L.B. Foster Company (NASDAQ: FSTR), a leading manufacturer and
distributor of products and services for transportation and energy
infrastructure, today reported its third quarter 2019 operating
results, which included the following performance highlights:
- First nine months operating results indicate that net sales and
earnings are anticipated to outpace 2018 on a full year
basis.
- Third quarter 2019 net sales decreased $12.8 million, or 7.7%,
from the prior year quarter to $154.3 million. Net sales of $505.7
million for the nine months improved by $43.2 million, or 9.4%,
from the prior year period.
- Gross profit for the third quarter 2019 was $27.7 million, a
decline of 11.5% from the prior year quarter. Gross profit for the
first nine months increased $7.4 million, or 8.6%, over the prior
year period to $94.0 million.
- Third quarter 2019 net income was $3.1 million, or $0.29 per
diluted share, compared to $6.4 million, or $0.61 per diluted
share, in the prior year quarter. First nine months net income of
$16.3 million, or $1.53 per diluted share, an increase of $0.58 per
diluted share, or 61.1%, from the prior year period.
- Net cash generated by operating activities for the quarter
totaled $22.7 million.
- Net debt1 (total debt less cash and cash equivalents) decreased
by $21.5 million from June 30, 2019 to $57.6
million.
Third Quarter Results
- Third quarter net sales of $154.3 million decreased by $12.8
million, or 7.7%, compared to the prior year quarter. The decrease
was attributable to the Rail Products and Services (Rail) and
Tubular and Energy Services (Tubular) segments with declines in
sales of 19.8% and 4.1%, respectively, from the prior year quarter.
The reductions were attributable to the timing of transit projects
and the London Crossrail volume within the Rail segment, coupled
with overall weakness in the served upstream market in the Tubular
segment. The decrease was partially offset by Construction Products
(Construction) segment sales increasing by 13.6% over the prior
year quarter due to strength in Precast Concrete
Products.
- Third quarter gross profit of $27.7 million decreased by $3.6
million, or 11.5%, from the prior year quarter. The decrease was
primarily due to reduced sales volume within the Tubular and Rail
segments resulting in gross profit reductions of 22.0% and 11.8%,
respectively, from the prior year quarter. The Tubular impact was
primarily driven by weakness in test and inspection services for
drilling companies that continue to reduce drilling activity in the
U.S. The Rail segment decline was driven by lower new rail
shipments and declines in services provided for the London
Crossrail that had been anticipated as this project approaches
completion. The Construction segment gross profit increased 5.7% on
a 13.6% increase in sales. Expenses related to customer investments
including the Port Everglades project unfavorably impacted gross
profit. Consolidated gross profit margin of 17.9% was 80 basis
points lower when compared to the prior year quarter.
- Net income for the third quarter 2019 was $3.1 million, or
$0.29 per diluted share, compared to $6.4 million, or $0.61 per
diluted share, in the prior year quarter.
- Third quarter EBITDA1 (earnings before interest, taxes,
depreciation, and amortization) was $8.6 million, a decrease of
30.0% compared to the prior year quarter.
- Selling and administrative expenses in the third quarter
increased by $0.6 million, or 2.8%, over the prior year period,
driven by an increase in personnel-related costs and, to a lesser
extent, bad debt expense. The increase was partially offset by
reductions 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
increased by 140 basis points from the prior year quarter to
14.4%.
- Net cash generated by operating activities for the quarter
totaled $22.7 million compared to $14.5 million in the prior year
quarter. The $8.2 million increase in net operating cash flow is
primarily a result of reductions in trade working capital when
compared to the prior year quarter.
- Third quarter new orders were $144.2 million, a 22.5% decrease
from the prior year quarter, attributable to declines in each of
the three segments. Prior year third quarter orders were
significantly impacted by booking the Port Everglades project
within the Construction segment when compared to the current
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, adjusted EBITDA, and net
debt.
CEO CommentsBob Bauer, President and Chief
Executive Officer, commented, “As expected, the Company generated a
significant amount of net operating cash flow during the quarter,
totaling $22.7 million. This enabled a reduction in our net debt of
$21.5 million during the third quarter and improvement in our
leverage ratio. Our net debt to adjusted EBITDA1 ratio was 1.2x for
the last twelve months.”
