L. B. Foster Company ((FSTR)) has held its Q2 earnings call. Read on for the main highlights of the call.
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L.B. Foster Company recently held its earnings call, presenting a generally positive outlook despite some challenges. The company reported a return to sales growth and significant improvements in backlog and EBITDA, which were highlighted as key achievements. However, concerns remain regarding the Rail segment and the U.K. market. On a positive note, the successful negotiation of the revolving credit facility and improved leverage ratios indicate a strong financial position moving forward.
Return to Sales Growth
The company experienced a return to sales growth in the second quarter, with revenues increasing by 2% compared to the previous year. This growth was primarily driven by the Infrastructure segment, which saw a remarkable 22.4% increase in sales, led by a 36% surge in the Precast Concrete business.
Significant Backlog Increase
L.B. Foster reported a substantial increase in demand for its Rail offerings, with backlog rising by 42.5% from the start of the quarter. This indicates strong future demand and potential for growth in this segment.
Improved Financial Metrics
Despite modest sales growth, the company achieved a 51.4% increase in adjusted EBITDA over the previous year. This improvement was driven by favorable margins in the Infrastructure segment and strong SG&A leverage capacity across the enterprise.
Improved Gross Leverage
The company successfully reduced its net debt to $77.4 million by the end of the quarter, with gross leverage improving from 2.7x to 2.2x. This demonstrates L.B. Foster’s commitment to strengthening its financial position.
Successful Negotiation of Revolving Credit Facility
L.B. Foster successfully negotiated an extension of its revolving credit facility to June 2030, increasing borrowing capacity, reducing costs, and relaxing restrictions. This strategic move enhances the company’s financial flexibility.
Rail Revenue Decline
Despite overall positive performance, the Rail segment experienced an 11.2% decline in revenues compared to last year. This was primarily due to delayed order development in Rail Distribution and reduced activities in the U.K.
Challenges in the U.K. Market
The U.K. market continues to pose challenges for L.B. Foster, affecting the TS&S backlog and necessitating business rightsizing. The company is actively addressing these issues to stabilize its operations in the region.
Exit of U.K. Product Line
The decision to exit an Automation and Material Handling product line in the U.K. resulted in a $1.1 million charge. This move is part of the company’s efforts to streamline operations and focus on core areas.
Impact of Higher Effective Tax Rate
The quarter’s higher effective tax rate was attributed to the inability to recognize a tax benefit on U.K. pretax losses, which impacted the company’s overall tax position.
Forward-Looking Guidance
Looking ahead, L.B. Foster anticipates continued growth in the Precast Concrete and Friction Management segments, supported by favorable federal project funding and strategic execution. The company expects approximately $41 million in free cash flow for the second half of 2025, reflecting strong profitability and lower working capital needs.
In summary, L.B. Foster’s earnings call highlighted a positive trajectory with a return to sales growth and improved financial metrics. While challenges in the Rail segment and U.K. market persist, the company’s strategic initiatives and strong financial position provide a solid foundation for future growth.