Astec Industries (ASTE) is a leading manufacturer and marketer of road building equipment. The company sells equipment used in each phase of road building, from quarrying and crushing the aggregate to applying the asphalt.

Uncertainty surrounding the Highway Bill renewal is currently a major concern for the company. A large number of Astec’s customers depend substantially on government funding of highway construction and maintenance and other infrastructure projects. With no progress on the reauthorization of Highway Bill, Astec’s customers are staying away from investing in capital equipment. Astec does not see any drivers in the domestic market until Congress renews the Highway Bill, which is not expected until late 2010.

The economic downturn had an adverse impact on the demand for Astec’s products. The slowdown in economic growth led to a decline in commodity prices, which in turn has hurt mining activity. In the Underground group, the company is witnessing a significant decline in demand as the group’s major end markets, energy and residential business, continue to remain weak. Astec’s customers are finding it difficult to invest in new equipment due to the lack of credit availability.

Given the weakness in most of Astec’s end-markets and uncertainty surrounding the reauthorization of the Highway Bill, we do not expect to see major improvement in Astec’s numbers until 2011. Though the company is witnessing an improvement in international sales and is benefiting from a weak dollar, this would not be enough to offset the weakness in domestic market.

We are downgrading the rating on the stock from Neutral to Underperform.

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