Astec Industries Inc. announced its financial results for the first quarter of 2022. First quarter of 2022 net sales of $291.2 million increased 2.4% compared to $284.4 million for the first quarter of 2021. Domestic sales increased $8.9 million or 3.9% mainly due to stronger parts sales across the business and increased Materials Solutions equipment sales that were offset by a decline in Infrastructure Solutions products recently transitioned from being manufactured at its Tacoma, Wash., site to one of its Chattanooga, Tenn., sites.
International sales decreased $2.1 million or 3.6% primarily due to lower Infrastructure Solutions equipment sales partially offset by increased equipment sales within Materials Solutions. Sales declines in Europe and Canada were partially offset by higher Asia and Australia-based sales.
Backlog as of March 31 of $834.7 million increased by $413.9 million, or 98.4% compared to the backlog of $420.8 million on March 31, 2021. Domestic backlog increased by 119.0% to $707.0 million while international backlog increased by 30.4% to $127.7 million.
Operating income of $5.4 million in the first quarter of 2022 decreased 43.2% compared to operating income of $9.5 million in the first quarter of 2021. Operating margin of 1.9% decreased 140 basis points from 3.3% in the first quarter of 2021.
The variance was largely driven by inflation outpacing sales volume, price and mix partially offset by a slight reduction in selling, general and administrative expenses aided by lower claims in its self-funded health insurance plan and favorability related to the company’s shares held in our deferred compensation programs.
The effective income tax rate for the quarter was 18.0% compared to 8.6% in the prior year. The adjusted tax rate for the quarter was 21.0% compared to 12.9% in the first quarter of 2021. The higher effective income tax and adjusted tax rates for the quarter were primarily due to reduced tax benefits from stock compensation partially offset by an increased net benefit for foreign-derived income.
Net income of $4.1 million decreased $4.4 million from $8.5 million in the first quarter of 2021, while diluted EPS of $0.18 decreased from $0.37 in the first quarter of 2021. Adjusted net income of $9.4 million decreased 18.3% compared to the prior year period, while Adjusted EPS of $0.41 decreased 18.0% compared to $0.50 for the first quarter of 2021. Adjusted Net Income and Adjusted EPS excludes $5.3 million and $0.23, respectively, of incremental costs, net of tax, primarily driven by our transformation program.
EBITDA of $11.9 million decreased $5.1 million, or 30.0%, compared to the prior year EBITDA of $17.0 million. Adjusted EBITDA of $18.8 million decreased 10.0% compared to $20.9 million a year ago. Adjusted EBITDA margin declined 80 basis points from 7.3% in the first quarter of 2021 to 6.5% in the first quarter of 2022.
“We are pleased to post a solid first quarter amid continued supply chain challenges and a spike in COVID-19 omicron variant cases among our workforce that lingered from late 2021 into early 2022” said Barry Ruffalo, CEO of Astec. “Demand remained robust and backlog continued to reach record levels in the first quarter of 2022. Customer sentiment remains positive for 2022 and the multi-year federal Infrastructure Investment and Jobs Act is a long-term tailwind for the road construction industry.”
Business Operations Update
Acquisition of MINDS Automation Group, Inc. – In April 2022, the company acquired Canada-headquartered MINDS Automation Group, Inc., a leader in plant automation control systems and cloud-based data management in the asphalt industry.
Simplify, Focus and Grow Strategic Transformation (SFG) – “We continue to execute on our strategic transformation initiative focused on implementing new business strategies and a new operating structure. SFG is an ongoing, multi-year program with the primary goals of optimizing our manufacturing footprint and centralizing our business into common platforms and operating models to reduce complexity and cost, improving productivity and embedding continuous improvement in our processes. These efforts are considered critical to enabling us to operate competitively and support future growth, which are expected to broadly benefit our customers, partners, employees and shareholders. Currently, we have two elements of the SFG program in operation, which include the implementation of a standardized enterprise resource planning (“ERP”) system and a gross margin-generating lean manufacturing initiative at one of our largest sites. The manufacturing initiative is intended to serve as the optimal blueprint for our other manufacturing facilities,” the company stated.
“Our multi-year phased implementation of a standardized ERP system across our global organization will replace much of our existing disparate core financial systems. The upgraded ERP will initially convert our internal operations, manufacturing, finance, human capital resources management and customer relationship systems to cloud-based platforms. This new ERP system will provide for standardized processes and integrated technology solutions that enable us to better leverage automation and process efficiency. An implementation of this scale is a major financial undertaking and has required and will continue to require substantial time and attention of management and key employees. We expect to complete the ERP global design in 2022 and convert the operations of one site in 2023 to set the foundation before accelerating the implementation at additional sites,” the company stated.
Costs incurred during the three months ended March 31, 2022 were $5.3 million which represent costs directly associated with the SFG initiative and which cannot be capitalized in accordance with U.S. GAAP. These costs are included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations.
Supply Chain – “While we actively manage our global supply chain for constraints and volatility, we continued to experience supply chain disruptions in the first quarter and expect for these disruptions to continue. Our vendors and logistics partners have increased lead times for certain components used in our manufacturing process. We have increased the frequency of communications with our suppliers and customers to ensure business continuity as well as anticipate and prepare for any new developments,” the company stated.
COVID-19 – The COVID-19 pandemic has caused significant disruptions to national and global economies and to our business. Our business has been significantly affected by the contributory effects of the pandemic such as fluctuations in demand for our products, material price increases, increased shipping costs and lead times from production materials, supplies and parts, labor shortages and increased labor costs. These trends continue to impact our business today and may continue to impact our business in the near-term. Furthermore, while our business operations were fully operational during the first quarter of 2022, they were not at optimal manufacturing efficiency due to a spike in the COVID-19 omicron variant impacting our labor force.
Labor – “In certain manufacturing locations, we have experienced a shortage of necessary production personnel and increasing labor costs to attract staff in our manufacturing operations resulting in a variety of challenges in running our operations efficiently to meet strong customer demand. We continue to adjust our production schedules and manufacturing workload distribution, outsource components, implement efficiency improvements and actively modify our recruitment process and compensation and benefits to attract and retain production personnel in our manufacturing facilities,” the company stated.
Steel – “Steel is a major component of our equipment. Steel prices began increasing in the latter part of 2020. We experienced further increases in steel pricing in 2021 and as we entered 2022. Global supply chain disruptions caused by the Russia-Ukraine conflict added pressure on steel prices. We continue to utilize strategies that include forward-looking contracts and advanced steel purchases to ensure supply and minimize the impact of price volatility,” the company stated.
Tacoma Site Closure – “In January 2021, we announced plans to close the Tacoma facility in order to simplify and consolidate operations. The Tacoma facility ceased manufacturing operations at the end of 2021. The transfer of the manufacturing and marketing of Tacoma product lines to other facilities within the Infrastructure Solutions segment was completed during the first quarter of 2022,” the company stated.
Highway Funding – “Federal funding provides a significant portion of all highway, street, roadway and parking construction in the United States. We believe federal funding influences the purchasing decisions of our customers, who are typically more amenable to making capital equipment purchases with long-term federal legislation in place. In November 2021, the U.S. government enacted the Infrastructure Investment and Jobs Act (IIJA), which allocates $548 billion in government spending to new infrastructure over a five-year period, with certain amounts specifically allocated to fund highway and bridge projects. We believe that multi-year highway programs (such as the IIJA) will have the greatest positive impact on the road construction industry and allow our customers to plan and execute longer-term projects,” the company concluded.