L.B. Foster Company (NASDAQ: FSTR), a leading manufacturer and
distributor of products and services for transportation and energy
infrastructure, today reported its second quarter 2019 operating
results, which included the following performance highlights:
- Net income of $9.6 million, or $0.90 per diluted share, an
increase of $0.38 per diluted share over the prior year
quarter.
- Net sales of $200.9 million, an increase of 16.2% over the
prior year quarter.
- Gross profit of $37.1 million, an increase of 12.3% from the
prior year quarter.
- New orders and backlog decreased by 12.4% and 9.5%,
respectively, from the prior year quarter.
- Net cash provided by operating activities for the quarter
totaled $4.1 million.
- Net debt1 decreased by $2.0 million from March 31,
2019 to $79.1 million.
Second Quarter Results
- Second quarter net sales of $200.9 million increased by $28.0
million, or 16.2%, compared to the prior year quarter, which
includes increases in each of our three business segments.
Construction Products (Construction) sales increased 31.3%, Tubular
and Energy Services (Tubular) sales increased 13.7%, and Rail
Products and Services (Rail) sales increased 10.4% over the prior
year quarter.
- Second quarter gross profit of $37.1 million increased by $4.1
million, or 12.3%, over the prior year quarter. The increase was
supported by growth in each of our three segments. Gross profit
margin of 18.5% was 60 basis points lower when compared to the
prior year quarter. The gross profit margin was unfavorably
impacted by 250 and 150 basis point reductions within our
Construction and Tubular segments, respectively. These declines
were partially offset by a 90 basis point improvement in Rail gross
profit margin.
- Second quarter new orders were $164.1 million, a 12.4% decrease
from the prior year quarter, primarily attributable to the Rail
segment. This was partially offset by increased order activity
within the Tubular and Construction segments when compared to the
prior year quarter.
- Net income for the second quarter 2019 was $9.6 million, or
$0.90 per diluted share, compared to $5.4 million, or $0.52 per
diluted share, in the prior year quarter.
- Second quarter EBITDA1 (earnings before interest, taxes,
depreciation, and amortization) was $17.3 million, an increase of
38.3% compared to the prior year quarter.
- Selling and administrative expenses in the second quarter
decreased by $0.5 million, or 2.2%, over the prior year period,
driven by a decrease in legal expenses related to the Union Pacific
Railroad concrete tie litigation which was settled in the first
quarter of 2019. Selling and administrative expenses as a percent
of net sales decreased by 210 basis points from the prior year
quarter to 11.4%.
- The Company’s income tax expense for the second quarter was
$1.7 million, compared to $0.7 million in the prior year quarter.
Our current quarter effective tax rate of 15.0% was lower than the
federal statutory tax rate primarily due to the realization of
certain tax benefits for U.S. deferred tax assets that were
previously offset by a valuation allowance.
- Net cash provided by operating activities for the quarter
totaled $4.1 million compared to $5.3 million in the prior year
quarter. The $1.2 million reduction in net operating cash flow is
primarily a result of the $2.0 million concrete tie litigation
settlement payment made in the current year quarter.
1 See "Non-GAAP Disclosures" at the end of this press
release for information regarding the following non-GAAP measures
used in this release: EBITDA, net debt, adjusted net income, and
adjusted earnings per share.
CEO CommentsBob Bauer, President and Chief
Executive Officer, commented, “The Company continued its momentum
through the second quarter as we saw a 16.2% increase in sales and
a 12.3% increase in gross profit over the prior year quarter. These
increases were supported by growth in each of our three segments
resulting from the strong backlog that we had entering the quarter.
Our backlog declined in the quarter as anticipated, but remains
high at $209.3 million.”
Mr. Bauer added, “Operating performance continued to improve,
resulting in net income for the quarter that was significantly
above the prior year. A 38.3% increase in second quarter EBITDA
resulted in a 140 basis point improvement as a percentage of sales
which continued to demonstrate our progress from our focus on gross
profit and expense control. For the six month period, net income
climbed $0.91 to $1.25 per diluted share, exceeding full year 2018
adjusted earnings1. Cash flow is expected to be weighted toward the
second half of this year due to working capital needs that fueled
growth in the first half."
First Six Month Results
- Net sales for the first six months ended June 30, 2019 of
$351.4 million increased by $56.1 million, or 19.0%, compared to
the prior year period. This growth was provided by each of our
three segments, with increases of 30.4% in Construction, 16.2% in
Tubular, and 15.0% in Rail.
- Gross profit increased over the prior year period by $11.0
million, or 20.0%, to $66.3 million for the six months ended June
30, 2019. The growth was attributable to increases of 23.9%, 21.6%,
and 17.1% in our Tubular, Construction, and Rail segments,
respectively. Gross profit margin increased by 20 basis points
compared to the prior year period, which was attributable to the
Tubular and Rail segments.
