Astec (ASTE)

Construction equipment company Astec (NASDAQ:ASTE) announced better-than-expected revenue in Q1 CY2025, with sales up 6.5% year on year to $329.4 million. Its non-GAAP profit of $0.88 per share was 91.3% above analysts’ consensus estimates.

Company Overview

Inventing the first ever double-barrel hot-mix asphalt plant, Astec (NASDAQ:ASTE) provides machines and equipment for building roads, processing raw materials, and producing concrete.

Automation that increases efficiencies and connected equipment that collects analyzable data have been trending, creating new sales opportunities for construction machinery companies. On the other hand, construction machinery companies are at the whim of economic cycles. Interest rates, for example, can greatly impact the commercial and residential construction that drives demand for these companies’ offerings.

Competitors offering similar products include Caterpillar (NYSE:CAT), Terex (NYSE:TEX), and Gencor (NASDAQ:GENC).

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Astec’s 3.2% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Astec’s recent performance shows its demand has slowed as its revenue was flat over the last two years. We also note many other Construction Machinery businesses have faced declining sales because of cyclical headwinds. While Astec’s growth wasn’t the best, it did do better than its peers.

We can dig further into the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Astec’s backlog reached $402.6 million in the latest quarter and averaged 28.1% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn’t secured enough new orders to maintain its growth rate in the future.

This quarter, Astec reported year-on-year revenue growth of 6.5%, and its $329.4 million of revenue exceeded Wall Street’s estimates by 2.8%.

Looking ahead, sell-side analysts expect revenue to grow 3.5% over the next 12 months. Although this projection suggests its newer products and services will fuel better top-line performance, it is still below average for the sector.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Astec has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 23.6% gross margin over the last five years. That means Astec paid its suppliers a lot of money ($76.44 for every $100 in revenue) to run its business.

In Q1, Astec produced a 28.1% gross profit margin, up 3.1 percentage points year on year. Astec’s full-year margin has also been trending up over the past 12 months, increasing by 1.4 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Astec was profitable over the last five years but held back by its large cost base. Its average operating margin of 4.8% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, Astec’s operating margin rose by 2.5 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Astec generated an operating profit margin of 6.2%, up 2.3 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Astec’s EPS grew at a remarkable 14.6% compounded annual growth rate over the last five years, higher than its 3.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Astec’s earnings can give us a better understanding of its performance. As we mentioned earlier, Astec’s operating margin expanded by 2.5 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Astec, its two-year annual EPS growth of 32.2% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q1, Astec reported EPS at $0.88, up from $0.34 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Astec’s full-year EPS of $2.99 to shrink by 6%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Astec broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, we can see that Astec’s margin dropped by 8.1 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the longer-term trend returns, it could signal it’s becoming a more capital-intensive business.

Astec’s free cash flow clocked in at $16.6 million in Q1, equivalent to a 5% margin. Its cash flow turned positive after being negative in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Astec historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.4%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Astec’s ROIC has increased. This is a good sign, and we hope the company can continue improving.

Astec reported $95.4 million of cash and $96 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $128.1 million of EBITDA over the last 12 months, we view Astec’s 0.0× net-debt-to-EBITDA ratio as safe. We also see its $4.6 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed that Astec beat analysts’ revenue, EBITDA, and EPS expectations this quarter. The stock traded up 5.4% to $37.17 immediately after reporting.

Updated: June 25, 2025 at 11:26 PM EDT

Before investing in or passing on Astec, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

We see the value of companies helping their customers, but in the case of Astec, we’re out. To kick things off, its revenue growth was weak over the last five years, and analysts don’t see anything changing over the next 12 months. And while its remarkable EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its projected EPS for the next year is lacking. On top of that, its cash profitability fell over the last five years.

Astec’s P/E ratio based on the next 12 months is 14.2x. This valuation multiple is fair, but we don’t have much confidence in the company. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $43 on the company (compared to the current share price of $40.07).