L.B. Foster Company (FSTR) posted adjusted earnings of 88 cents per share for third-quarter 2014, down 7.4% from 95 cents earned in the year-ago quarter. Adjusted earnings also missed the Zacks Consensus Estimate of 99 cents by 11.1%. The year-over-year fall in earnings was primarily due to higher operating expenses.
Revenues
Total sales were $167.7 million, climbing 3.4% year over year, primarily due to a hike in the market demand for the company’s Tubular segments products. Revenues, however, fell short of the Zacks Consensus Estimate of $179.0 million.
Revenues from the Rail Products segment slipped 3.3% year over year to $102.1 million. The fall in sales was due to the impact of reduction and completion of the transit project of Honolulu, which affected the segment’s distribution trade.
The Construction Products segment’s revenues inched up a meagre 1.2% year over year to $49.9 million on weak piling products, partially offset by improved sales in the fabricated bridge products.
The Tubular Products segment generated revenues of $15.7 million, soaring 114.0% year over year owing to favorable impact from stronger sales and strategic alliances made within the Coated Products business segment of the company.
Costs/Margins
Adjusted gross profit margin in the quarter increased 170 basis points (bps) year over year to 21.0 %. Selling and administrative expenses stood at $20.6 million, up from $17.5 million in the year-ago quarter, due to a rise in acquisition and personnel expenses incurred by the company.
The Rail Products segment recorded adjusted gross profit margin of 22.9%, expanding 240 bps year over year, attributable to volume-related leverage and improved execution in the rail businesses. The Construction Products segment’s gross profit margin improved 150 bps from the prior-year quarter to 16.9%, as a result of favorable product mix. The gross profit margin of the Tubular Products segment was 20.4%, falling 140 bps year over year, due to lower coated products margins. Thus, benefits reaped from the growth of Construction and Rail segments margin were offset by lower profit from the Tubular segments.
Balance Sheet/Cash Flow
Exiting third-quarter 2014, L.B. Foster’s cash and cash equivalents were approximately $86.5 million compared with $64.6 million at year-end 2013. Total long-term debt balance stood at $270,000 versus $25,000 as on Dec 31, 2013.
In the first nine months of 2014, L.B. Foster generated $49.6 million from operating activities versus $2.5 million of cash used in the year-ago comparable period. Capital expenditure rose to $11.6 million from $5.6 million in the nine months ended Sep 30, 2013.
Outlook
Maintaining a positive outlook toward the market, management expects a favorable business environment for all the segments in 2014. Strong end-user demand is expected to boost customer spending in the Rail and Tubular Products divisions of the company.
Other Stocks to Consider
With a market capitalization of 543.32 million, L.B. Foster currently sports a Zacks Rank #2 (Buy). Some other stocks worth considering in the industry include Nucor Corporation (NUE), Mechel OAO (MTL) and Steel Dynamics Inc. (STLD). All these stocks carry a Zacks Rank similar to L.B. Foster.
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