Hi guys. Good morning and thanks for taking my question. As it relates to the Highway Bill, so what are the expectations? So if we do get a bill, how quickly can these orders come through? Would it be in time for the spring construction season? Any thoughts around that?

Based on the inquiry levels we have had, Stanley, I would say yes, it could effect the first, if it's passed and signed this year, it could affect as early as the first quarter, but certainly in the second.

And kind of playing worst-case scenario. So if we don't get the Highway Bill, what are thoughts on, are there restructuring efforts? How quickly can you take cost out? And then maybe framework us some plans on a contingency basis there.

Well, I think per my comments and mentioning about the backlog, Stanley, we are working on that now. It's not fun and we have got great people and it's painful. But we are working on that now. We are not assuming there is a Highway Bill. So although with the areas where we feel like we have a competitive advantage in, in service and parts and sales, we are less aggressive on some of those things. So we are planning right now putting plans in place in the event there is no Highway Bill. However, I would say that we do have some good new products coming out. We have other opportunities to try to sell internationally. We can try to use our Astec do Brazil facility in a more strategic way internationally. We have a license agreement in India that we could work to take advantage of in areas where we are not selling now, which we are looking at now. So we are working on some things to try to help grow the business without a Highway Bill.

And switching gears to the wood pellet plant or line rather in the first half. I thought I heard you say that the margins would be in line on a gross level to what you are doing now. But I remember in the release that there was a fair amount of service work, service related revenue. Should we think of that as incremental to whatever the line would end up costing?

Yes, I think so. I think you would see that. But I think it's kind of a delayed deal because in the first part of operation of the plant, there won't be as much. But I think in year two and three, you will start to see that. So for the two plants, for the two lines that are running and the one that will start up, I think we won't see that until 2017.

Great. Thank you very much.

Thank you.

Our next question comes from the line of Nick Coppola with Thompson Research. Please proceed with your question.

Hi. Good morning.

Good morning.

So you guys talked about the infrastructure group seeing a tough price environment. Can you just add some color there about the competitive environment, maybe in the asphalt plant business versus maybe the roadbuilding equipment at Roadtec?

Well, Roadtec has an unique situation. They fight a very large competitor based in Europe. Of course they are helped right now with the Euro to dollar ratio too. So they are very challenged on just about every single deal on pricing and they are doing a really good job of working through it. But they are having to do a lot of work and they are working on lot on their shop and flow in trying to help margins that way. Of course, that pricing pressure though, Nick, it's across all lines. Every one of our groups has got some headwinds and our competitors have too. So I wouldn't necessarily single out those guys. We have some competitors that seem to have no bottom asphalt plant side. So it's very difficult right now. But our guys are doing a nice job and they are maintaining the market share and what's really helped is maintain our bottom line is the lean effort and the fact that in steel is down. It has been helpful in addition to the work we have done in manufacturing.

And so is it really more about volume is picking back up, so that you can get price?

Yes.

All right. Fair enough. And then in the energy business, clearly sales and backlog were down there, impacted by lower oil prices. Any comments or color on the types of equipment that saw declines there, given your mix inside that segment?

Yes. On the oil side, it's the oil drill rigs at GEFCO and the pumper trailers at GEFCO and then we have got heating systems that would be out of Heatec and CEI. So really oil is pretty depressing. It's well documented and we are getting conflicting information from the field talking with customers about when it would come back. We have heard as early as mid-2016 to as far out as early-2017 for oil prices to come back. The rig count year-over-year is down over 50%. So at some point, hopefully we hit a rock-bottom on that. But a lot of the rigs that are still running are the newer technology so the capacity, we are still getting a good volume of oil. But the oil brings opportunity. That's where you are seeing some states be able to get gas taxes through to help the infrastructure. And if the federal government gets to step on that too, they would. It's crazy because $0.12 a gallon would really fix what ails us. And that Exit 11 hearing in Chattanooga called the Ooltewah Exit, we had $0.12 a gallon price difference from one side of the street to the other. The consumers could shop away $0.12 a gallon and that's just crazy that the federal government can't just do it. Of course, I am stumping here a little bit, but it's frustrating to us. But GEFCO does continue to struggle because of their products and Heatec has made up for a little better their oil issue with the heaters are making it up with food and chemical heater sales and those two industries. CEI frankly is in transition on the energy group side. We moved the small asphalt plants there to our Dillman operation to get it aligned with our Astec operation and that really worked well because they are doing well and we are shipping small plants to a lot of different places out of there that we never got done at CEI. So that part of the plant is working. CEI, in some respects, is a little bit of a startup because we have got a new product line going through there and they are going to be okay in 2016, but they have struggled this year. So that shows up in the energy group too.

