Premium railroads company, LB Foster Co. FSTR reported lower-than-expected results for second-quarter 2015. The company’s quarterly earnings of 55 cents per share missed the Zacks Consensus Estimate of $1.01 and also fell 41.5% short of the year-ago tally of 94 cents.
Revenues
Total sales for the quarter were $171.4 million, up 2.7% year over year. The year-over-year improvement was primarily driven by increased sales from the company’s Construction and Tubular segments. However, the top line lagged the Zacks Consensus Estimate of $211 million.
Revenues from Rail Products and Services segment decreased 19.2% year over year to $86.9 million. The decline was triggered by unfavorable currency fluctuations, weak Union Pacific Railroad sales; lower steel prices and poor volumes from the company’s track component businesses.
Construction Products revenues increased 18.4% year over year to $49.5 million. The improvement was driven by stronger pre-cast building sales as well as funds accrued from spin-off of the company’s previously acquired Carr Concrete Products business.
The Tubular and Energy Services segment generated revenues of $35 million, almost doubling year over year. The noteworthy improvement was supported by divestiture of the company’s previously acquired businesses of Chemtec Energy Services and Oilfield Services.
Costs/Margins
Gross profit margin in the quarter was 21.6%, up 320 basis points (bps) year over year, primarily aided by improved Rail and Construction segment margins.
Selling and administrative expenses totaled $24.3 million, up from $19.6 million incurred in the year-ago quarter. The rise in expenses was primarily led by the company’s acquisition and integration-related expenditure.
The Rail Products and Services segment recorded a gross profit margin of 22.7%, up 550 bps year over year, backed by improved mix and margins in several product categories.
Construction Products segment’s gross profit margin increased 240 bps year over year to 20.8%, aided by improved margins from the Precast Buildings and Piling Products divisions.
However, gross profit margin of the Tubular and Energy Services segment was 19.7%, down 530 bps year over year, on account of weak Coated Products margins.
Balance Sheet/Cash Flow
Exiting second-quarter 2015, L.B. Foster’s cash and cash equivalents were approximately $35.6 million, down from $52 million at year-end 2014. Long-term debt was $217.2 million versus $25.8 million as on Dec 31, 2014.
At the end of the quarter, L.B. Foster generated cash worth $5.5 million from operating activities, up from $0.5 million of cash used in the year-ago comparable period. Improved liquidity was attributable to the company’s efficient working capital management activities.
Outlook
For 2015, L.B. Foster expects sales within $685–$725 million, compared with the previously guided range of $770–$780 million. Earnings per share are projected in the range of $2.15–$2.50, down from the prior estimation of $3.20–$3.30. EBITDA is expected within $65–$71 million compared with $84.5–$86 million forecasted earlier. Anticipating lower return from the new acquisition in energy market, dwindling demand in rail business as well as Piling Products division, and certain litigation-related costs on account of handling and defense of the Union Pacific lawsuit, the company has lowered its yearly guidance.
Stocks to Consider
LB Foster currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include ArcelorMittal MT, Nippon Steel & Sumitomo Metal Corporation NSSMY and Schnitzer Steel Industries, Inc. SCHN. All three stocks carry a Zacks Rank #2 (Buy).
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