- New orders were $344.4 million for the six months ended June
30, 2019, a decline of 5.2%. New orders were $669.2 million for the
trailing twelve months ended June 30, 2019, an increase of
7.2% from the prior twelve months ended June 30, 2018.
- Backlog was $209.3 million at June 30, 2019, a 9.5%
decrease from the prior year. The decrease was attributable to the
Rail segment which declined by $32.8 million, or 25.9%. The
decrease was partially offset by increases in Construction segment
backlog of $6.8 million, or 8.3%, and Tubular segment backlog of
$4.1 million, or 18.5%.
- Net income for the six months ended June 30, 2019 was $13.3
million, or $1.25 per diluted share, compared to $3.6 million, or
$0.34 per diluted share for the six months ended June 30,
2018.
- EBITDA1 for the six months ended June 30, 2019 was $27.5
million compared to $17.8 million in 2018, an increase of
54.4%.
- Selling and administrative expense increased $0.9 million, or
2.2%, for the six months ended June 30, 2019 when compared to the
prior year period. The increase was primarily attributable to
personnel-related expenses as well as bad debts and was partially
offset by a reduction in legal expenses related to the concrete tie
litigation compared to the prior year. As a percentage of sales,
selling and administrative expenses declined 210 basis points
compared to the prior year period to 12.7%.
- The Company’s income tax expense for the six months ended June
30, 2019 was $2.3 million, compared to $1.3 million in the prior
year period. Our year-to-date effective tax rate of 14.9% was lower
than the federal statutory tax rate, primarily due to the
realization of certain tax benefits for U.S. deferred tax assets
that were previously offset by a valuation allowance.
- Net cash used in operating activities was $9.4 million for the
six months ended June 30, 2019 compared to $7.9 million provided by
operating activities in the 2018 period. The use in operating cash
was primarily attributable to trade working capital supporting
increased sales levels during the current year.
- Total debt as of June 30, 2019 increased by $16.1 million
to $91.1 million from $75.0 million as of December 31, 2018. The
increase in debt is primarily a result of funding our working
capital needs to support our backlog, which will be delivered in
future quarters.
L.B. Foster Company will conduct a conference call and webcast
to discuss its second quarter 2019 operating results and full year
outlook on Tuesday, July 30, 2019 at 5:00 pm 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 also be accessed by dialing
877-407-0784 (U.S. & Canada) or 201-689-8560 (International)
and providing access code 13692547.
About L.B. Foster CompanyL.B. Foster is a
leading manufacturer and distributor of products and services for
transportation and energy infrastructure with locations in North
America and Europe. For more information, please visit
www.lbfoster.com.
This release may contain “forward-looking” statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended.
Forward-looking statements provide management's current
expectations of future events based on certain assumptions and
include any statement that does not directly relate to any
historical or current fact. Sentences containing words such as
“believe,” “intend,” “plan,” “may,” “expect,” “should,” “could,”
“anticipate,” “estimate,” “predict,” “project,” or their negatives,
or other similar expressions of a future or forward-looking nature
generally should be considered forward-looking statements.
Forward-looking statements in this earnings release are based on
current expectations and assumptions about future events that
involve inherent risks and uncertainties and may concern, among
other things, L.B. Foster Company’s (the “Company’s”) expectations
relating to our strategy, goals, projections, and plans regarding
our financial position, liquidity, capital resources, and results
of operations; the outcome of litigation and product warranty
claims; decisions regarding our strategic growth initiatives,
market position, and product development. 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 Company cautions readers that various
factors could cause the actual results of the Company to differ
materially from those indicated by forward-looking statements.
Accordingly, investors should not place undue reliance on
forward-looking statements as a prediction of actual results. Among
the factors that could cause the actual results to differ
materially from those indicated in the forward-looking statements
are risks and uncertainties related to: environmental matters,
including any costs associated with any remediation and monitoring;
a resumption of the economic slowdown we experienced in previous
years in the markets we serve; the risk of doing business in
international markets; our ability to effectuate our strategy,
including cost reduction initiatives, and our ability to
effectively integrate acquired 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 materials from our major suppliers
as well as the impact on our access to supplies of customer
preferences as to the origin of such supplies, such as customers'
concerns about conflict minerals; labor disputes; the continuing
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, including our ability to negotiate any
additional necessary amendments to our credit agreement or the
terms of any new credit agreement, and reforms regarding the use of
LIBOR as a benchmark for establishing applicable interest rates;
the Company’s ability to manage its working capital requirements
and indebtedness; domestic and international taxes, including
estimates that may impact these amounts; foreign currency
fluctuations; inflation; domestic and foreign government
regulations, including tariffs; economic conditions and regulatory
changes caused by the United Kingdom’s pending exit from the
European Union, including the possibility of a “no-deal Brexit;”
sustained declines in energy prices; a lack of state or federal
funding for new infrastructure projects; an increase in
manufacturing or material costs; the loss of future revenues from
current customers; and risks inherent in litigation. Should one or
more of these risks or uncertainties materialize, or should the
assumptions underlying the forward-looking statements prove
incorrect, actual outcomes could vary materially from those
indicated. Significant 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, those
set forth under Item 1A, “Risk Factors,” and elsewhere in our
Annual Report on Form 10-K for the year ended
December 31, 2018, or as updated and amended by Item 1A “Risk
Factors,” in Part II of our Quarterly Reports on Form 10-Q filed
with the Securities and Exchange Commission.
