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Manufacturing a variety of specialized equipment for building and
restoring the world's infrastructure aimed at lowering costs for customers, Astec
Industries has the only asphalt plant that will recycle 50% asphalt and not consume any
more fuel
Industrial Goods
Farm & Construction Machinery
(ASTE-NASDAQ)
Astec Industries, Inc.
1725 Sheperd Road
Chattanooga, TN 37421
Phone: 423-899-5898
Dr. J. Don Brock
Chairman, President and
Principal Executive Officer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published May, 25, 2007
Company
Profile:
Astec Industries, Inc. is a manufacturer of specialized equipment for building and
restoring the world's infrastructure. Astec's manufacturing operations are divided into
four business segments: aggregate processing and mining equipment, asphalt production
equipment, mobile asphalt paving equipment, and underground boring, directional drilling
and trenching equipment.
CEOCFO: Dr. Brock, Astec’s goal is to design,
manufacture and provide the most innovative, productive and reliable equipment; how do you
do that?
Dr. Brock: “We are
a manufacturer of construction machinery, so we fabricate, design and manufacture
equipment. We talk to the customers and see what the needs are in the industry and try to
build the equipment they need.”
CEOCFO: How is that different from what people might get at
other manufacturers?
Dr. Brock: “We have 13 different companies and we
operate very decentralized. We build about 170 different products and a lot of them are
niche products; for example rock crushers that basically make little rock out of big rock.
We also build asphalt plants that take the rock and dry it, heat it up to 300 degrees, and
coat it with liquid asphalt to glue it together. We build heaters that heat the asphalt,
the pavers that lay it down on the road and compact it. We build milling machines that
take the mix back up after it has been down for 20 or 30 years and bring it back so it can
be recycled through he asphalt plants. We build machines that dig trenches, and machines
that will put water lines, pipelines and other lines under rivers and under roads without
interfering with the roads or the river that it goes under. Therefore, we build a wide
variety of different products and generally, all of these products are made to try to
reduce the cost of doing business for our customers.”
CEOCFO: You pride yourselves on using state-of-the-art
technology and innovative ideas; give us an example of what you are able to create with
forward thinking?
Dr. Brock: “We have the only asphalt plant that
will recycle 50% asphalt and not consume any more fuel. As fuel prices or energy prices go
up, we are now putting pulverized coal burners on the asphalt plants to reduce the drying
cost of the asphalt plants. We utilize the latest internet technology to troubleshoot
plants, such as looking at an asphalt plant running in Sydney Australia and troubleshoot
it from Chattanooga, Tennessee over the internet. Therefore, we have very modern
up-to-date controls on them. We use GPS to control the grading and slope that the milling
machines run, if you are milling off the road or digging a ditch, if you wanted to use a
GPS on our big trenchers, you can do that to put the pipeline exactly where you want it at
the depth that you want it.”
CEOCFO: Would you give us a breakdown on the various
segments of the business, and do you see any change in the mix?
Dr. Brock: “The first segment is a group of 6
companies that builds the rock-crushing equipment. It is a very broad line of equipment
because God gave us a lot of different kinds of aggregate that we have to process and make
into rock or aggregate for roads; you may have granite, trap rock, limestone, gravel and
steel slag, so there are various different products that we crush and reprocess. That
group of companies builds a variety of equipment all the way from every model of rock
crusher that there is known today, to equipment for making concrete sand, sandblast sand
or sand for glass. The second group of companies makes the asphalt mixing plants that
takes rock and makes it into a road-paving material. Two of the companies in that group
actually build the heaters that heat the liquid asphalt all the way from the refinery to
the asphalt plants where they are making the paving materials. These heaters are also used
for heating roofing asphalt and also used in the tar sands for a number of applications
wherever you are heating oil or asphalt. The third group of companies actually builds the
equipment that takes the asphalt paving materials, spreads them out on the roads and
compacts them. That same group of companies builds milling machines that will grind the
material back off the road twenty to thirty years later from as little as a quarter of an
inch to twelve inches deep at a time. The last group of companies is what we call the
underground group. It builds trenchers from a walk behind trencher, with these trenchers
you could put a water line across your yard at home, all the way up to huge monstrous
machines that weigh 500,000 pounds and will dig a ditch as wide as eight feet and as deep
as 45 feet through solid rock to put in, for example, across country pipelines or water
lines. That group also builds directional drills where you can go down and run a line
under a road or under a river and then pull the pipe back through the hole that
you’ve created. That is why they are called directional drills and we are applying
those machines to drill in oil fields now.”
