L.B. Foster Reports Third Quarter Operating Results
(Thomson Reuters ONE) -
PITTSBURGH, Nov. 09, 2015 (GLOBE NEWSWIRE) -- L.B. Foster Company (NASDAQ:FSTR),
a leading manufacturer, fabricator, and distributor of products and services for
rail, construction, energy and utility markets, today reported its third quarter
2015 operating results, which included a tax-effected non-cash charge of $63.9
million ($80.3 million before tax) or $6.23 per diluted share, for the
impairment of a significant portion of the goodwill related to the Company's
Inspection Oilfield Service (IOS) and Chemtec Energy Services (Chemtec)
subsidiaries, which was driven by the effects of weak energy markets. Excluding
the charge and certain warranty related items, adjusted EPS(1) was $0.67 per
diluted share compared to $0.88 per diluted share in the prior year quarter.
Other noteworthy items in the third quarter are:
* Sales increased by 4.9% to $176.1 million
* Adjusted gross profit margin was 20.9% compared to 21.0% in the prior year
* Adjusted EBITDA increased by 12.1% to $19.2 million, due to the businesses
acquired since the third quarter of 2014
* Recent acquisitions contributed $24.0 million of sales and $2.8 million of
EBITDA in the third quarter
* Cash flow generated by operating activities was $15.6 million
Third Quarter Results
* Third quarter net sales of $176.1 million increased by $8.3 million, or
4.9%, compared to the prior year quarter due to a 115.4% increase in Tubular
and Energy Services ("Tubular") segment sales driven by recent acquisitions
and an 8.4% increase in Construction segment sales, partially offset by a
13.8% decline in Rail Products and Services ("Rail") segment sales.
* Gross profit margin was 20.5%, 50 basis points lower than the prior year
quarter. The decrease was due to lower Rail and Tubular segment margins,
partially offset by improved Construction segment margins. Included in the
current year third quarter results is a $0.7 million warranty charge related
to concrete railroad ties manufactured in our Grand Island, NE facility
which was shut down in February 2011. Excluding this charge, gross margin
would have been 20.9% in 2015 compared to 21.0% in the third quarter of
2014.
* Third quarter net loss was $57.4 million, or $5.60 per diluted share,
compared to a $9.1 million profit, or $0.88 per diluted share, last year.
Excluding the previously mentioned third quarter 2015 impairment charge and
warranty related costs, net income would have been $6.9 million, or $0.67
per diluted share.
* Selling and administrative expense increased by $1.0 million, or 4.7%, due
entirely to the costs of businesses acquired after the third quarter of
2014. Excluding the acquired company costs, selling and administrative
costs were lower by $2.4 million or 11.7% due principally to reductions in
incentive compensation expense.
* Interest expense was $1.3 million in the second quarter of 2015 compared to
$0.1 million in the prior year quarter, the increase being attributable to
borrowings related to the recent acquisitions. Amortization expense
increased by $2.1 million or 180.2% due to the acquisitions purchased after
the third quarter of 2014.
* The Company recognized a non-cash goodwill impairment charge of $80.3
million, $69.9 million of which represented the full carrying value of
goodwill related to the IOS acquisition and the remaining $10.4 million
related to the Chemtec subsidiary, to write down the carrying value to the
implied fair value.
* Third quarter bookings were $145.5 million, a 2.2% increase over the prior
year third quarter, due to 231.1% and 10.3% increases in Tubular and
Construction segment orders, respectively, partially offset by a decline of
31.4% in the Rail segment. The increase in Tubular segment orders was due
to orders generated by our recently acquired energy businesses as well as
our Coated Products division.
* The Company's effective income tax rate from continuing operations was
18.2%, compared to 34.2% in the prior year quarter. The Company's effective
income tax rate was significantly impacted by the goodwill impairment
charge, which related to both tax deductible and nondeductible goodwill.
Excluding the impairment charge, the Company's effective tax rate for the
quarter would have been 36.2%, which is higher than the prior year quarter
primarily due to a less favorable global mix of income.
* Cash flow from operating activities for the third quarter of 2015 generated
$15.6 million compared to $18.1 million in the third quarter of 2014.