Mr. Bauer added, “Operating performance for the full year is
anticipated to improve and drive full year net income for 2019
significantly above the prior year. During the first nine months,
our net income of $16.3 million resulted in a $6.3 million, or
63.4%, increase in profits compared to the prior year. Cash flow is
expected to continue to improve throughout the remainder of
2019.
"As year-to-date sales have increased 9.4% over prior year, the
pace of order activity has slowed due to pockets of weaker demand.
There have also been delays in project-starts for transportation
projects, particularly from transit rail customers which is also
reflected in our third quarter bookings decline. This resulted in
third quarter performance that did not meet our expectations. We
are increasing our outlook for the fourth quarter as our current
backlog and project timing supports sales that are greater than the
third quarter. Fourth quarter operating results are expected to
exceed third quarter results based on current backlog and sales
activity."
First Nine Month Results
- Net sales for the first nine months ended September 30, 2019 of
$505.7 million increased by $43.2 million, or 9.4%, compared to the
prior year period. This growth was provided by each of our three
segments, with increases of 24.2% in Construction, 8.7% in Tubular,
and 2.6% in Rail.
- Gross profit increased over the prior year period by $7.4
million, or 8.6%, to $94.0 million for the nine months ended
September 30, 2019. The growth was attributable to increases of
16.1%, 7.2%, and 6.5% in our Construction, Tubular, and Rail
segments, respectively. Gross profit margin decreased by 10 basis
points compared to the prior year period.
- Net income for the nine months ended September 30, 2019 was
$16.3 million, or $1.53 per diluted share, compared to $10.0
million, or $0.95 per diluted share for the nine months ended
September 30, 2018.
- EBITDA1 for the nine months ended September 30, 2019 was $36.1
million compared to $30.1 million in 2018, an increase of
19.9%.
- Selling and administrative expense increased $1.5 million, or
2.4%, for the nine months ended September 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 90 basis points to
13.3% compared to the prior year period.
- The Company’s income tax expense for the nine months ended
September 30, 2019 was $2.4 million, compared to $1.3 million in
the prior year period. Our year-to-date effective tax rate of 12.7%
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 generated by operating activities was $13.3 million
for the nine months ended September 30, 2019, compared to $22.4
million in the 2018 period. The decrease in operating cash flow is
primarily attributable to increased working capital needs during
the current year and payments in connection with the concrete tie
litigation settlement.
- Total debt as of September 30, 2019 decreased by $2.0
million to $73.0 million from $75.0 million as of December 31,
2018. This also included a reduction in net debt1 of $7.1 million
to $57.6 million as of September 30, 2019.
- New orders were $488.6 million for the nine months ended
September 30, 2019, a decline of 11.1%. The decline is primarily
related to the timing of new transit rail projects, the approaching
completion of the Crossrail project, and Piling orders which
included the Port Everglades project in prior year bookings. To a
lesser extent, the weakness in upstream energy demand for
inspection services contributed to the year-over-year decline.
2019 Fourth Quarter Outlook
- The Company’s fourth quarter starting backlog of $194.1
million, coupled with current market conditions is expected to
result in fourth quarter 2019 revenues ranging between $155.0
million and $170.0 million. We anticipate that fourth quarter
EBITDA will exceed the reported third quarter EBITDA of $8.6
million. Full year revenues are expected to range between $660.0
million and $675.0 million, and full year EBITDA expected to exceed
$45.0 million.
- Backlog typically declines in the fourth quarter, although
there are a number of large projects that we expect to secure in
the quarter that could reverse this trend. Weakness is expected to
persist in the energy and U.S. freight rail markets. Transit rail
projects worldwide are likely to face some delays, and the Company
is addressing the challenge to replace the volume from the London
Crossrail project and Port Everglades project.
L.B. Foster Company will conduct a conference call and webcast
to discuss its third quarter 2019 operating results and fourth
quarter and full year outlook on Tuesday, October 29, 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
13695452.
