L.B. Foster Reports Second Quarter Operating Results
August 09 2016 - 7:00AM
L.B. Foster Company (NASDAQ:FSTR), a leading manufacturer,
fabricator, and distributor of products and services for rail,
construction, energy and utility markets, today reported its second
quarter 2016 operating results which include:
- A sales decrease of 20.7% from the prior year quarter to $136.0
million.
- Gross profit margin of 20.5% compared to 21.6% in the prior
year.
- A $128.9 million ($90.9 million net of tax or $8.86 per share)
non-cash impairment charge related to the write-down of goodwill,
definitive lived intangible assets and property, plant and
equipment at four of the Company’s reporting units within our
Tubular and Energy Services (“Tubular”) and Rail Products and
Services (“Rail”) segments.
- Cash flow provided by operating activities of $11.7 million
compared to $5.5 million provided in the prior year quarter, the
majority of which was used to reduce borrowings.
Second Quarter Results
- Second quarter net sales of $136.0 million decreased by $35.4
million, or 20.7%, compared to the prior year quarter due to a
19.6% decrease in Tubular and Energy Services (“Tubular”) segment
sales, a 22.3% decline in Rail Products and Services (“Rail”)
segment sales and an 18.5% decrease in Construction segment sales.
Our rail distribution and piling distribution businesses together
declined by $17.0 million, or 27.5% in the second quarter,
accounting for nearly half of the decline.
- Gross profit margin was 20.5%, 120 basis points lower than the
prior year quarter. The reduction was due to decreased
Tubular and Rail segment margins, partially offset by increased
Construction segment margins.
- Second quarter net loss was $92.0 million or $8.96 per diluted
share compared to net income of $5.4 million, or $0.52 per diluted
share, last year. Excluding the impairment charge1, the net
loss would have been $1.1 million, or $0.11 per diluted share.
- Second quarter Adjusted EBITDA was $7.5 million compared to
$16.7 million in the second quarter of 2015.
- Selling and administrative expense decreased by $1.0 million,
or 4.0%, due principally to cost reduction initiatives and prior
year costs related to acquisition and integration activities.
These reductions were partially offset by increased litigation
expenses of $0.9 million related to the UPRR lawsuit as well as
$0.8 million of increased ERP related costs.
- Interest expense was $1.7 million in the second quarter of 2016
compared to $1.3 million in the prior year quarter, the increase
being attributable to a $0.3 million write-off of deferred
financing costs resulting from the second quarter 2016 amendment to
the credit agreement.
- Second quarter bookings were $140.1 million, a 14.1% decrease
from the prior year quarter, due to a 38.0% decline in Tubular
segment orders and a 18.2% reduction in Rail segment orders,
partially offset by a 12.7% increase in Construction segment
orders.
- The Company’s income tax rate was 28.9% compared to 31.5% in
the prior year quarter. The Company’s effective income tax
rate was significantly impacted by the asset impairment charge,
which related to both tax deductible and nondeductible assets.
- Cash flow from operating activities for the second quarter of
2016 generated $11.7 million compared to $5.5 million of cash
generated in the second quarter of 2015. The current year
quarter was favorably impacted by improved working capital
management.
Impairment ChargeAs a result of
weaker than anticipated performance and downward revisions to
projected results of the Tubular and Rail segments, as well as a
significant reduction in the Company’s market value in the second
quarter, the Company determined that an impairment analysis was
required. The Company’s second quarter impairment analyses
indicated that four different reporting units within these segments
had carrying values in excess of fair value and required the
following impairment charges:
Tubular
segment |
|
(millions) |
Precision
measurement systems (Chemtec) |
|
$ |
26.1 |
|
Test and
inspection services (IOS) |
|
|
57.9 |
|
Coated
Products & Services |
|
|
16.6 |
|
|
|
|
Rail
segment |
|
|
Rail
Technologies |
|
|
28.3 |
|
Total |
|
$ |
128.9 |
|
|
|
|
|
|
CEO CommentsRobert P. Bauer, L.B.
Foster Company’s President and Chief Executive Officer, commented,
“In response to weak energy and rail markets, we have been working
diligently to reduce costs through the first half of this year,
continuously examining ways to maximize cash flow and restore
profitability. Our gross profit margins have held up very
well as several actions we’ve taken improved operational
efficiency. Certain investments we made over the last two
years have improved productivity in several factories that have
enabled gross profit margins to remain strong despite lower
volume. During the first half of 2016, we have taken actions
to reduce our salaried workforce costs that will produce $6 million
of annualized savings. In addition, discretionary spending
cuts will result in $1 million of annual savings. We have
already identified additional actions to reduce expenses further in
2017.