CEO Comments
Robert P. Bauer, L.B. Foster Company's President and Chief Executive Officer,
commented, "Even though little time has elapsed since our energy businesses were
acquired, the extent of the weakness in the markets they serve prompted the
Company to perform an interim test for goodwill impairment. The results of the
test demonstrate these businesses have lost value as the effect of discounting
future forecasted cash flows to assess value makes the current market weakness
more impactful than the future potential of these businesses. Even though we
took this charge, I remain confident that, as energy markets improve, these
businesses will contribute to our future profitability and cash flows that
enable future growth and enhance shareholder value for the long term. I want to
emphasize that this charge was non-cash in nature and will not affect the
Company's liquidity, cash flows from operating activities or debt covenants."
Mr. Bauer continued, "Our operating results for the quarter and the nine month
period reflect the unfavorable impact the commodity cycle has had on the markets
we serve. As we continue to work through the challenges of weak market
conditions coupled with the loss of business from the UPRR, we will rely on our
operating strengths to maximize profitability and cash flow. The loss of rail
product sales has made this a difficult year, however, we have worked through
the changes needed to adjust to lower volumes and have taken the opportunity to
create a renewed focus on cost reductions and integration of acquired
businesses. Similarly, we have taken actions to protect operating efficiency
in our energy segment businesses where specific markets remain at depressed
spending levels. While the Company is not performing at the levels we expected
this year, it is worth noting that year-to-date adjusted gross margins have
expanded by 40 basis points and adjusted EBITDA has grown by 11.6%. Gross
margin expansion in the Rail and Construction segments reflect strong management
actions. And while energy market acquisitions may struggle to be accretive to
earnings until the market improves, we have numerous opportunities for new
business especially in the midstream pipeline market that we will develop.
Over the next several quarters, we will look to accelerate certain integration
activity that results in greater efficiency. We have taken cost reduction
measures in various areas of the business and are pursuing further actions to
cut operating costs to be in line with expected demand levels. We also intend
to reduce capital spending by investing only in the most attractive programs
after re-evaluating returns given recent changes in certain market sectors.
We are also reviewing more aggressive company-wide restructuring opportunities
where cost reductions and/or entity consolidations will improve efficiency,
reduce costs and allow us to improve profit goals over historic margins when
conditions improve."
Mr. Bauer concluded by remarking, "In addition to our forecasts for continued
positive cash flow, we have a strong financial position and anticipate ample
liquidity to weather a continued downturn in the cyclical markets where we
participate."
Q3 Business Segment Highlights
($000's)
Rail Products and Services Segment
Rail sales decreased 13.8% due to lower sales across our rail divisions with the
exception of Transit Products as a result of lower sales volumes and lower steel
prices. Reduced sales to the Union Pacific Railroad accounted for a large
portion of the decline. Despite the reduced volumes in 2015, the current quarter
adjusted gross profit margin improved by 10 bps from the prior year quarter,
after excluding the impact of the current quarter warranty related charges of
$0.7 million, due to improved margins in certain product categories as well as
an improved product mix.
2015 2014 Variance
Sales $ 87,972 $ 102,105 (13.8 )%
Gross Profit $ 19,564 $ 23,358
Excluding charges $ 20,247 $ 23,358
Gross Profit % 22.2 % 22.9 %
Excluding charges 23.0 % 22.9 %
Construction Products Segment
Construction sales increased by 8.4% in the quarter due to increases across all
divisions in this segment, highlighted by stronger sales of our precast
buildings division. Gross profit margins improved due to increased margins in
our Piling Products and Fabricated Bridge Products divisions.
2015 2014 Variance
Sales $ 54,093 $ 49,907 8.4 %
Gross Profit $ 9,850 $ 8,421
Gross Profit % 18.2 % 16.9 %
Tubular and Energy Services Segment
Tubular sales improved by 115.4% in the quarter due to sales from our acquired
energy businesses, partially offset by softer Threaded Products sales. Tubular
gross profit margins declined due principally to lower blended margins by the
acquisitions, partially offset by stronger Coated Products margins.
2015 2014 Variance
Sales $ 33,994 $ 15,785 115.4 %
Gross Profit $ 6,689 $ 3,220
Gross Profit % 19.7 % 20.4 %
Nine Months Results
* Net sales for the first nine months of 2015 increased by $39.3 million, or
8.8%, due to a 116.5% increase in Tubular segment sales and a 15.8%
improvement in Construction segment sales, partially offset by a 10.8%
decline in Rail segment sales. The Tubular sales increase was due to the
recent energy related acquisitions, while the Construction segment increase
was driven by all divisions (including the precast products business
acquired in July 2014) except for the bridge business which is comparing to
a record year in 2014.
