L.B. Foster Company Continues to Deliver on its Strategy Reporting Strong Growth in Profitability and Cash Generation in Third Quarter Results
Third quarter gross margin was 23.8%, the highest quarterly level achieved in over ten years, on lower net sales of $137.5 million, demonstrating improved portfolio profitability and strategic execution.
Third quarter net income of $35.9 million was up $35.5 million over the prior year, due primarily to a favorable $30.0 million tax valuation allowance adjustment; third quarter adjusted EBITDA1 of $12.3 million was up 16.4% over the prior year.
Third quarter cash provided by operations was $24.7 million; net debt1 of $65.4 million down $17.7 million during the quarter and down $3.3 million from the prior year quarter end; Gross Leverage Ratio1 of 1.9x decreased 0.8x during the quarter and 0.1x from last year's quarter end.
Third quarter common stock repurchases totaled 126,688 shares, representing approximately 1.2% of outstanding shares, with $8.4 million remaining under the Board-authorized repurchase program through February 2025.
2024 full year financial guidance updated to reflect improved free cash flow outlook, with the adjusted EBITDA mid-point unchanged on slightly lower sales highlighting continuing portfolio efficiency.
PITTSBURGH, Nov. 07, 2024 (GLOBE NEWSWIRE) -- L.B. Foster Company (NASDAQ:FSTR), a global technology solutions provider of products and services for the rail and infrastructure markets (the "Company"), today reported its 2024 third quarter operating results2.
CEO Comments
John Kasel, President and Chief Executive Officer, commented "As expected, we started the second half of the year with a strong quarter of profitability expansion and cash generation. These results are a clear indication that our strategy to transform the profitability profile of our business portfolio remains on track. While sales were down 5.4% year over year, gross margins improved to 23.8%, the highest level we've seen in over 10 years. Net income in the quarter was $35.9 million and reflected a $30.0 million benefit as we released our tax valuation allowance in line with the improving profitability trends and outlook, and adjusted EBITDA grew 16.4% to $12.3 million. We also had an exceptional cash generation quarter, with cash provided by operations totaling $24.7 million, up from $18.6 million last year. The operating cash was deployed to fund $3.1 million in capital programs supporting our growth initiatives and $2.6 million to repurchase 126,688 common shares in the quarter. This level of repurchases represents a 262% increase versus the average of the two previous quarters in 2024. Remaining funds were used to reduce our net debt by $17.7 million to $65.4 million at quarter end and down $3.3 million from $68.7 million last year. The lower borrowings and improved profitability translated into gross leverage per our credit facility of 1.9x at quarter end, which was improved compared to both 2.7x at the start of the quarter and 2.0x last year."
Mr. Kasel continued, "Turning to our segment results, the sales decline in the quarter was realized primarily in the Rail segment, with continuing commercial softness in the domestic rail market adversely impacting both sales and margins in our Rail Products business. However, in line with our strategy, we delivered solid growth and margin expansion in our Rail Technologies growth platforms, including sales growth of 21.2% for Global Friction Management and 49.1% for Total Track Monitoring. Our UK services and solutions business also continued to recover from a challenging commercial environment in 2023, contributing to improved Rail segment sales and margin growth year over year. Infrastructure organic sales were also down slightly versus last year after considering the impact of the bridge grid deck product line exit announced in the 2023 third quarter. Despite the organic sales decline, Infrastructure margins improved versus last year's adjusted margins as strong growth and margin expansion in our Precast Concrete business offset the margin impact of lower sales in Steel Products, the latter being primarily driven by weaker demand for Protective Coatings. Overall, we're pleased with the improved results driven by our strategy to invest in our growth platforms of Rail Technologies and Precast Concrete which is delivering improved profitability and returns."
