L.B. Foster Reports Strong Third Quarter Operating Results

PITTSBURGH,  Nov. 1, 2011 /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 2011 third quarter operating results.

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Third Quarter Results

• Third quarter net income was $9.7 million or $0.95 per diluted share compared to $6.5 million or $0.63 per diluted share last year.
• Third quarter sales increased by $37.1 million or 29.6% due to the inclusion of Portec Rail Products Inc. sales, as well as an 8.5% sales increase in the legacy L.B. Foster business.
• Gross Profit margin was 18.9%, 290 basis points higher than the prior year, primarily as a result of:
  • The inclusion of Portec's results in the current year.
  • Partially offset by a 100 basis point decrease in L.B. Foster's legacy business gross profit margins.
    • The legacy Foster gross profit margin was lower than the prior year quarter due to an unfavorable change in LIFO expense totaling 80 basis points.
• Selling and administrative expense increased by $7.6 million, due principally to the inclusion of Portec Rail Products in our results.
• Adjusted EBITDA (Earnings before taxes, interest, depreciation, amortization and other purchase accounting charges not considered amortization) was $17.4 million compared to $12.4 million in the prior year quarter.
• Third quarter bookings were $128.7 million compared to $124.8 million last year, an increase of 3.2%.  Excluding Portec, bookings were 14.2% lower than last year. At quarter end, our backlog was $153.0 million, 25.3% lower than the prior year (33.2% lower without Portec).

Product Claim Update

On July 12, 2011 the Union Pacific Railroad ("UPRR") notified the Company and CXT Incorporated, a subsidiary of the Company (CXT), of a warranty claim under CXT's 2005 supply contract relating to the sale of prestressed concrete railroad ties to the UPRR.  The UPRR has asserted that a significant percentage of concrete ties manufactured in 2006 through 2010 at CXT's Grand Island, Nebraska facility fail to meet contract specifications, have workmanship defects and are cracking and failing prematurely.  

Since late July 2011, the Company and CXT have been working with material scientists and prestressed concrete experts, who have been testing a representative sample of Grand Island concrete ties.  While this testing is not complete, we have not identified any appreciable defects in workmanship nor have we identified any material deviation from our contractual specifications for the concrete ties in question.  We expect that the testing required to address the product claim will be completed sometime during the first quarter of 2012.

No adjustments have been recorded as a result of this claim as the impact, if any, cannot be estimated at this time.  No assurances can be given regarding the ultimate outcome of this matter.

CEO Comments

Stan L. Hasselbusch, L. B. Foster's president and chief executive officer, said, "Our performance in the third quarter was strong overall as we reported record earnings from operations.  The Rail and Tubular segments reported strong sales and income, while the softness in the Construction segment that we discussed last quarter has continued.  Our Rail business had an excellent quarter on the strength of Portec Rail Products and Rail Distribution as sales were up 67.3% and gross profit more than doubled."  Mr. Hasselbusch went on to say, "We continue to be focused on the product claim made by the UPRR and completing the testing and evaluation process within the next 60 to 90 days continues to be a top priority."  Mr. Hasselbusch concluded by adding, "The expired transportation bill was extended through March 2012 which is expected to approximate current spending levels.  This lack of progress related to new transportation legislation and steadily decreasing government spending on infrastructure due to weak finances are perpetuating negative headwinds for our construction and transit markets.  We expect to continue to experience a highly competitive market environment for the next nine months and we are concerned about the likelihood of a satisfactory resolution of transportation legislation as well as appropriate funding mechanisms for such a bill."  

Nine Month Results

• Net sales for the first nine months of 2011 increased by $126.4 million or 38.7%, due to the inclusion of Portec Rail Product sales in 2011 and a 14.7% sales increase in the comparable L.B. Foster business.
• Gross profit margin was 16.4%, 40 basis points higher than the prior year period due to the inclusion of the results of Portec Rail Products, partially offset by unfavorable gross profit adjustments of $4.4 million related to costs incurred primarily to exit our Grand Island concrete tie facility and $2.6 million of increased unfavorable LIFO adjustments.
• Selling and administrative expenses increased $20.1 million or 67.7% from the prior year due primarily to the inclusion of Portec's operating costs.
• The Company's income tax rate was 31.2% compared to 35.6% in the prior year.  The rate reduction was due to the impact of Portec Rail Products' results and the lower effective tax rate applicable to its foreign operations as well as the receipt of state tax refunds.
• Net income for the first nine months of 2011 was $16.8 million or $1.62 per diluted share compared to net income of $14.3 million or $1.38 per diluted share in 2010.
• Adjusted EBITDA for the first nine months of 2011 was $36.2 million compared to $29.2 million in the prior year.
• Cash generated from operating activities was $20.4 million for the third quarter of 2011 compared to $15.9 million of cash provided from operating activities in 2010.  For the nine months, cash generated from operating activities was $10.0 million in 2011 compared to $32.7 million in 2010.  
• The Company purchased 230,612 shares of its common stock during the third quarter of 2011 at an average cost of $21.39 per share for a total cost of approximately $4.9 million.

L.B. Foster Company will conduct a conference call and webcast to discuss its third quarter 2011 operating results and business conditions on Tuesday, November 1, 2011 at 11:00 am ET.  The call will be hosted by Mr. Stan Hasselbusch, 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 49858712.

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; resolution of the product claim;  and those matters set forth in Item 22, "Commitments and Contingencies" and in Item 1A, "Risk Factors" of the Company's Form 10-K for the year ended December 31, 2010, 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.

SOURCE L.B. Foster Company