* Gross profit margin was 21.4%, 120 basis points higher than the prior year
period. Included in the nine month results are warranty related charges of
$1.1 million and $4.6 million in 2015 and 2014, respectively related to
concrete railroad ties. Excluding the charges incurred in both years, gross
profit would have been 21.6% for the first nine months of 2015 compared to
21.2% in the prior year period. The resulting 40 basis point improvement was
driven by profitability improvements in the Rail and Construction segments,
partially offset by lower Tubular segment profitability.
* Selling and administrative expense increased by $9.9 million, or 16.9%, due
entirely to costs from businesses recently acquired. Excluding the acquired
businesses, selling and administrative expense was down slightly due to
reductions in incentive compensation expense.
* Interest expense was $3.2 million in the first nine months of 2015 compared
to $0.4 million in the comparable prior year period, the increase being
attributable to borrowings for the recent acquisitions. Amortization expense
increased by $5.4 million, or 155.4% due to several acquisitions over the
past twelve months.
* Net loss was $47.8 million or $4.65 per diluted share, compared to net
income of $19.6 million, or $1.90 per diluted share, last year. Excluding
the 2015 impairment charge and warranty related costs, net income would have
been $16.8 million, or $1.63 per diluted share in 2015 compared to $22.4
million or $2.17 per diluted share in the comparable prior year period.
* Adjusted EBITDA for the nine month period of 2015 was $47.9 million compared
to $42.9 million, an increase of $5.0 million or 11.6%, due entirely to the
operations of businesses acquired since the third quarter of 2014.
* The Company's effective income tax rate from continuing operations was
14.3%, compared to 33.3% in the prior year period. The Company's effective
income tax rate was significantly impacted by the goodwill impairment
charge, which related to both tax deductible and nondeductible goodwill.
Excluding the impairment charge, the Company's effective tax rate for the
current year period would have been 34.6%, which is higher than the prior
year period primarily due to a less favorable global mix of income.
* Cash generated by operating activities was $13.7 million for the first nine
months of 2015, compared to $49.7 million of cash provided in the prior year
period. The prior year cash flow was favorably impacted by improved working
capital management that largely corrected issues encountered in the second
half of 2013. Capital expenditures were $11.6 million in 2015, flat with
the comparable 2014 period.
Outlook for the 4th Quarter of 2015
The Company is expecting fourth quarter results to be in the area of $150
million to $154 million in sales and EPS of $0.30 per diluted share. This
forecast represents our current view of the market which is factoring in less
favorable year-end spending patterns. It is possible that we could still fall
short of this forecast as customers in the upstream market sector consider
temporary shutdowns for the last several weeks of the year. We are closely
monitoring customer intentions and their potential actions to preserve cash in
the final period of the year. If a portion of our customers decide to shutdown
or severely cut back on upstream development and production activity, it could
have a further $0.10 to $0.20 unfavorable impact on EPS for the quarter. We
also expect to see year-end cash flow management by our railroad customers as
well. In a similar manner, if these customers decide to more aggressively
preserve cash in the fourth quarter, it could unfavorably affect our results.
L.B. Foster Company will conduct a conference call and webcast to discuss its
third quarter 2015 operating results on Monday, November 9, 2015 at 11:00 am
ET. The call will be hosted by Mr. Robert Bauer, President and Chief Executive
Officer. Listen via audio on the L.B. Foster web site:www.lbfoster.com, by
accessing the Investor Relations page. The conference call can be accessed by
dialing 866-318-8611 and providing access code 21337957.