Mr. Kasel concluded, "While we saw a modest uptick in our trailing-twelve-month book-to-bill ratio in the quarter, market conditions remain choppy across the portfolio. Demand in our Precast Concrete and Rail Technologies growth platforms is robust, highlighted by a 41.3% increase in third quarter Global Friction Management orders versus last year. The recovery of market conditions for our UK business remains on track, and we're starting to see increased quoting and project activity in the domestic rail market which should translate to improved demand for Rail Products moving into 2025. However, demand within Steel Products remains constrained in the short term, specifically for bridge and pipeline coating work. Accordingly, we've reduced our sales guidance slightly for 2024 while maintaining the mid-point of our adjusted EBITDA outlook reflecting the improved portfolio efficiency. The mid-point of our guidance implies slightly lower sales in the fourth quarter versus last year, with adjusted EBITDA growth of approximately 50% year over year. We also increased our free cash flow outlook for the year, and now expect to generate approximately $30 million to $35 million in the second half of the year on an improved working capital outlook and slightly lower capital spending. The improved cash generation comes even as we fund restructuring, pension settlement and growth capital spending initiatives as well as the final $4.0 million of our annual $8.0 million Union Pacific settlement payment. We look forward to a strong finish to the year, as we continue to build momentum focusing on profitable growth and returns moving into 2025."
1 See "Non-GAAP Financial Measures" and "Non-GAAP Disclosures" at the end of this press release for a description of and information regarding adjusted sales, adjusted organic sales, adjusted gross profit, adjusted EBITDA, Gross Leverage Ratio per the Company's credit agreement, net debt, new orders, backlog, book-to-bill ratio, free cash flow, and related reconciliations to their most comparable GAAP financial measure.
2 As reported in the Company's form 8-K filed on October 8, 2024, the Company corrected certain errors in previously reported 2024 quarterly financials, and certain immaterial errors in 2023 previously reported financials. All comparisons are based on the corrected historical results.
2024 Financial Guidance Update:
The Company's financial guidance follows:
Updated
Previous
$ in thousands, unless otherwise noted:
Low
High
Low
High
Net sales
$
530,000
$
540,000
$
525,000
$
550,000
Adjusted EBITDA
$
34,500
$
36,500
$
34,000
$
37,000
Capital spending as a percent of sales
2.0
%
2.5
%
2.5
%
2.5
%
Free cash flow1
$
—
$
5,000
Breakeven
Third Quarter Consolidated Highlights
The Company's third quarter performance highlights are reflected below:
Three Months EndedSeptember 30,
Change
PercentChange
2024
2023
2024 vs. 2023
2024 vs. 2023
$ in thousands, unless otherwise noted:
(Unaudited)
Net sales
$
137,466
$
145,345
$
(7,879
)
(5.4
)
%
Gross profit
32,758
27,417
5,341
19.5
Gross profit margin
23.8
%
18.9
%
490 bps
26.0
Selling and administrative expenses
$
24,289
$
24,421
$
(132
)
(0.5
)
Selling and administrative expenses as a percent of sales
17.7
%
16.8
%
90 bps
5.4
Amortization expense
1,146
1,379
(233
)
(16.9
)
Operating income
$
7,323
$
1,617
$
5,706
**
Net income attributable to L.B. Foster Company
35,905
515
35,390
**
Adjusted EBITDA
12,327
10,593
1,734
16.4
New orders
95,973
100,263
(4,290
)
(4.3
)
Backlog
209,005
243,219
(34,214
)
(14.1
)
**Results of this calculation not considered meaningful.
Net sales for the 2024 third quarter were $137.5 million, down $7.9 million, or 5.4%, from the third quarter of 2023. Net sales for the third quarter of 2023 included an adverse impact from the exit of the bridge grid deck product line related to long-term contract changes within the Steel Products business unit. This impact reduced sales by $2.0 million and gross profit by $3.1 million during the prior year quarter. Adjusting for the bridge grid deck exit impact last year, net sales were down 6.7%, with the primary driver related to organic sales declines in the Rail Segment.