All right. That's very helpful. Thanks for taking my questions.

Okay. Thank you.

Our next question comes from Ted Grace with Susquehanna. Please proceed with your question.

Hi gentlemen.

Hi, Ted.

Ben, I was wondering if you could talk about 2016 at some level. I know you are have framed 4Q as being maybe flattish year-on-year on an EPS basis and pellet presses will be a big variable and you have walked through some of the end markets. A lot will be dependent on the Highway Bill. Pellet presses are a big TBD. You have got AMG and energy as a headwind. But we are at the point of the year where investors are kind of rolling forward to 2016. Any kind of handful of things you could give us on how people might want to think about next year would be really helpful. Could you maybe start there?

Well, I would tell you, I wish we had a crystal ball on the Highway Bill because we could be a little more, maybe I don't know, if it's optimistic but we sure have a clear line of sight. But I think the pellet plant is something that kind of sits there and could help us offset as a whole some of the Highway Bill uncertainty and when talking to our guys with some of the new products we have coming out, we could see next year being slightly up in the 5 to 8% range. I know we have people that we buy equipment from and are also competitors that think it could be down 5%. I think we would take a little more optimistic view with opportunity slightly up in 2016 with the products we have today.

That's total revenue, just to make sure we are talking apples-to-apples?

Yes. Total revenue.

Okay. So I guess when we think about it, your energy segment backlog is down to $15 million. Really tough environment. We have talked about that a lot. Orders were down over 80%. They have been running kind of like $15 million to $20 million in the last two or three quarters. If you look at consensus expectations next year, consensus has revenue for the energy segment at $190 million versus a quarterly run rate of, call it, $15 million to $20 million optimistically. So it just seems like that's a huge gap to bridge and if you put any reasonable margins, that's anywhere from $0.85 to $1.15 of earnings power. So can you just help us understand how you back-fill energy? You talked about maybe getting an inflection in mid-2016. That's probably the optimistic view, I think most would think. You highlighted that that seemed like the more optimistic view is maybe 2017. So how do you bridge flat revenue, if we are facing the kind of challenge in energy?

Well, we have really got to do that through some of the products that are coming out. The other concrete plant that we sold is $1.7 million and we got an opportunity there to bridge some of that gap there. And then on the CEI side and the Heatec side is focusing more on other industrial uses for their heater systems. And they have got a couple of larger projects that are quoted too that if they came through, they would help. So it's going to be broadening their industrial base market and also we are looking at two new rig designs for our GEFCO unit to try to get volume through their plant as well. So it's really a combination of new industrial heating system opportunities for the Heatec, CEI side, concrete plants and related equipment at CEI and a new drill rig or two at GEFCO to help get that volume up.

This is Rick. Peterson is also looking at some new products that should help their sales next year also.

Okay. And then in terms of just any incremental color you can share on orders throughout the quarter. Obviously some of the businesses, especially with the pellet presses, can be lumpy. Can you talk about just whether relative internal plan or on a smooth basis, how each month of the third quarter progressed and how fourth quarter is progressing? I know you had some optimism in some of the business, but in terms of just how orders are trending. Is that part of what underpins your optimism on next year? Was there any discernible trend that was abnormal in the third quarter on a monthly basis?

