Road building equipment manufacturer, Astec Industries Inc. (ASTE), reported its second quarter earnings before the market opened. The company reported earnings of $0.34 per share, below our expectations of $0.41 per share and 63% lower than previous year’s EPS of $0.93.

Revenue during the quarter declined 32.0% to $188.8 million from $277.7 million a year ago. The decline in sales was a result of delay/postponement of several infrastructure projects due to the economic downturn. The company reported lower sales in all its segments.

Sales in the Asphalt Group were down 3.8%, while the Mobile Asphalt Paving Group sales declined 34.9%. The company expects these two businesses to benefit from the stimulus package funds allocated to roads and bridges over the next 18 months.

The company noted that the demand in other businesses continues to remain weak. Especially the Underground Group, which serves the energy and residential business, is expected to remain very weak in the coming quarters. Sales from this segment declined 52.7% during the quarter.

The Aggregate and Mining Group, which manufactures equipment for the aggregate, metallic mining, and recycling markets, posted sales decline of 40% during the quarter. The slowdown in economic growth led to decline in commodity prices, which in turn has hurt mining. In addition, given the current credit market conditions, Astec’s customers are holding back investments in new equipment.

Second quarter’s revenue constitutes 68.4% of domestic sales and 31.6% international sales. At the end of the quarter, the company had a backlog of $133.6 million, which is 50.1% lower than the prior-year level.

The company expects a similar level of revenue for the third quarter. Though the company is expected to benefit from federal funding, we believe this is not enough to offset the total impact of economic downturn on the company’s business.

We maintain a Hold recommendation on ASTE.

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