“During the quarter, we also divested our rail car
repair fixtures division, eliminating a business that was not
strategic and was not accretive to results. We are continuing
to evaluate other operating units that are not earning acceptable
returns on capital.”
Mr. Bauer concluded by saying, “60% of our business
activity has been adversely impacted by freight rail and energy
market weakness. When business conditions improve in those
sectors, the cost actions we have taken will leave us better
positioned to capitalize on the recovery. Our businesses
which comprise the other 40% of sales continue to perform well and
are positioned to win more business.”
First Half 2016 Results
- Net sales for the first six months of 2016 decreased by $47.0
million, or 15.2%, due to a 19.9% decline in Rail segment sales, a
13.8% decrease in Construction segment sales and a 4.4% decline in
Tubular segment sales. The Rail sales decline was driven by
reductions across all product categories with the exception of
Transit Products while the Construction decrease was due to piling
and bridge products reductions. The Tubular decline was due
principally to test and inspection services sales declines.
- Net sales in the first half of 2016 for the Rail segment were
adversely affected by the reduction in inventory on the part of
freight rail carriers.
- Gross profit margin was 19.7%, down 220 basis points from the
prior year period. The margin decline was due to declines in
the Rail and Tubular segment margins, while Construction margins
were flat with the prior year.
- Selling and administrative expense decreased by $0.4 million,
due principally to cost reduction initiatives and prior year costs
related to acquisition and integration activities. These
reductions were partially offset by increased costs of acquired
businesses, increased litigation expenses related to the UPRR
lawsuit as well as increased ERP related costs.
- Interest expense was $2.8 million in the first half of 2016
compared to $1.9 million in the comparable prior year period.
The increase was attributable to higher average borrowings for the
six-month period as well as a $0.3 million write-off of deferred
financing costs resulting from the second quarter 2016 amendment to
the credit agreement.
- Net loss was $94.8 million, or $9.25 per diluted share,
compared to net income of $9.7 million, or $0.93 per diluted share,
last year. Excluding the previously discussed impairment
charge, the net loss would have been $3.9 million or $0.38 per
diluted share.
- Adjusted EBITDA for the first half of 2016 was $11.5 million
compared to $28.7 million in the prior year, a decrease of $17.2
million or 60.0%.
- The Company’s income tax rate from continuing operations was
29.0%, compared to 33.4% in the prior year six-month period.
The Company’s effective income tax rate was significantly
impacted by the asset impairment charges, which related to both tax
deductible and nondeductible assets.
- Cash provided by operating activities was $6.6 million for the
first half of 2016, compared to a $1.9 million use of cash in the
prior year period. The favorable variance from the prior year
is due principally to improved working capital management in
2016. Capital expenditures were $5.1 million in the first
half of 2016 compared to $8.2 million in the prior year.
L.B. Foster Company will conduct a conference call
and webcast to discuss its second quarter 2016 operating results on
Tuesday, August 9, 2016 at 8:00 am ET. The call will be
hosted by Mr. Robert Bauer, President and Chief Executive
Officer. Listen via audio and access the slide presentation
on the L.B. Foster web site: www.lbfoster.com, under the Investor
Relations page. The conference call can be accessed by
dialing 877-407-0784 and providing access code 13641064.
About L.B. Foster Company
L.B. Foster is a leading manufacturer, fabricator,
and distributor of products and services for the rail,
construction, energy and utility markets with locations in North
America and Europe. For more information, please visit
www.lbfoster.com.