Gross profit for the 2024 third quarter was $32.8 million, up $5.3 million, or 19.5%, year over year. Gross profit margins increased 490 basis points year over year to 23.8% for the highest quarterly gross margin achieved in over ten years. Gross profit in the 2023 third quarter included the adverse impact from the exit of the bridge grid deck product line resulting in a reduction to gross profit of $3.9 million, which includes the reduction in sales and associated impact on gross profit, as well as related exit costs totaling $0.8 million. Gross profit margins were up 260 basis points over 2023 adjusted margins1. Gross profit improvement was achieved in both segments.
Selling and administrative expenses for the 2024 third quarter were $24.3 million, a $0.1 million decrease, or 0.5%, from the prior year quarter. Selling and administrative expenses in the 2024 third quarter included $0.4 million in corporate costs associated with a resolved legal matter and $0.8 million in employee-related restructuring costs, offset by $0.8 million in lower employment costs and $0.7 million in lower bad debt expense. Selling and administrative expenses as a percentage of net sales increased to 17.7% in the current quarter, up from 16.8% last year.
Operating income for the 2024 third quarter was $7.3 million, up $5.7 million over the prior year quarter, due to the improvement in gross profit.
Net income attributable to the Company for the 2024 third quarter was $35.9 million, or $3.27 per diluted share, up $35.4 million over the prior year quarter due primarily to a $30.0 million favorable tax valuation allowance adjustment in the third quarter of 2024, as well as improved gross profit as described above.
The Company incurred $0.9 million in employee-related charges during the quarter associated with the previously-announced enterprise restructuring program. Expected savings from the program remain unchanged at approximately $2.0 million in 2024, with annual run rate savings of approximately $4.5 million exiting 2024.
Adjusted EBITDA for the 2024 third quarter was $12.3 million, a $1.7 million increase, or 16.4%, over the prior year quarter. The increase in adjusted EBITDA is due to the improvement in gross profit and lower selling and administrative expenses.
New orders totaling $96.0 million for the 2024 third quarter decreased $4.3 million, or 4.3%, from the prior year quarter. The decrease is within the Infrastructure Solutions segment primarily related to weaker demand in the Protective Coatings business. The trailing twelve month book-to-bill ratio1 was 0.94 : 1.00, up from 0.93 : 1.00 at the end of the 2024 second quarter.
Backlog totaling $209.0 million decreased by $34.2 million, or 14.1%, compared to the prior year quarter due primarily to softness primarily in the Protective Coatings business, as well as $4.5 million due to product line exit activity.
Cash provided by operating activities totaled $24.7 million in the third quarter, an improvement of $6.1 million over the prior year quarter.
Net debt of $65.4 million as of September 30, 2024 was down $3.3 million from the prior year quarter. The Gross Leverage Ratio of 1.9x as of September 30, 2024 represents a decrease of 0.8x during the quarter and 0.1x from last year's comparable quarter end.
Third Quarter Business Results by Segment
Rail, Technologies, and Services Segment
Three Months EndedSeptember 30,
Change
PercentChange
$ in thousands, unless otherwise noted:
2024
2023
2024 vs. 2023
2024 vs. 2023
Net sales
$
79,498
$
86,866
$
(7,368
)
(8.5
)
%
Gross profit
$
18,471
$
17,229
$
1,242
7.2
Gross profit margin
23.2
%
19.8
%
340 bps
17.1
Segment operating income
$
4,933
$
3,866
$
1,067
27.6
Segment operating income margin
6.2
%
4.5
%
170 bps
39.4
New orders
$
52,675
$
49,818
$
2,857
5.7
Backlog
$
88,663
$
93,632
$
(4,969
)
(5.3
)
Net sales for the 2024 third quarter were $79.5 million, a $7.4 million decrease, or 8.5%, driven by a decline in Rail Products, partially offset by improvement in Global Friction Management and Technology Services and Solutions.
Gross profit for the 2024 third quarter was $18.5 million, a $1.2 million increase, and gross profit margins increased 340 basis points to 23.2%. The gross profit improvement was driven primarily by improved margins in Global Friction Management and Technology Services and Solutions, including recovery in our UK business, partially offset by gross profit decline in the Rail Products business due to lower overall sales.