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
management's 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; 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:
a resumption of the economic slowdown we experienced in previous
years in the markets we serve; a decrease in freight or passenger
rail traffic; environmental matters, including any costs associated
with any remediation and monitoring; 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; 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;
cyber-security risks such as data security breaches, malware,
“hacking,” and identity theft, a failure of which could disrupt our
business and may result in misuse or misappropriation of
confidential or proprietary information, and could result in the
disruption or damage to our systems, increased costs and losses or
an adverse effect to our reputation; 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 and the outcome of litigation and product warranty
claims. 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 September 30, |
|
Nine Months Ended September 30, |
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Unaudited) |
Sales of goods |
|
$ |
119,256 |
|
|
$ |
120,272 |
|
|
$ |
392,566 |
|
|
$ |
339,176 |
|
Sales of services |
|
35,020 |
|
|
46,822 |
|
|
113,112 |
|
|
123,262 |
|
Total net sales |
|
154,276 |
|
|
167,094 |
|
|
505,678 |
|
|
462,438 |
|
Cost of goods sold |
|
97,663 |
|
|
99,045 |
|
|
322,432 |
|
|
279,478 |
|
Cost of services sold |
|
28,921 |
|
|
36,746 |
|
|
89,264 |
|
|
96,402 |
|
Total cost of sales |
|
126,584 |
|
|
135,791 |
|
|
411,696 |
|
|
375,880 |
|
Gross profit |
|
27,692 |
|
|
31,303 |
|
|
93,982 |
|
|
86,558 |
|
Selling and administrative
expenses |
|
22,264 |
|
|
21,662 |
|
|
67,036 |
|
|
65,488 |
|
Amortization expense |
|
1,655 |
|
|
1,762 |
|
|
5,046 |
|
|
5,322 |
|
Interest expense - net |
|
1,079 |
|
|
1,296 |
|
|
4,031 |
|
|
4,813 |
|
Other (income) expense -
net |
|
(421 |
) |
|
157 |
|
|
(823 |
) |
|
(320 |
) |
Total expenses |
|
24,577 |
|
|
24,877 |
|
|
75,290 |
|
|
75,303 |
|
Income before income
taxes |
|
3,115 |
|
|
6,426 |
|
|
18,692 |
|
|
11,255 |
|
Income tax expense |
|
51 |
|
|
18 |
|
|
2,374 |
|
|
1,271 |
|
Net income |
|
$ |
3,064 |
|
|
$ |
6,408 |
|
|
$ |
16,318 |
|
|
$ |
9,984 |
|
Basic earnings per common
share |
|
$ |
0.29 |
|
|
$ |
0.62 |
|
|
$ |
1.57 |
|
|
$ |
0.96 |
|
Diluted earnings per common
share |
|
$ |
0.29 |
|
|
$ |
0.61 |
|
|
$ |
1.53 |
|
|
$ |
0.95 |
|
Average number of common
shares outstanding - Basic |
|
10,420 |
|
|
10,365 |
|
|
10,406 |
|
|
10,361 |
|
Average number of common
shares outstanding - Diluted |
|
10,674 |
|
|
10,489 |
|
|
10,631 |
|
|
10,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L.B. FOSTER COMPANY AND SUBSIDIARIESCONDENSED
CONSOLIDATED BALANCE SHEETS(In thousands)
|
|
September 30, 2019 |
|
December 31, 2018 |
|
|
(Unaudited) |
|
|
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
15,374 |
|
|
$ |
10,282 |
|
Accounts receivable - net |
|
85,039 |
|
|
86,123 |
|
Inventories - net |
|
128,741 |
|
|
124,504 |
|
Other current assets |
|
6,326 |
|
|
5,763 |
|
Total current assets |
|
235,480 |
|
|
226,672 |
|
Property, plant, and equipment - net |
|
82,793 |
|
|
86,857 |
|
Operating lease right-of-use assets - net |