This release may contain forward-looking statements
that involve risks and uncertainties. Statements that do not relate
strictly to historical or current facts are forward-looking. When
we use the words “believe,” “intend,” “expect,” “may,” “should,”
“anticipate,” “could,” “estimate,” “plan,” “predict,” “project,” or
their negatives, or other similar expressions, the statements which
include those words are usually forward-looking statements. Actual
results could differ materially from the results anticipated in any
forward-looking statement. Accordingly, investors should not
place undue reliance on forward-looking statements as a prediction
of actual results. The Company has based these forward-looking
statements on current expectations and assumptions about future
events. While the Company considers these expectations and
assumptions to be reasonable, they are inherently subject to
significant business, economic, competitive, regulatory and other
risks and uncertainties, most of which are difficult to predict and
many of which are beyond the Company’s control. The risks and
uncertainties that may affect the operations, performance and
results of the Company’s business and forward-looking statements
include, but are not limited to, an economic slowdown or a
continuation of the current economic slowdown in the markets we
serve; the risk of doing business in international markets; our
ability to effectuate our strategy including evaluating potential
opportunities such as strategic acquisitions, joint ventures, and
other initiatives, and our ability to effectively integrate new
businesses and realize anticipated benefits; costs of and impacts
associated with shareholder activism; a decrease in freight or
passenger rail traffic; the timeliness and availability of material
from our major suppliers; labor disputes; the effective
implementation of an enterprise resource planning system; changes
in current accounting estimates and their ultimate outcomes; the
adequacy of internal and external sources of funds to meet
financing needs; the Company’s ability to manage its working
capital requirements and indebtedness; domestic and international
taxes; foreign currency fluctuations; inflation; domestic and
foreign government regulations; economic conditions and regulatory
changes caused by the United Kingdom’s likely exit from the
European Union; continued and sustained declines in energy prices;
a lack of state or federal funding for new infrastructure projects;
increased regulation including conflict minerals; an increase in
manufacturing or material costs; the ultimate number of concrete
ties that will have to be replaced pursuant to the previously
disclosed product warranty claim of the Union Pacific Railroad
(“UPRR”) and an overall resolution of the related contract claims
as well as the possible costs associated with the outcome of the
lawsuit filed by the UPRR; risks inherent in litigation and those
matters set forth in Item 8, Footnote 19, "Commitments and
Contingent Liabilities" and in Item 1A, “Risk Factors” of the
Company’s Form 10-K for the year ended December 31, 2015 as updated
by any subsequent Form 10-Qs. The Company urges all interested
parties to read these reports to gain a better understanding of the
many business and other risks that the Company faces. The
forward-looking statements contained in this press release are made
only as of the date hereof, and the Company assumes no obligation
and does not intend to update or revise these statements, whether
as a result of new information, future events or otherwise, except
as required by securities laws.
1 See non-GAAP reconciliation tables at the
end of this press release for information regarding the non-GAAP
measures (including reconciliation of Net loss to Adjusted EBITDA
and measures excluding the impairment charge) used in this
release.
L.B. FOSTER COMPANY AND
SUBSIDIARIES |
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS |
(In thousands, except
per share data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of
goods |
|
$ |
|
118,070 |
|
|
$ |
|
146,780 |
|
|
$ |
|
225,985 |
|
|
$ |
|
269,576 |
|
Sales of
services |
|
|
|
17,924 |
|
|
|
|
24,639 |
|
|
|
|
36,319 |
|
|
|
|
39,750 |
|
Total net sales |
|
|
|
135,994 |
|
|
|
|
171,419 |
|
|
|
|
262,304 |
|
|
|
|
309,326 |
|
Cost of
goods sold |
|
|
|
92,638 |
|
|
|
|
114,793 |
|
|
|
|
179,031 |
|
|
|
|
210,987 |
|
Cost of
services sold |
|
|
|
15,543 |
|
|
|
|
19,537 |
|
|
|
|
31,500 |
|
|
|
|
