Despite a sluggish quarter that saw a 3 percent decrease in net sales—a drop to $268 million compared to $277.3 million for Q2 2014 and a 19 percent decrease in earnings—Astec Industries Inc. continues to see activity in its pellet plant delivery sector.
After breaking into the commercial wood pellet plant industry two years ago, Astec reports it is closing in on its second large order, said CEO Benjamin Brock, during the company’s Q2 2015 quarterly earnings call.
The company initially built a prototype plant at its headquarters in Chattanooga, Tennessee, which served as a research and development facility, and later constructed its first commercial-scale facility in Hazehurst, Georgia, for Fram Renewable Fuels. During the July 21 earnings call, Brock provided an update on operations of the 551,000-metric-ton plant.
“On the pellet plant we delivered in Hazelhurst, Georgia, line one of three continues to run, line 2 is near the startup phase, and line three is nearly installed and is pulling toward the testing stage,” he said, reminding listeners that pellet plants are a new product Astec has chosen to finance, and as a result, will recognize revenue for the plant as the company is paid. “This will have an affect our cash and inventory until it’s paid in full,” he said, adding that the order for all three lines was $60 million.
Astec financed the plant loan, Brock explained later in the call. “It [the loan] runs through June of 2016, and we’re working closely with them on the plant. We’ve got our folks down there, and they have been since the beginning. As the customer is financed by their ultimate partners, they will take us out. They have until then [June 2016] to do it. We’re financing that for them because it is unit No. 1, but also because it’s a marketing tool for us to show other customers—it’s an impressive site.”
Brock said Astec expected to announce the sale of a new pellet plant last quarter, but things have progressed slower than anticipated. “Local permitting, pellet supply contracts and customer finance on each side of the project takes a very long time for these plants and is requiring a very high level of patience from us as we progress toward the next pellet plant order,” he said. “We believe we will be in position to announce another pellet plant order very soon. If and when we secure the order, we will announce it to the market.”
Brock said there is possibility for a third, smaller plant by the year’s end.
When asked by a listener as to whether low coal and natural gas prices, and recent changes in U.K. government carbon credit incentives have affected quoting activities, Vice President and Chief Financial Officer David Silvious said that it has not. “On the large orders, no, it does not impact it,” he said. “…there are assumptions that a lot of subsidies in place were helping companies outside of the U.K., and they’ve backed off on that, according to our customers…it doesn’t affect the ones we’re talking to right now. There is enough need for pellets in that market right now that they’re needing these supply contracts. In the long-term, it’s a concern for us, but in short-term, it’s not for projects I mentioned on the call.”
