L.B. Foster (NASDAQ:FSTR) outlined its growth strategy, portfolio transformation and second-quarter performance at an investor presentation, with executives emphasizing investments in rail technology, precast concrete infrastructure products and balance-sheet flexibility.
President and CEO John Kasel said the company, which is approaching its 125th anniversary, has 1,200 employees and operates in two reporting segments: Rail Technologies and Services, serving freight and transit rail customers, and Infrastructure, which includes precast concrete and steel-related operations.
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Kasel said L.B. Foster has simplified its rail-products business in recent years by reducing product lines, closing locations and exiting areas where components had become increasingly commoditized. The company has shifted attention toward technology and engineering offerings, including Global Friction Management and Technology Services & Solutions.
Those businesses focus on helping rail operators improve fuel efficiency, safety, asset life, ride quality, noise and vibration, Kasel said. He also highlighted off-track monitoring technology, including LIDAR-based systems intended to provide early warnings of obstacles or other conditions on rail lines.
Focus on Higher-Growth Businesses
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Kasel described Rail Products and certain U.K. and steel operations as stable, cash-generating businesses, while identifying Global Friction Management, Total Track Monitoring and precast concrete as the company’s growth platforms. L.B. Foster invests about 2.7% of sales in capital programs to support those organic-growth initiatives, he said.
In the infrastructure segment, the company produces turnkey precast concrete buildings and related niche products. Kasel said demand has benefited from labor constraints at construction sites, as customers increasingly seek products designed in factories and delivered for more rapid installation.
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The company’s concrete facilities are largely located in the South and Southeast, including markets such as Dallas, Florida, Tennessee and the Carolinas, according to Kasel. He said facilities near areas benefiting from data-center development are operating at or near capacity.
Kasel also said L.B. Foster’s midstream energy coating operations are operating at or near capacity. The company has an inline coating relationship with ACIPCO and operates another steel-coating business in Texas that is aligned with a steel producer, he said.
Second-Quarter Results and Cash Flow
Chief Financial Officer Sean Reilly said second-quarter sales declined 3.5%, primarily because of the timing of product sales in the Rail Products division. For the first half of the year, however, sales rose 7.6% year over year, or $18.3 million.
Second-quarter gross margin expanded by 80 basis points, despite a $1 million headwind associated with costs to exit a U.K. product line, Reilly said. Selling, general and administrative expenses increased due to employment costs and variable compensation tied to the company’s year-to-date performance.
Adjusted EBITDA declined by $575,000 in the second quarter, though first-half adjusted EBITDA increased $3.8 million, or 19.6%, Reilly said. Operating cash flow totaled $17.9 million in the quarter, which Reilly called the company’s best quarterly operating cash flow result since 2017.
Backlog declined 8.8%, or $24 million, but Reilly said $19 million of that change related to an order cancellation during the prior year’s third quarter.
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Sales were up 7.6% year over year in the first half.
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First-half adjusted EBITDA increased 19.6%.
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Second-quarter operating cash flow was $17.9 million.
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Quarter-end debt was $42 million, compared with $77 million in the prior-year second quarter.
Portfolio Actions and Capital Allocation
Reilly said L.B. Foster has completed more than seven divestitures and product-line exits since 2021, targeting lower-margin or commodity-oriented operations. He said the company’s trailing-12-month gross margin reached 21.4% at the end of the second quarter, up from 16.8% in 2021, while adjusted EBITDA margin increased to 7.5% from 3.6% over that period.
The company ended the quarter with a gross leverage ratio of one times, within its target range of one to 1.5 times, Reilly said. It had $107.5 million in available funding and approximately $28.7 million remaining under its share-repurchase authorization. Since February 2023, L.B. Foster has repurchased 9.3% of its outstanding shares, he said.
Reilly said the business generated approximately $28 million annually in free cash flow over the past three years. This year, the company is targeting $20 million of additional cash flow at the midpoint of its range while investing about $5 million above historical levels in capital spending to support organic growth. He also said the company has $71 million of federal net operating losses, which it expects will limit annual cash taxes to roughly $2 million.
Outlook and U.K. Operations
Kasel said the company expects rail-related opportunities to benefit from funding for rail infrastructure and transit systems, including work connected to the Chicago Transit Authority. He said L.B. Foster has received an award related to that rail line and expects additional awards before year-end.
He said demand for modular concrete buildings has continued even as activity under the Great American Outdoors Act winds down. The company has not seen a pullback in orders and is expanding into non-government projects, while government demand remains strong, he said.
Addressing the U.K. business, Kasel said L.B. Foster has taken actions to simplify operations and exited two product lines, recording related charges in the second quarter. He said the company has moved away from longer-duration work and now focuses on shorter, specific projects. Kasel added that the U.K. engineering operation remains important to the company’s Total Track Monitoring capabilities and LIDAR-related technology.
For the full year, Kasel cited company guidance for sales of $540 million to $580 million and adjusted EBITDA of $41 million to $46 million. He said the company plans to prioritize organic expansion while retaining the ability to pursue smaller tuck-in acquisitions.
About L.B. Foster (NASDAQ:FSTR)
L.B. Foster Company is a diversified infrastructure solutions provider offering products and services to the transportation, energy, and construction markets. Founded in 1902 and headquartered in Pittsburgh, Pennsylvania, the company has built a reputation for delivering specialty materials and engineering solutions that support critical infrastructure projects across various industries.
The company’s operations are organized into three primary segments: Rail Products & Services, Construction Products, and Tubular & Energy Products.
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The article “L.B. Foster Highlights Rail Tech Growth as Cash Flow Hits Best Level Since 2017” was originally published by MarketBeat.
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