L.B. Foster Reports Improved Fourth Quarter Operating Results

PITTSBURGH, Feb. 27, 2014 /PRNewswire/ -- 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 fourth quarter 2013 operating results, which included income from continuing operations of $0.71 per diluted share, a 9.2% increase. 

Fourth Quarter Results

  • Fourth quarter net sales of $156.5 million increased by $15.7 million or 11.2% compared to the prior year quarter due to a 67.0% increase in Construction segment sales, partially offset by a 6.0% reduction in Rail segment sales and a 29.3% decline in Tubular segment sales.
  • Gross profit margin was 19.6%, flat compared to the prior year quarter.  Gross profit margin improved in the Rail and Construction segments, which was offset by a decline in the Tubular segment.
  • Fourth quarter income from continuing operations was $7.3 million or $0.71 per diluted share
    compared to $6.6 million or $0.65 per diluted share last year.  Fourth quarter 2013 income from continuing operations was favorably affected by higher sales across all Construction segment businesses with Piling Products reporting the most significant increase.  The November 2013 acquisition of Ball Winch was slightly accretive, however the Tubular segment sales decline continued to adversely impact results.
  • Fourth quarter bookings were $140.5 million, a 21.5% increase over the prior year fourth quarter, due to improvements in Tubular and Rail segment orders, including a strong quarter in Coated Products.  December 2013 backlog was $183.1 million, 13.2% lower than December 2012.
  • Selling and administrative expense increased by $2.1 million or 12.8%, due principally to increases related to salaried headcount, partially offset by a reduction in concrete tie testing costs.
  • The Company's income tax rate from continuing operations was 37.0% compared to 38.6% in the prior year quarter.  The income tax rate from continuing operations compares favorably to the prior year quarter as the prior year quarter was negatively impacted by certain discrete items recorded in 2012.
  • Cash provided from continuing operating activities for the fourth quarter of 2013 was $11.4 million compared to $1.7 million in the fourth quarter of 2012.  The current year quarter was negatively impacted due to an increase in accounts receivable, which was partially offset by a reduction in inventory net of trade payables.  The prior year quarter was negatively affected by a $12.0 million warranty payment.

CEO Comments
Robert P. Bauer, L.B. Foster Company's President and Chief Executive Officer, commented, "This quarter and the full year ended much like we projected when we discussed strengthening activity in our Construction segment after a prolonged market weakness and first half Tubular segment orders declining after several strong quarters.  While these changing order patterns had an unfavorable impact on profit margins, our teams executed extremely well and were able to deliver earnings at the top end of the range we forecasted, on lower than projected sales.  Year-to-date earnings per share were $2.85, which is 4.8% better than the prior year adjusted results, exceeding our expectations for a year with lower Tubular segment volume."  Mr. Bauer concluded by saying, "News from the marketplace remains positive long term.  Indicators for the construction market have continued to improve and the oil and gas industries remain healthy.  I'm also very excited about the growth opportunities that the Ball Winch acquisition will bring to L.B. Foster.  The capabilities of the Ball Winch team will expand the products and services we deliver to the gas pipeline industry."

Q4 Business Segment Highlights
($000)

Rail Segment
Rail sales decreased 6.0% due to sales reductions in our rail distribution business, partially offset by stronger sales in our Transit Products and Rail Technology divisions.  Fourth quarter gross profit margins improved due to improved execution in our rail technologies business and a significant reduction in plant expense in our concrete tie business.

 


2013

2012

  Variance

Sales

$85,824

$91,329

(6.0%)

Gross Profit

$18,840

$17,217


Gross Profit  %

22.0%

18.9%


 

Construction Segment
Construction sales increased by 67.0% in the quarter due principally to stronger Piling Products sales and, to a lesser extent, improved sales in bridge decking and concrete buildings.  Gross profit margins improved slightly despite an unfavorable mix from distributed products.