Segment operating income for the 2024 third quarter was $4.9 million, a $1.1 million increase over the prior year quarter, due to the improvement in gross profit.
Orders increased by $2.9 million over the prior year quarter. Strength in Rail Products and Global Friction Management more than offset order declines in Technology Services and Solutions, primarily in our UK business, as we scale back initiatives in the UK market in line with our strategy. Backlog of $88.7 million decreased $5.0 million from the prior year quarter driven entirely by the Technology Services and Solutions business unit.
Infrastructure Solutions Segment
Three Months EndedSeptember 30,
Change
PercentChange
$ in thousands, unless otherwise noted:
2024
2023
2024 vs. 2023
2024 vs. 2023
Net sales
$
57,968
$
58,479
$
(511
)
(0.9
)
%
Gross profit
$
14,287
$
10,188
$
4,099
40.2
Gross profit margin
24.6
%
17.4
%
720 bps
41.5
Segment operating income
$
5,110
$
799
$
4,311
**
Segment operating income margin
8.8
%
1.4
%
740 bps
**
New orders
$
43,298
$
50,445
$
(7,147
)
(14.2
)
Backlog
$
120,342
$
149,587
$
(29,245
)
(19.6
)
**Results of this calculation not considered meaningful.
Net sales for the 2024 third quarter were $58.0 million, down $0.5 million, or 0.9%, from the 2023 third quarter. Net sales for the 2023 third quarter included an adverse impact from the exit of the bridge grid deck product line related to long-term contract changes within the Steel Products business. This impact reduced sales by $2.0 million and gross profit by $3.1 million during the third quarter last year. Adjusting for this impact, sales were down 4.1%1 primarily due to an adjusted organic sales decline of 1.9%1. The adjusted organic sales decline was attributed to the Steel Products business unit, primarily within the coatings and bridge product lines. Precast Concrete Product sales grew 10.5% year over year.
Gross profit for the 2024 third quarter was $14.3 million, a $4.1 million increase, and gross profit margins increased 720 basis points to 24.6%. Gross profit in the 2023 third quarter included the adverse impact from the exit of the bridge grid deck product line resulting in a reduction to gross profit of $3.9 million which includes the reduction in sales and associated impact on gross profit, as well as related exit costs of $0.8 million. Gross profit increased 1.7% and gross profit margins increased 140 basis points compared to 2023 adjusted segment results1. The improvement was driven by Precast Concrete Products, with gross margins of 27.2% in the quarter, up 360 basis points versus last year.
Segment operating income for the 2024 third quarter was $5.1 million, up $4.3 million over the prior year quarter due primarily to the bridge grid deck exit impacts in last year's third quarter as well as higher gross profit levels in Precast Concrete Products.
Third quarter new orders were $43.3 million, down $7.1 million from the prior year quarter. The decrease was driven by a decline in activity in the Protective Coatings business. Backlog of $120.3 million reflects a $29.2 million decrease from the prior year quarter driven by softness primarily in the Protective Coatings business, as well as a $4.5 million decline due to product line exit activity.
First Nine Months Consolidated Highlights
The Company's first nine months performance highlights are presented below.
Nine Months EndedSeptember 30,
Change
PercentChange
2024
2023
2024 vs. 2023
2024 vs. 2023
$ in thousands, unless otherwise noted:
(Unaudited)
Net sales
$
402,582
$
408,867
$
(6,285
)
(1.5
)
%
Gross profit
89,447
83,335
6,112
7.3
Gross profit margin
22.2
%
20.4
%
180 bps
8.8
Selling and administrative expenses
$
71,977
$
70,360
$
1,617
2.3
Selling and administrative expenses as a percent of sales
17.9
%
17.2
%
70 bps
4.1
(Gain) on sale of former joint venture facility
(3,477
)
—
(3,477
)
**
Amortization expense
3,486
4,119
(633
)
(15.4
)
Operating income
$
17,461
$
8,856
$
8,605
97.2
Net income attributable to L.B. Foster Company
43,188
1,894