This release may contain forward-looking statements that involve risks and
uncertainties. Statements that do not relate strictly to historical or current
facts are forward-looking. When we use the words "believe," "intend," "expect,"
"may," "should," "anticipate," "could," "estimate," "plan," "predict,"
"project," or their negatives, or other similar expressions, the statements
which include those words are usually forward-looking statements. Actual results
could differ materially from the results anticipated in any forward-looking
statement. Accordingly, investors should not place undue reliance on forward-
looking statements as a prediction of actual results. The Company has based
these forward-looking statements on current expectations and assumptions about
future events. 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
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, an economic slowdown in the markets we serve; the risk of doing
business in international markets; our ability to effectuate our strategy
including evaluating potential opportunities such as strategic acquisitions,
joint ventures, and other initiatives, and our ability to effectively integrate
new businesses and realize anticipated benefits; a decrease in freight or
passenger rail traffic; the timeliness and availability of material from our
major suppliers; labor disputes; changes in current accounting estimates and
their ultimate outcomes; the adequacy of internal and external sources of funds
to meet financing needs; the Company's ability to manage its working capital
requirements and indebtedness; domestic and international taxes; foreign
currency fluctuations; inflation; domestic and foreign government regulations;
sustained declines in energy prices; a lack of state or federal funding for new
infrastructure projects; increased regulation including conflict minerals; an
increase in manufacturing or material costs; the ultimate number of concrete
ties that will have to be replaced pursuant to the previously disclosed product
warranty claim of the Union Pacific Railroad ("UPRR") and an overall resolution
of the related contract claims as well as the possible costs associated with the
outcome of the lawsuit filed by the UPRR; risks inherent in litigation and those
matters set forth in Item 8, Footnote 20, "Commitments and Contingent
Liabilities" and in Item 1A, "Risk Factors" of the Company's Form 10-K for the
year ended December 31, 2014 as updated by any subsequent Form 10-Qs. The
Company urges all interested parties to read these reports to gain a better
understanding of the many business and other risks that the Company faces. The
forward-looking statements contained in this press release are made only as of
the date hereof, and the Company assumes no obligation and does not intend to
update or revise these statements, whether as a result of new information,
future events or otherwise, except as required by securities laws.
(1) See non-GAAP reconciliations below
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
(Unaudited) (Unaudited)
Sales of goods $ $ $ $
147,648 155,039 417,224 410,153
Sales of 28,411 12,758 68,161 35,890
services
Total sales 176,059 167,797 485,385 446,043
Cost of goods
sold 117,474 121,607 328,461 328,178
Cost of services 22,547 11,031 53,143 27,879
sold
Total cost of
sales 140,021 132,638 381,604 356,057
Gross profit 36,038 35,159 89,986
103,781
Selling and
administrative 21,605 20,644 68,133 58,268
expenses
Amortization 3,337 1,191 8,950 3,504
expense
Impairment of 80,337 - 80,337 -
goodwill
Interest expense 1,265 126 3,166 375
Interest income (66 ) (140 ) (160 ) (431 )
Equity in loss
(income) of 299 (477 ) 312 (823 )
nonconsolidated
investments
Other income (537 ) (42 ) (1,245 ) (315 )
21,302 60,578
106,240 159,493
(Loss) income
before income (70,202 ) 13,857 (55,712 ) 29,408
taxes
Income tax
(benefit) (12,780 ) 4,741 (7,939 ) 9,781
expense
Net (loss) $ ) $ 9,116 $ ) $ 19,627
income (57,422 (47,773
Basic (loss)
earnings per $ (5.60 ) $ 0.89 $ (4.65 ) $ 1.92
common share
Diluted (loss)
earnings per $ (5.60 ) $ 0.88 $ (4.65 ) $ 1.90
common share
Dividends paid $ 0.04 $ 0.03 $ 0.12 $ 0.09
per common share
Average number
of common shares 10,256 10,239 10,266 10,220
outstanding -
Basic
Average number
of common shares 10,256 10,335 10,266 10,325
outstanding -
Diluted
L.B. FOSTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
2015 2014
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 33,210 $ 52,024
Accounts receivable - net 110,854 90,178
Inventories - net 98,812 95,089
Current deferred tax assets 5,269 3,497
Prepaid income tax 912 2,790
Other current assets 8,029 4,101
Total current assets 257,086 247,679
Property, plant and equipment - net 126,872 74,802
Other assets:
Goodwill 81,202 82,949
Other intangibles - net 137,522 82,134
Investments 5,485 5,824
Other assets 3,407 1,733
Total Assets $ 611,574 $ 495,121
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 53,528 $ 67,166
Deferred revenue 8,833 8,034
Accrued payroll and employee benefits 10,013 13,419
Accrued warranty 9,430 11,500
Current maturities of long-term debt 1,284 676
Current deferred tax liabilities 77 77
Other accrued liabilities 12,726 7,899
Total current liabilities 95,891 108,771
Long-term debt 206,214 25,752
Deferred tax liabilities 10,858 10,945
Other long-term liabilities 17,493 13,765
Stockholders' equity:
Class A Common Stock 111 111
Paid-in capital 46,790 48,115
Retained earnings 273,655 322,672
Treasury stock (22,740 ) (23,118 )
Accumulated other comprehensive loss (16,698 ) (11,892 )
Total stockholders' equity 281,118 335,888
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 611,574 $ 495,121
This earnings release contains certain non-GAAP financial measures. These
financial measures include gross profit margins and earnings per share
excluding certain non-recurring charges as well as earnings before interest,
taxes, depreciation, and amortization (EBITDA) and adjusted EBITDA. The
Company believes that these non-GAAP measures are useful to investors in
order to provide a better understanding of the ongoing operations of the
Company's business. These supplemental financial measures are useful to
management and external users to assess the financial performance of our
business without consideration of the non-cash goodwill impairment charge
and certain concrete tie warranty related items. The EBITDA and adjusted
EBITDA measures are useful in the assessment of the use of our assets
without regard to financing methods, capital structure, or historical cost
basis. EBITDA is also a financial measurement that is utilized in the
determination of certain compensation programs. Note that the warranty
charges incurred were associated with concrete ties manufactured at the
Company's Grand Island, NE facility which was closed in 2011.