 


2013

2012

  Variance

Sales

$61,923

$37,080

67.0%

Gross Profit

$9,973

$5,875


Gross Profit  %

16.1%

15.8%


 

Tubular Segment
Tubular sales declined by 29.3% in the quarter due to softer Coated Products sales.  We believe that reduced order entry and backlog in the oil and gas markets were impacted by project delays as end users reacted to changing market conditions.  Gross profit margins declined due principally to volume related de-leveraging, and, to a lesser extent, reduced pricing.  Our tubular acquisition contributed approximately $1.3 million of sales in the quarter.

 


2013

2012

  Variance

Sales

$8,711

$12,315

(29.3%)

Gross Profit

$2,218

$4,054


Gross Profit  %

25.5%

32.9%


 

Twelve Month Results

  • Net sales for 2013 increased by $9.4 million or 1.6%, due to a 13.3% increase in Construction segment sales, partially offset by a 13.1% decline in Tubular segment sales and a 1.8% reduction in Rail segment sales.
  • Gross profit margin was 19.4%, 370 basis points higher than the prior year period due to warranty charges totaling $22.0 million recorded in the second and third quarters of 2012.  Excluding these charges, the 2012 gross profit margin would have been 19.4%.
  • Selling and administrative expenses increased $4.6 million, or 6.9% from the prior year due primarily to personnel related costs associated with higher salaried headcount, partially offset by a reduction in concrete tie testing costs.
  • Income from continuing operations was $29.3 million or $2.85 per diluted share compared to $14.8 million or $1.44 per diluted share in 2012.  Excluding the 2012 warranty related adjustments, income from continuing operations would have been $27.9 million or $2.72 per diluted share.
  • The Company's income tax rate from continuing operations for the year was 33.6% compared to 38.0% in the prior year.  The 2013 income tax rate from continuing operations was favorably impacted by certain state income tax matters while the 2012 rate was negatively affected by certain discrete tax items and their pronounced impact on comparatively lower pretax income in 2012.
  • Cash provided by continuing operating activities was $13.9 million for 2013 compared to $27.0 million in 2012.  The reduction in cash flows relates primarily to fluctuations in working capital, most notably a significant increase in receivables, which we anticipate will improve before the end of the first quarter.

2014 Outlook

Overall market conditions look favorable across all three of our business segments in 2014.  We expect to see continually increasing investment in transportation and energy infrastructure.  During 2014, L.B. Foster expects to see most businesses grow, while a few will experience expected declines due to specific customer activity.  The declines are expected in (a) Transit Products where backlog will decline as a result of project activity, and (b) concrete ties as a result of planned activity at Union Pacific Railroad.  The favorable order patterns seen in the latter part of 2013 for Piling and Coated Products are expected to continue into 2014 as the construction and gas pipeline markets grow.

The net result should be a positive year for sales growth.  At this time we are not forecasting pretax margin expansion.  This is the result of investments we plan to make in growth programs and ERP systems.  As the year unfolds, we will provide an update on the expected margin and EPS outlook.

The Company expects Q1 sales to be in the range of $123.0 million to $128.0 million.  The Company's sales in Q1 are typically among the lowest of the four quarters as a result of seasonal construction trends.  Net income should be in the range of $5.5 million to $5.9 million.

The Company is planning to increase capital spending in 2014 to a range of $18.0 million to $22.0 million.  This is a substantial increase over the normal rate of annual spending as a result of several growth programs that are launching simultaneously.  The capital will be directed at facilities, land, service centers, new technology and equipment, and new products that support our strategies to enter new markets and to improve our cost position on existing product lines.  This does not represent a new level of ongoing annual spending.  

We anticipate the increased capital spending in 2014 will be offset by improved cash flow from operating activities due to programs focused on working capital improvement.