Investor Relations:Judith Balog(412)
928-3417investors@lbfoster.com
L.B. Foster Company415 Holiday DriveSuite 100Pittsburgh, PA
15220
L.B. FOSTER COMPANY AND SUBSIDIARIESCONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per
share data)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2019 |
|
|
2018 |
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Unaudited) |
Sales of goods |
|
$ |
160,227 |
|
|
$ |
127,093 |
|
$ |
273,310 |
|
|
$ |
218,904 |
|
Sales of services |
|
40,706 |
|
|
45,797 |
|
78,092 |
|
|
76,440 |
|
Total net sales |
|
200,933 |
|
|
172,890 |
|
351,402 |
|
|
295,344 |
|
Cost of goods sold |
|
132,438 |
|
|
105,297 |
|
224,769 |
|
|
180,433 |
|
Cost of services sold |
|
31,367 |
|
|
34,530 |
|
60,343 |
|
|
59,656 |
|
Total cost of sales |
|
163,805 |
|
|
139,827 |
|
285,112 |
|
|
240,089 |
|
Gross profit |
|
37,128 |
|
|
33,063 |
|
66,290 |
|
|
55,255 |
|
Selling and administrative
expenses |
|
22,855 |
|
|
23,368 |
|
44,772 |
|
|
43,826 |
|
Amortization expense |
|
1,679 |
|
|
1,775 |
|
3,391 |
|
|
3,560 |
|
Interest expense - net |
|
1,597 |
|
|
1,630 |
|
2,952 |
|
|
3,517 |
|
Other (income) expense - net |
|
(252 |
) |
|
128 |
|
(402 |
) |
|
(477 |
) |
Total expenses |
|
25,879 |
|
|
26,901 |
|
50,713 |
|
|
50,426 |
|
Income before income taxes |
|
11,249 |
|
|
6,162 |
|
15,577 |
|
|
4,829 |
|
Income tax expense |
|
1,685 |
|
|
728 |
|
2,323 |
|
|
1,253 |
|
Net income |
|
$ |
9,564 |
|
|
$ |
5,434 |
|
$ |
13,254 |
|
|
$ |
3,576 |
|
Basic earnings per common
share |
|
$ |
0.92 |
|
|
$ |
0.52 |
|
$ |
1.27 |
|
|
$ |
0.35 |
|
Diluted earnings per common
share |
|
$ |
0.90 |
|
|
$ |
0.52 |
|
$ |
1.25 |
|
|
$ |
0.34 |
|
Average number of common
shares outstanding - Basic |
|
10,420 |
|
|
10,365 |
|
10,399 |
|
|
10,358 |
|
Average number of common
shares outstanding - Diluted |
|
10,642 |
|
|
10,484 |
|
10,598 |
|
|
10,477 |
|
L.B. FOSTER COMPANY AND SUBSIDIARIESCONDENSED
CONSOLIDATED BALANCE SHEETS(In thousands)
|
|
June 30, 2019 |
|
December 31, 2018 |
|
|
(Unaudited) |
|
|
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
12,001 |
|
|
$ |
10,282 |
|
Accounts receivable - net |
|
98,684 |
|
|
86,123 |
|
Inventories - net |
|
134,448 |
|
|
124,504 |
|
Other current assets |
|
6,990 |
|
|
5,763 |
|
Total current assets |
|
252,123 |
|
|
226,672 |
|
Property, plant, and equipment - net |
|
84,441 |
|
|
86,857 |
|
Operating lease right-of-use assets - net |
|
13,235 |
|
|
— |
|
Other assets: |
|
|
|
|
Goodwill |
|
19,219 |
|
|
19,258 |
|
Other intangibles - net |
|
46,437 |
|
|
49,836 |
|
Other assets |
|
1,355 |
|
|
626 |
|
TOTAL ASSETS |
|
$ |
416,810 |
|
|
$ |
383,249 |
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
78,538 |
|
|
$ |
78,269 |
|
Deferred revenue |
|
8,543 |
|
|
6,619 |
|
Accrued payroll and employee benefits |
|
10,538 |
|
|
12,993 |
|
Accrued warranty |
|
1,678 |
|
|
2,057 |
|
Current portion of accrued settlement |
|
8,000 |
|
|
10,000 |
|
Current maturities of long-term debt |
|
3,142 |
|
|
629 |
|
Other accrued liabilities |
|
13,126 |
|
|
13,624 |
|
Total current liabilities |
|
123,565 |
|
|
124,191 |
|
Long-term debt |
|
87,973 |
|
|
74,353 |
|
Deferred tax liabilities |
|
4,884 |
|
|
5,287 |
|
Long-term portion of accrued settlement |
|
38,000 |
|
|
40,000 |
|
Long-term operating lease liabilities |
|
9,901 |
|
|
— |
|