Yes. I would tell you that in June and July, well, it is really July and August, Ted. Our customers were working and not buying in the U.S. and it was pretty slow. And then after Labor Day, it opened up and that's traditional. Our buying season on the infrastructure side in asphalt would typically run from about Labor Day through end of May. That's a ballpark. But it just opened up a little bit and it did delay little bit on the aggregate side versus the asphalt and it seemed to open up the last week of September and the increase and then the purchases really started, almost like October 1 was the day. And so we saw that not only in our aggregate side but also in the wood chipper side at our Peterson group. So that's where that optimism comes from.

Okay. And then the last question for me just on the cost actions you are exploring and trying to dimensionalize. Do you think there will be an update by the time you announce fourth quarter results in terms of the actions you will take? Could it actually occurred during the fourth quarter? Just how should we think about timing, getting visibility on what those actions will be in the cost and benefits?

Well, probably that would be at the next release, Ted. We have, like we said here, our headcount is down, probably in the 200 range now from the January of this year. A part of that is the Loudon facility closing and part of that where the divisions where we been challenged in volume and that's quarter-end in employment numbers. But I would say, we have had about 25 additional since the October 1 date. So it's painful and we are a people oriented place here and it hurts me personally to do that. But we got to be realistic with the markets we are in so it's a case-by-case basis.

Okay. Well, thanks for the color and let's much hope for a sustained turn. Good luck this quarter, guys.

Thank you.

Our next question comes from the line of Brian Sponheimer with Gabelli & Co. Please proceed with your question.

Hi. Thank you for fitting me in. You have answered most of my questions, but I am just curious as to whether on the mining side or in the oil and gas side, you are a seeing any distress in your customer base.

We have on some of the contract drillers but not a lot. It's really one of the interesting gauges that we kind of look at is Enid, Oklahoma, where GEFCO traditionally has a very low unemployment rate and it's still pretty low. But recently our last visit there was two weeks ago. That town is slowing down a little bit. So that's one of the gauges that we would have for oil and gas.

And just as far as your foreign markets, particularly South America, your sense of distress there, versus four, five months ago?

Outside of Brazil, it's getting a little better, Brian. Brazil itself is everything you are reading is pretty well hurting. You talk about timing to open a facility. We did the official opening in right about the time all the corruption is happening, while mining is going down. But we have gotten a few orders there. We have got a few prospects, not all of them are in Brazil, but they are around there and our guys are doing good job uncovering some opportunities. So outside of Brazil, South American in the last four or five months has gotten better for us.

Understood. Thank you very much.

Thank you.

Thank you. Our final question is a follow-up question from William Bremer with Maxim. Please proceed with your question.

Hi, Ben. Just a follow-up on the pellet activity. What needs to be done for you to realize that $30 million this year in 2015? And then if it is realized and we push out the realization of the $60 million, what's the likelihood that you will have a win and a realization in 2016 on the pellet side?

For the current quarter we have in the shop, the way the terms are we need to finish it. So we have just got to get it out the door. So that's good news. We are pushing hard to do that. To realize the $60 million, that would be the customer being able to get that favorable finance rate they think they can get with a longer-term cash flow showing. So I think we are doing all we can to help them get there. We have got people on site. We are staying on-site. Of course we need to, as we still haven't started on line three up but very encouraging on line two that we hit the guaranteed production extremely fast. Much faster than we done on line one, which proves that we are learning and we are moving in a positive direction and all the changes that we have on those lines at Hazlehurst are in the new lines that we are building now. So we are very encouraged about our future there.

Okay, Ben. Thanks. Appreciate it.

We have reached the end of question-and-answer session. Mr. Anderson, I would now like to turn the floor back over to you for closing comments.

Thank you, Christine. We appreciate everyone's participation on our third quarter conference call. 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 November 3, 2015 and an archived webcast will be available for 90 days. The 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. As Christine mentioned, this concludes our call. So thank you all. Have a good week.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.