|
13,234 |
|
|
— |
|
Other assets: |
|
|
|
|
Goodwill |
|
18,930 |
|
|
19,258 |
|
Other intangibles - net |
|
44,555 |
|
|
49,836 |
|
Other assets |
|
1,295 |
|
|
626 |
|
TOTAL ASSETS |
|
$ |
396,287 |
|
|
$ |
383,249 |
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable |
|
$ |
73,246 |
|
|
$ |
78,269 |
|
Deferred revenue |
|
8,710 |
|
|
6,619 |
|
Accrued payroll and employee benefits |
|
12,407 |
|
|
12,993 |
|
Accrued warranty |
|
1,222 |
|
|
2,057 |
|
Current portion of accrued settlement |
|
8,000 |
|
|
10,000 |
|
Current maturities of long-term debt |
|
2,978 |
|
|
629 |
|
Other accrued liabilities |
|
14,153 |
|
|
13,624 |
|
Total current liabilities |
|
120,716 |
|
|
124,191 |
|
Long-term debt |
|
70,021 |
|
|
74,353 |
|
Deferred tax liabilities |
|
4,668 |
|
|
5,287 |
|
Long-term portion of accrued settlement |
|
36,000 |
|
|
40,000 |
|
Long-term operating lease liabilities |
|
10,103 |
|
|
— |
|
Other long-term liabilities |
|
16,104 |
|
|
17,299 |
|
Stockholders' equity: |
|
|
|
|
Common stock |
|
111 |
|
|
111 |
|
Paid-in capital |
|
49,014 |
|
|
48,040 |
|
Retained earnings |
|
131,275 |
|
|
114,324 |
|
Treasury stock |
|
(16,829 |
) |
|
(18,165 |
) |
Accumulated other comprehensive loss |
|
(24,896 |
) |
|
(22,191 |
) |
Total stockholders' equity |
|
138,675 |
|
|
122,119 |
|
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY |
|
$ |
396,287 |
|
|
$ |
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. Adjusted
EBITDA includes certain adjustments to EBITDA. In 2018, the Company
made adjustments to exclude the impact of the Union Pacific
Railroad concrete tie settlement agreement.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.
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, except ratio):
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
Trailing TwelveMonths Ended |
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
9/30/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
(Unaudited) |
|
(Unaudited) |
Adjusted EBITDA
Reconciliation |
|
|
|
|
|
|
|
|
|
|
Net income, as reported |
|
$ |
3,064 |
|
$ |
6,408 |
|
$ |
16,318 |
|
$ |
9,984 |
|
$ |
(24,834 |
) |
Interest expense - net |
|
1,079 |
|
1,296 |
|
4,031 |
|
4,813 |
|
5,372 |
|
Income tax expense |
|
51 |
|
18 |
|
2,374 |
|
1,271 |
|
5,560 |
|
Depreciation expense |
|
2,755 |
|
2,803 |
|
8,295 |
|
8,685 |
|
11,105 |
|
Amortization expense |
|
1,655 |
|
1,762 |
|
5,046 |
|
5,322 |
|
6,822 |
|
Total EBITDA |
|
8,604 |
|
12,287 |
|
$ |
36,064 |
|
$ |
30,075 |
|
$ |
4,025 |
|
Concrete Tie Settlement
expense |
|
— |
|
— |
|
— |
|
— |
|
43,400 |
|
Adjusted EBITDA |
|
$ |
8,604 |
|
$ |
12,287 |
|
$ |
36,064 |
|
$ |
30,075 |
|
$ |
47,425 |
|
|
|
September 30, 2019 |
|
June 30, 2019 |
|
December 31, 2018 |
|
|
|
|
|
|
|
|
|
(Unaudited) |
Net Debt
Reconciliation |
|
|
|
|
|
|
Total debt |
|
$ |
72,999 |
|
|
$ |
91,115 |
|
|
$ |
74,982 |
|
Less cash and cash
equivalents |
|
(15,374 |
) |
|
(12,001 |
) |
|
(10,282 |
) |
Net debt |
|
$ |
57,625 |
|
|
$ |
79,114 |
|
|
$ |
64,700 |
|
|
|
September 30, 2019 |
|
|
(Unaudited) |
Net Debt to Adjusted
EBITDA Reconciliation |
|
|
Net debt |
|
$ |
57,625 |
Adjusted EBITDA |
|
47,425 |
Net debt to adjusted EBITDA ratio |
|
1.2x |
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