Other long-term liabilities |
|
16,266 |
|
|
17,299 |
|
Stockholders' equity: |
|
|
|
|
Common stock |
|
111 |
|
|
111 |
|
Paid-in capital |
|
48,159 |
|
|
48,040 |
|
Retained earnings |
|
128,211 |
|
|
114,324 |
|
Treasury stock |
|
(16,841 |
) |
|
(18,165 |
) |
Accumulated other comprehensive loss |
|
(23,419 |
) |
|
(22,191 |
) |
Total stockholders' equity |
|
136,221 |
|
|
122,119 |
|
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
$ |
416,810 |
|
|
$ |
383,249 |
|
Non-GAAP Disclosures
This earnings release discloses earnings before interest, taxes,
depreciation, and amortization (“EBITDA”) and net debt, which are
non-GAAP financial measures. The Company believes that EBITDA
is useful to investors as a supplemental way to evaluate the
ongoing operations of the Company’s business since EBITDA enhances
investors’ ability to compare historical periods as it adjusts for
the impact of financing methods, tax law and strategy changes, and
depreciation and amortization. In addition, EBITDA is a
financial measurement that management and the Company’s Board of
Directors use in its financial and operational decision-making and
in the determination of certain compensation programs. The Company
views net debt, which is total debt less cash and cash equivalents,
as an important metric of the operational and financial health of
the organization and useful to investors as an indicator of our
ability to incur additional debt and to service our existing
debt. Additionally, adjusted net income and adjusted earnings
per share ("EPS") are non-GAAP measures, which include certain
adjustments to reported GAAP net loss and diluted EPS. In 2018, the
Company made adjustments to exclude in impact of the Union Pacific
Railroad Concrete Tie Settlement expense.
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 EBITDA and net debt are
presented below (in thousands):
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Unaudited) |
EBITDA
Reconciliation |
|
|
|
|
|
|
|
|
Net income, as reported |
|
$ |
9,564 |
|
$ |
5,434 |
|
$ |
13,254 |
|
$ |
3,576 |
Interest expense - net |
|
1,597 |
|
1,630 |
|
2,952 |
|
3,517 |
Income tax expense |
|
1,685 |
|
728 |
|
2,323 |
|
1,253 |
Depreciation expense |
|
2,768 |
|
2,938 |
|
5,540 |
|
5,882 |
Amortization expense |
|
1,679 |
|
1,775 |
|
3,391 |
|
3,560 |
Total EBITDA |
|
$ |
17,293 |
|
$ |
12,505 |
|
$ |
27,460 |
|
$ |
17,788 |
|
|
June 30, 2019 |
|
March 31, 2019 |
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
(Unaudited) |
Net Debt
Reconciliation |
|
|
|
|
|
|
Total debt |
|
$ |
91,115 |
|
|
$ |
90,182 |
|
|
$ |
74,982 |
|
Less cash and cash
equivalents |
|
(12,001 |
) |
|
(9,039 |
) |
|
(10,282 |
) |
Net debt |
|
$ |
79,114 |
|
|
$ |
81,143 |
|
|
$ |
64,700 |
|
|
|
Twelve Months Ended December 31, |
|
|
2018 |
|
|
(Unaudited) |
Adjusted Diluted Earnings
Per Share Reconciliation |
|
|
Net loss, as reported |
|
$ |
(31,168 |
) |
Concrete Tie Settlement
expense |
|
43,400 |
|
Adjusted net income |
|
$ |
12,232 |
|
Average number of common shares
outstanding - Diluted, as reported |
|
10,362 |
|
Diluted loss per common share,
as reported |
|
$ |
(3.01 |
) |
Average number of common
shares outstanding - Diluted, as adjusted |
|
10,479 |
|
Diluted earnings per common
share, as adjusted |
|
$ |
1.17 |
|
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