30,596 |
|
Total cost of sales |
|
|
|
108,181 |
|
|
|
|
134,330 |
|
|
|
|
210,531 |
|
|
|
|
241,583 |
|
Gross
profit |
|
|
|
27,813 |
|
|
|
|
37,089 |
|
|
|
|
51,773 |
|
|
|
|
67,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expenses |
|
|
|
23,317 |
|
|
|
|
24,278 |
|
|
|
|
46,134 |
|
|
|
|
46,528 |
|
Amortization expense |
|
|
|
2,789 |
|
|
|
|
3,456 |
|
|
|
|
6,055 |
|
|
|
|
5,613 |
|
Asset
impairments |
|
|
|
128,938 |
|
|
|
|
- |
|
|
|
|
128,938 |
|
|
|
|
- |
|
Interest
expense |
|
|
|
1,652 |
|
|
|
|
1,288 |
|
|
|
|
2,822 |
|
|
|
|
1,901 |
|
Interest
income |
|
|
|
(52 |
) |
|
|
|
(37 |
) |
|
|
|
(107 |
) |
|
|
|
(94 |
) |
Equity
in loss of nonconsolidated investments |
|
|
|
487 |
|
|
|
|
186 |
|
|
|
|
683 |
|
|
|
|
13 |
|
Other
expense (income) |
|
|
|
107 |
|
|
|
|
95 |
|
|
|
|
822 |
|
|
|
|
(708 |
) |
|
|
|
|
157,238 |
|
|
|
|
29,266 |
|
|
|
|
185,347 |
|
|
|
|
53,253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before income taxes |
|
|
|
(129,425 |
) |
|
|
|
7,823 |
|
|
|
|
(133,574 |
) |
|
|
|
14,490 |
|
Income
tax (benefit) expense |
|
|
|
(37,429 |
) |
|
|
|
2,461 |
|
|
|
|
(38,746 |
) |
|
|
|
4,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income |
|
$ |
|
(91,996 |
) |
|
$ |
|
5,362 |
|
|
$ |
|
(94,828 |
) |
|
$ |
|
9,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(loss) earnings per common share |
|
$ |
|
(8.96 |
) |
|
$ |
|
0.52 |
|
|
$ |
|
(9.25 |
) |
|
$ |
|
0.94 |
|
Diluted
(loss) earnings per common share |
|
$ |
|
(8.96 |
) |
|
$ |
|
0.52 |
|
|
$ |
|
(9.25 |
) |
|
$ |
|
0.93 |
|
Dividends paid per common share |
|
$ |
|
0.04 |
|
|
$ |
|
0.04 |
|
|
$ |
|
0.08 |
|
|
$ |
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of
common shares outstanding - Basic |
|
|
|
10,263 |
|
|
|
|
10,284 |
|
|
|
|
10,248 |
|
|
|
|
10,272 |
|
Average number of
common shares outstanding - Diluted |
|
|
|
10,263 |
|
|
|
|
10,370 |
|
|
|
|
10,248 |
|
|
|
|
10,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L.B. FOSTER COMPANY AND
SUBSIDIARIES |
CONDENSED CONSOLIDATED
BALANCE SHEETS |
(In thousands) |
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2016 |
|
|
2015 |
|
|
|
(Unaudited) |
|
|
|
ASSETS |
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
32,805 |
|
|
$ |
|
33,312 |
|
Accounts receivable - net |
|
|
|
81,396 |
|
|
|
|
78,487 |
|
Inventories - net |
|
|
|
95,150 |
|
|
|
|
96,396 |
|
Prepaid income tax |
|
|
|
5,197 |
|
|
|
|
1,131 |
|
Other current assets |
|
|
|
6,779 |
|
|
|
|
5,148 |
|
Total current
assets |
|
|
|
221,327 |
|
|
|
|
214,474 |
|
Property, plant and equipment -
net |
|
|
|
108,625 |
|
|
|
|
126,745 |
|
Other
assets: |
|
|
|
|
|
|
Goodwill |
|
|
|
23,972 |
|
|
|
|
81,752 |
|
Other intangibles - net |
|
|
|
70,420 |
|
|
|
|
134,927 |
|
Deferred tax assets |
|
|
|
37,794 |
|
|
|
|
226 |
|
Investments |
|
|
|
4,638 |
|
|
|
|
5,321 |
|
Other assets |
|
|
|
3,240 |
|
|
|
|
3,215 |
|
Total Assets |
|
$ |
|
470,016 |
|
|
$ |
|
566,660 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
Accounts payable |
|
$ |
|
58,280 |
|
|
$ |
|
55,804 |
|
Deferred revenue |
|
|
|
9,154 |
|
|
|
|
6,934 |
|
Accrued payroll and employee
benefits |
|
|
|
7,612 |
|
|
|
|
10,255 |
|
Accrued warranty |
|
|
|
8,749 |
|
|
|
|
8,755 |
|
Current maturities of long-term
debt |
|
|
|
1,335 |
|
|
|
|
1,335 |
|
Other accrued liabilities |
|
|
|
11,380 |
|
|
|
|
8,563 |
|
Total current
liabilities |
|
|
|
96,510 |
|
|
|
|
91,646 |
|
Long-term debt |
|
|
|
167,030 |
|
|
|
|
167,419 |
|
Deferred tax liabilities |
|
|
|
6,968 |
|
|
|
|
8,926 |
|
Other long-term liabilities |
|
|
|
15,447 |
|
|
|
|
15,837 |
|
Stockholders' equity: |
|
|
|
|
|
|
Class A Common Stock |
|
|
|
111 |
|
|
|
|
111 |
|
Paid-in capital |
|
|
|
44,003 |
|
|
|
|
46,681 |
|
Retained earnings |
|
|
|
180,914 |
|
|
|
|
276,571 |
|
Treasury stock |
|
|
|
(19,747 |
) |
|
|
|
(22,591 |
) |
Accumulated other comprehensive
loss |
|
|
|
(21,220 |
) |
|
|
|
(17,940 |
) |
Total stockholders'
equity |
|
|
|
184,061 |
|
|
|
|
282,832 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
|
$ |
|
470,016 |
|
|
$ |
|
566,660 |
|
|
|
|
|
|
|
|
This earnings
release discloses earnings before interest, taxes, depreciation,
and amortization ("EBITDA") adjusted for asset impairments
("Adjusted EBITDA") and adjusted diluted earnings per share, which
are non-GAAP financial measures. The Company believes that
EBITDA is useful to investors in order to provide a more complete
understanding of the ongoing operations of the Company's business.