Concrete Tie Warranty Update

In 2012, the Company recorded a $22.0 million charge for costs related to the warranty of concrete ties made at its Grand Island, NE facility.  Throughout 2013, a significant number of ties have been replaced, the majority of which were for Union Pacific Railroad.  As reported in previous announcements, L.B. Foster is furnishing replacement ties under the terms of our supply agreement with Union Pacific Railroad for product that meets the criteria for a defective tie.  L.B. Foster has presented Union Pacific Railroad with a reconciliation of actual ties replaced versus those eligible for warranty, derived from empirical data developed by the Company's observation team present on track during the majority of tie replacement work.  The Company's reconciliation reflects a difference of approximately 170,000 ties which L.B. Foster maintains are ineligible for warranty claim.  To date, the two companies have been unable to reconcile the number of defective ties to the number of ties which have been replaced.  Additional detail regarding this matter is contained in the Company's Annual Report on Form 10-K, filed on February 27, 2014.

L.B. Foster Company will conduct a conference call and webcast to discuss its fourth quarter 2013 operating results on Friday, February 28, 2014 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 replay can also be heard via telephone at (888) 286-8010 by entering pass code 84846834.

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; a decrease in freight or passenger rail traffic; a lack of state or federal funding for new infrastructure projects; an increase in manufacturing or material costs; the ultimate number of concrete ties that will have to be replaced pursuant to the product claim; the outcome of the Inspector General subpoena; 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, 2013.  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.

 

Contact:

David Russo

Phone:

412.928.3417

L.B. Foster Company


Email:

Investors@Lbfoster.com 

415 Holiday Drive


Website:

www.lbfoster.com 

Pittsburgh, PA  15220

 

L. B. FOSTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

(In thousands, except per share data)












Three Months Ended


Twelve Months Ended



December 31,


December 31,



2013


2012


2013


2012



(Unaudited)


(Unaudited)












Net sales

$

156,458

$

140,724

$

597,963

$

588,541

Cost of goods sold


125,847


113,154


482,024


496,272

Gross profit


30,611


27,570


115,939


92,269










Selling and administrative expenses


18,628


16,509


71,256


66,651

Amortization expense


1,010


865


3,112


2,961

Interest expense


109


137


485


542

Interest income


(165)


(133)


(659)


(452)

Equity in income of nonconsolidated investment


(424)


(194)


(1,316)


(837)

Other income


(101)


(431)


(1,054)


(426)



19,057


16,753


71,824


68,439










Income from continuing operations before income taxes


11,554


10,817


44,115


23,830










Income tax expense


4,279


4,174


14,839


9,066










Income from continuing operations


7,275


6,643


29,276


14,764










Discontinued operations:









Income from discontinued operations before income taxes


-


37


23


3,842

Income tax expense


-


15


9


2,418

Income from discontinued operations


-


22


14


1,424










Net income

$

7,275

$

6,665

$

29,290

$

16,188










Basic earnings per common share:









From continuing operations

$

0.71

$

0.65

$

2.88

$

1.46

From discontinued operations


-


0.00


0.00


0.14

Basic earnings per common share

$

0.71

$

0.66

$

2.88

$

1.60










Diluted earnings per common share:









From continuing operations

$

0.71

$

0.65

$

2.85

$

1.44

From discontinued operations


-


0.00


0.00


0.14

Diluted earnings per common share

$

0.71

$

0.65

$

2.85

$

1.58










Dividends paid per common share

$

0.030

$

0.025

$

0.120

$

0.100










Average number of common shares outstanding - Basic


10,186


10,144


10,175


10,124










Average number of common shares outstanding - Diluted


10,288


10,240


10,260


10,234










 

L. B. FOSTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)








December 31,


December 31,



2013


2012



(Unaudited)



ASSETS










Current assets:





Cash and cash equivalents

$

64,623

$

101,464

Accounts receivable - net


98,437


59,673

Inventories - net


76,956


107,108

Current deferred tax assets


461


4,585

Prepaid income tax


4,741


1,195

Other current assets


2,000


1,903

Current assets of discontinued operations


149


464

Total current assets


247,367


276,392






Property, plant and equipment - net


50,109


42,333






Other assets:





Goodwill


57,781


41,237

Other intangibles - net


51,846


40,165

Investments


5,090


4,332

Other assets


1,461


1,663

Total Assets

$

413,654

$

406,122






LIABILITIES AND STOCKHOLDERS' EQUITY










Current liabilities:





Accounts payable

$

46,620

$

50,454

Deferred revenue


5,715


7,447

Accrued payroll and employee benefits


8,927


9,604

Accrued warranty


7,483


15,727

Current maturities of long-term debt


31


35

Current deferred tax liabilities


179


-

Other accrued liabilities


6,501


8,596

Liabilities of discontinued operations


26


106

Total current liabilities


75,482


91,969






Long-term debt


25


27

Deferred tax liabilities


11,798


12,140

Other long-term liabilities


9,952


14,411






Stockholders' equity:





Class A Common Stock


111


111

Paid-in capital


47,239


46,290

Retained earnings


298,361


270,311

Treasury Stock


(24,731)


(25,468)

Accumulated other comprehensive loss


(4,583)


(3,669)

Total stockholders' equity


316,397


287,575

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

413,654

$

406,122






 

L.B. Foster Company and Subsidiaries

Reconciliation of Non-GAAP Financial Measures

(In Thousands, Except Per Share Amounts)

This earnings release contains certain non-GAAP financial measures.  These financial measures include gross profit margins excluding concrete tie costs and earnings per share from continuing operations excluding concrete tie costs.  The Company believes that these non-GAAP measures are useful to investors in order to provide a better understanding of these measures excluding certain costs incurred in 2012. The costs incurred were associated to concrete ties manufactured at its Grand Island 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:







L.B. FOSTER COMPANY AND SUBSIDIARIES

Reconciliation of Non-GAAP Financial Measures

(In Thousands, except per share data)














Three Months Ended


Twelve Months Ended


December 31,


December 31,

Gross profit margins excluding concrete

tie charges

2013

2012


2013

2012


(Unaudited)


(Unaudited)







Net sales, as reported

$      156,458

$      140,724


$     597,963

$     588,541

Cost of goods sold, as reported

125,847

113,154


482,024

496,272

Gross profit

30,611

27,570


115,939

92,269







Product warranty charges, before income tax

-

-


-

22,000







Gross profit, excluding certain charges

$       30,611

$       27,570


$     115,939

$     114,269













Gross profit percentage, as reported

19.56%

19.59%


19.39%

15.68%

Gross profit percentage, excluding certain charges

19.56%

19.59%


19.39%

19.42%














Three Months Ended


Twelve Months Ended

Income from continuing operations before income taxes excluding

concrete tie charges

December 31,


December 31,


2013

2012


2013

2012


(Unaudited)


(Unaudited)







Income from continuing operations, as reported

$       11,554

$       10,817


$       44,115

$       23,830







Product warranty charges, before income tax

-

-


-

22,000







Incentive compensation, before income tax

-

350


-

(807)







Income from continuing operations, before income taxes, 






excluding certain charges

$       11,554

$       11,167


$       44,115

$       45,023














Three Months Ended


Twelve Months Ended

Income from continuing operations (including diluted earnings per share) excluding concrete tie charges

December 31,


December 31,


2013

2012


2013

2012


(Unaudited)


(Unaudited)







Income from continuing operations, as reported

$         7,275

$         6,643


$       29,276

$       14,764







Product warranty charges, net of income tax

-

-


-

13,603







Incentive compensation, net of income tax

-

216


-

(499)







Income from continuing operations, excluding certain charges

$         7,275

$         6,859


$       29,276

$       27,868













DILUTED EARNINGS PER COMMON SHARE:






FROM CONTINUING OPERATIONS, as reported

$0.71

$0.65


$2.85

$1.44

DILUTED EARNINGS PER COMMON SHARE:






FROM CONTINUING OPERATIONS, excluding certain charges

$0.71

$0.67


$2.85

$2.72







AVERAGE NUMBER OF COMMON SHARES






OUTSTANDING - DILUTED, as reported

10,288

10,240


10,260

10,234







AVERAGE NUMBER OF COMMON SHARES






OUTSTANDING - DILUTED, excluding certain charges

10,288

10,264


10,260

10,256







 

SOURCE L.B. Foster Company



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