CEOCFO: Where do you see growth?
Dr. Brock: “The growth comes from applying our
machines into some other industries and as energy process changes, and as inflation
changes, it opens up opportunities. Generally, you would think it would slow businesses
down and in some cases, it does. However, what we have tried to do, as we have seen energy
prices more than double in the last two or three years, is look at how you can take
advantage of that. One thing we have seen is that the higher the price of oil, the higher
the price of the liquid asphalt, which is derived from the oil. As oil goes up, it goes up
the same proportion, then the more valuable the recycle materials are that you take off
the road. Therefore, we have seen increases in the amount of recycle that we put back into
the new mix, go from 15% to in some cases 50% recycle. That requires that you change
technology some to do that. It sells more of our milling machines that mill that recycle
off the road, our pavers that process it and screen it and take the recycle materials
apart and then the asphalt plants that are capable of digesting this recycle and combining
it with the new material to make a new pavement out of it. We are also taking our
directional drills and they allow a contractor in rather shallow oil country where
typically an oil-drilling rig drills vertically down. Out in the ocean where they go very
deep, they make turns, but not generally on land where they are going very shallow. As a
result you go by a lot of pockets of oil and we have been able to take the directional
drills down 300 feet than turn horizontally for as much as a half a mile and get as much
as 20 times the oil flow out of that as you would normally get. It also allows an oil
drilling contractor to put in one well instead of maybe twenty wells, because they can get
in one spot and go down and make a wagon wheel type of approach where he is going in all
directions like wagon wheel spokes."
CEOCFO: Do you need to maintain an inventory or are your
products made to order?
Dr. Brock: “There are some of both. The larger $4
million asphalt plant is built to order. We try to own the mobile equipment that has
diesel engines like pavers and milling machines to maintain some inventory. The businesses
are all somewhat cyclic in that the equipment that we sell is all being used in the summer
and they generally order in the winter. Therefore, you do in one year have swings in
cycle, but we generally turn our inventories about four times a year, including finished
goods.”
CEOCFO: What is the financial picture like today?
Dr. Brock: “We have no debt and we are generating
cash. We are looking at other companies to acquire and over the years, we have started 3
of the companies and acquired 10 of them. Therefore, we have been an acquirer over the
years and we will continue to do that.”
CEOCFO: Do people come to you or do you have to go out and
actively pursue sales?
Dr. Brock: “You never take your sales for
granted, but about 80% of our sales are repeat customers. Generally, once we get the
customers they stay with us. We do a lot of educating to the industry and try to stay on
the leading edge. Our top personnel probably give a hundred speeches a year to industry
association meetings. Each state has an asphalt pavement association or maybe an aggregate
association, so I personally probably give thirty speeches a year, talking about the
latest thing in the industry, such as how to recycle more. Another topic might be how to
reduce energy consumption. Therefore, we do also of educating. We probably average about
1500 customers a year coming just to schools in our plants. We cover all the way from
operator training to executive seminars, where each year both in the asphalt and aggregate
side, we invite a select group of owners to come in for three-day seminars and we go
through every way we know of reducing cost.”
CEOCFO: Is reaching potential investors a focus for you?
Dr. Brock: “Yes, we make presentations to
probably six or seven conferences a year. We do investor conference calls with the
companies that follow us. Obviously, we are a public company and we have to be concerned
with stockholders, employees and our customers.”
CEOCFO: Why should potential investors be interested and
what might they miss when they look at the company that should jump out?
Dr. Brock: “First, we are probably perceived as a
low-tech company, where it is just the opposite; Astec is a high-tech company with heavy
equipment, but very high-tech technology. Secondly, we have averaged doubling our size
every five years since we have been public and we are on track to do that again.
Therefore, we continue to innovate and grow. Typically, we find in our businesses that we
can comfortably grow at 10% a year and that will give you about 65% growth over 5 years
and then the other ? comes from acquisitions. This is a strategy where we are not trying
to digest too many acquisitions at a time, but gives us a comfortable growth rate.”
CEOCFO: In closing, what should our readers take away from
this interview about Astec?
Dr. Brock: “Astec is a good sound company with
good management and good products. We are also very customer focused. If you did a survey
of our customers’ you would find we give the best service. We care about the
customers problems that go beyond the equipment and we try to build the most modern
equipment in the industry.”
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