Similarly, adjusted EBITDA and adjusted diluted earnings per share
displays the performance of the Company without the impact of asset
impairments in order to enhance investors' understanding of our day
to day operations. In addition, management believes that these
non-GAAP financial measures are useful to investors in the
assessment of the use of our assets without regard to financing
methods, capital structure, or historical cost basis and the
significant asset impairment. Additionally, EBITDA is a financial
measurement that management and the board of directors use in the
determination of certain compensation programs. Non-GAAP financial
measures are not a substitute for GAAP financial results and should
only be considered in conjunction with the Company's financial
information that is presented in accordance with GAAP.
Quantitative reconciliations of the GAAP measures are presented
below: |
|
Three Months
Ended |
|
Six Months
Ended |
|
June
30, |
|
June
30, |
Adjusted EBITDA
Reconciliation |
2016 |
|
2015 |
|
2016 |
|
2015 |
Net (loss) income |
$ |
(91,996 |
) |
|
$ |
5,362 |
|
|
$ |
(94,828 |
) |
|
$ |
9,649 |
|
Interest expense,
net |
|
1,600 |
|
|
|
1,251 |
|
|
|
2,715 |
|
|
|
1,807 |
|
Income tax (benefit)
expense |
|
(37,429 |
) |
|
|
2,461 |
|
|
|
(38,746 |
) |
|
|
4,841 |
|
Depreciation |
|
3,598 |
|
|
|
4,156 |
|
|
|
7,325 |
|
|
|
6,775 |
|
Amortization |
|
2,789 |
|
|
|
3,456 |
|
|
|
6,055 |
|
|
|
5,613 |
|
Total EBITDA |
|
(121,438 |
) |
|
|
16,686 |
|
|
|
(117,479 |
) |
|
|
28,685 |
|
|
|
|
|
|
|
|
|
Asset impairments |
|
128,938 |
|
|
|
- |
|
|
|
128,938 |
|
|
|
- |
|
Adjusted EBITDA |
$ |
7,500 |
|
|
$ |
16,686 |
|
|
$ |
11,459 |
|
|
$ |
28,685 |
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Six Months
Ended |
|
June
30, |
|
June
30, |
Adjusted
Diluted (Loss) Earnings Per Share Reconciliation |
2016 |
|
2015 |
|
2016 |
|
2015 |
Net (loss) income, as
reported |
$ |
(91,996 |
) |
|
$ |
5,362 |
|
|
$ |
(94,828 |
) |
|
$ |
9,649 |
|
Asset impairments, net
of tax benefits of $38,038 |
|
90,900 |
|
|
|
- |
|
|
|
90,900 |
|
|
|
- |
|
Adjusted net (loss)
income |
$ |
(1,096 |
) |
|
$ |
5,362 |
|
|
$ |
(3,928 |
) |
|
$ |
9,649 |
|
|
|
|
|
|
|
|
|
Average number of
common shares outstanding - Diluted |
|
10,263 |
|
|
|
10,370 |
|
|
|
10,248 |
|
|
|
10,385 |
|
Diluted
(loss) earnings per common share, as reported |
$ |
(8.96 |
) |
|
$ |
0.52 |
|
|
$ |
(9.25 |
) |
|
$ |
0.93 |
|
Diluted
(loss) earnings per common share, as adjusted |
$ |
(0.11 |
) |
|
$ |
0.52 |
|
|
$ |
(0.38 |
) |
|
$ |
0.93 |
|
|
|
|
|
|
|
|
|
Investor Relations:
David Russo
(412) 928-3417
investors@lbfoster.com
L.B. Foster Company
415 Holiday Drive
Pittsburgh, PA 15220
L B Foster (NASDAQ:FSTR)
Historical Stock Chart
From Jun 2024 to Jul 2024
L B Foster (NASDAQ:FSTR)
Historical Stock Chart
From Jul 2023 to Jul 2024