These 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 the GAAP measures are presented below:
Three Months Ended Nine Months Ended
September 30, September 30,
2015 2014 2015 2014
(in thousands except per share information)
(Unaudited) (Unaudited)
Net sales, as $ 176,059 $ 167,797 $ 485,385 $ 446,043
reported
Cost of sales, as 140,021 132,638 381,604 356,057
reported
Gross profit, as 36,038 35,159 103,781 89,986
reported
Product warranty
related charges, 683 - 1,092 4,608
before income tax
Gross profit,
excluding certain $ 36,721 $ 35,159 $ 104,873 $ 94,594
charges
Gross profit
percentage, as 20.47 % 20.95 % 21.38 % 20.17 %
reported
Gross profit, as 20.86 % 20.95 % 21.61 % 21.21 %
adjusted
Pre-tax (loss)
income, as $ (70,202 ) $ 13,857 $ (55,712 ) $ 29,408
reported
Impairment of
goodwill, before 80,337 - 80,337 -
income tax
Product warranty
related charges, 683 - 1,092 (b) 4,264
before income tax
Pre-tax income, $ 10,818 $ 13,857 $ 25,717 $ 33,672
as adjusted
Net (loss)
income, as $ (57,422 ) $ 9,116 $ (47,773 ) $ 19,627
reported
Impairment of
goodwill, net of 63,887 - 63,887 -
income tax
Product warranty
charges, net of 446 - 713 (b) 2,790
income tax
Net income, as $ 6,911 $ 9,116 $ 16,827 $ 22,417
adjusted
Diluted (loss)
earnings per ($ 5.60 ) $ 0.88 ($ 4.65 ) $ 1.90
share, as
reported
Diluted earnings
per share, as $ 0.67 $ 0.88 $ 1.63 $ 2.17
adjusted
Average number of
common shares
outstanding - 10,256 10,335 10,266 10,325
diluted, as
reported ((a))
Average number of
common shares
outstanding - 10,304 10,335 10,347 10,326
diluted,
excluding certain
charges
(a) - Excludes anti-dilutive shares
(b) - Excludes second quarter costs associated with warranty related legal
and incentive adjustments that are now reflected in the forecast and
guidance ($102 gross and $67 net)
Adjusted EBITDA
Reconciliation
Net (loss) income $ (57,422 ) $ 9,116 $ (47,773 ) $ 19,627
Interest expense 1,199 (14 ) 3,006 (56 )
(income), net
Income tax (12,780 ) 4,741 (7,939 ) 9,781
(benefit) expense
Depreciation 3,818 2,068 10,593 5,743
Amortization 3,337 1,191 8,950 3,504
Total EBITDA (61,848 ) 17,102 (33,163 ) 38,599
Impairment of 80,337 - 80,337 -
goodwill
EBITDA adjusted
for goodwill 18,489 17,102 47,174 38,599
impairment
Pre-tax warranty
related 683 - 683 (c) 4,274
adjustments
Total adjusted $ 19,172 $ 17,102 $ 47,857 $ 42,873
EBITDA
(c) - Excludes second quarter costs associated with pre-tax warranty related
legal and incentive adjustments of $102 that are now reflected in the
forecast and guidance
Contact:
David Russo
Phone: 412.928.3417
Email: Investors(at)Lbfoster.com
Website: www.lbfoster.com
L.B. Foster Company
415 Holiday Drive
Pittsburgh, PA 15220
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[HUG#1965512]
Datum: 09.11.2015 - 15:04 Uhr
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