Premium railroads company LB Foster Co. FSTR reported weak results for fourth-quarter 2015. Adverse impact of commodity cycle in the niche business hubs of the company and weak steel prices were the major cause for the dismal quarterly results. Additonally, loss incurred in the company’s Union Pacific Railroad business had weighed on the quarterly top- and bottom line results.
Quarterly diluted earnings of 19 cents per share missed the Zacks Consensus Estimate of 22 cents and were down 77.6% year over year.
For full-year 2015, diluted earnings came in at $1.81 per share compared to $3.02 reported in 2014-end.
Revenues
Total sales for the quarter were $139.1 million, down 13.7% year over year. The year-over-year fall was witnessed due to weak Rail Products and Services and Construction Products segments’ sales. The top line even lagged the Zacks Consensus Estimate of $149 million.
Revenues from Rail Products and Services segment decreased 16.5% year over year to $76.5 million. The decline was triggered by lower steel prices and weaker sales volumes.
Construction Products revenues decreased 35.6% year over year to $38.5 million. The year-over-year decline was witnessed due to remarkable reduction in the sales of piling products.
The Tubular and Energy Services segment generated revenues of $24.2 million, up 145.1% year over year. The remarkable improvement was supported by better sales in the company’s acquired energy businesses.
For full-year 2015, aggregate sales were $624.5 million compared to $607.2 million generated in the year-ago comparable period. The yearly improvement was witnessed due to greater sales accrued from the company’s Tubular and Energy Services segment.
Costs/Margins
Adjusted gross profit margin in the quarter was 21.47%, down 110 basis points (bps) year over year.
Selling and administrative expenses totaled $24.5 million, up from $21.5 million incurred in the year-ago quarter. The fall in expense was primarily led by reduction in incentive compensation costs.
The Rail Products and Services segment recorded an adjusted gross profit margin of 23.4%, down 250 bps year over year, due to lower steel prices and weaker sales volumes.
Construction Products segment’s gross profit margin increased 170 bps year over year to 19.4%, aided by improved margins in the fabricated bridge and concrete products’ division.
Gross profit margin of the Tubular and Energy Services segment was 11.8%, down 830 bps year over year, owing to lower margins accrued from the acquired businesses.
Balance Sheet/Cash Flow
Exiting fourth-quarter 2015, LB Foster’s cash and cash equivalents were approximately $33.3 million, down from $52 million at year-end 2014. Long-term debt was $167.4 million versus $25.8 million as on Dec 31, 2014.
At the end of the quarter, L.B. Foster generated cash worth $56.2 million from operating activities, down from $66.7 million of cash provided in the year-ago period. Aggregate capital expenditure at 2015-end was $14.9 million compared to $17.1 million incurred in the year-ago tally.
Outlook
Going forward, LB Foster aims to achieve greater efficiency with the help of certain integration activities with the essence of its new Enterprise Resource Planning system. The company also intends to improve its near-term margins through cost-reduction measures across various business segments.
Based on the current market scenario, LB Foster expects sales within $610-$640 million and diluted earnings within the range of $1.00-$1.40 per share for full-year 2016.
Other Stocks to Consider
LB Foster presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks within the industry include AK Steel Holding Corporation AKS, Usinas Siderúrgicas de Minas Gerais S.A. USNZY and Cliffs Natural Resources Inc. CLF. All three companies currently hold a Zacks Rank #2 (Buy).
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