L.B. Foster Company 2021 Form 10-K Summary
Business context and reporting period
L.B. Foster Company is a global provider of engineered, manufactured infrastructure products and services serving rail, civil infrastructure, energy, transportation, and industrial markets. This Form 10-K covers the fiscal year ended December 31, 2021, with comparative fiscal-year information for 2020. The company reorganized its reporting structure into three segments: Rail, Technologies, and Services; Precast Concrete Products; and Steel Products and Measurement.
- Rail represented 58.4% of 2021 sales, Precast 13.8%, and Steel Products and Measurement 27.8%.
- Approximately 24% of 2021 sales were generated outside the United States.
- The company had 991 employees at December 31, 2021.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $513.6 million | $497.4 million | Up 3.3% |
| Gross profit | $86.3 million | $95.0 million | Down 9.2% |
| Gross margin | 16.8% | 19.1% | Down 230 basis points |
| Operating profit | $4.5 million | $15.6 million | Down 71.4% |
| Income from continuing operations | $3.5 million | $25.8 million | Down 86.6% |
| Diluted EPS from continuing operations | $0.33 | $2.42 | Down $2.09 |
| Net income attributable to L.B. Foster | $3.6 million | $7.6 million | Down 52.2% |
| Adjusted EBITDA | $18.7 million | $32.0 million | Down 41.6% |
| Net cash from continuing operations | $(0.8) million | $20.5 million | Down $21.4 million |
| Capital expenditures | $4.6 million | $9.2 million | Down $4.6 million |
Rail sales increased 8.4% to $299.7 million, while segment operating profit increased 7.4% to $14.2 million. Precast sales increased 12.1% to $71.0 million, and segment operating profit increased to $1.5 million from $0.6 million. Steel Products and Measurement sales decreased 9.4% to $142.9 million, and the segment reported a $2.4 million operating loss compared with $7.9 million of operating profit in 2020.
At December 31, 2021, cash and cash equivalents were $10.4 million, total debt was $31.3 million, and net debt was $20.9 million. The company had $98.4 million of net availability under its revolving credit facility and total available funding capacity of $108.7 million. The current ratio was 2.08. The revolving facility matures August 13, 2026, and the company was in compliance with its financial covenants.
Backlog was $210.2 million, down 15.3% from $248.2 million. Rail backlog was $96.6 million, Precast backlog was $68.6 million, and Steel Products and Measurement backlog was $45.0 million.
Material changes versus the prior comparable period
- Sales growth in Rail and Precast was more than offset by weaker Steel Products and Measurement performance, particularly in Coatings and Measurement, which faced depressed midstream energy and pipeline demand.
- Gross margins declined in all three segments because of labor and raw-material inflation, supply-chain disruptions, manufacturing inefficiencies, and lower volume in energy-related businesses.
- The company completed the sale of its Piling Products division on September 24, 2021, receiving $22.7 million in cash during 2021 and recording a pretax gain of $2.7 million. An additional $1.2 million was expected in 2022.
- Debt declined $13.7 million, or 30.5%, principally using proceeds from the Piling divestiture. The amended credit agreement increased revolver capacity from $115.0 million to $130.0 million and extended maturity to 2026.
- Operating cash flow deteriorated to an $0.8 million use from $20.5 million of cash generation in 2020, primarily reflecting working-capital requirements and an $8.0 million Union Pacific Railroad settlement payment.
- 2020 results benefited from a nonrecurring $15.8 million income-tax benefit related to the Test and Inspection Services divestiture. In 2021, the company recorded a $2.1 million net tax benefit related to that disposition and increased its deferred-tax valuation allowance by $1.8 million.
- No dividends were declared in 2021 or 2020.
Guidance, outlook, commentary, risks, and unusual items
Management did not provide specific quantitative 2022 revenue or earnings guidance in the filing. Management expects infrastructure investment, including benefits from the U.S. Infrastructure Investment and Jobs Act, to support longer-term Rail and infrastructure demand. The company believes its liquidity and amended credit facility provide capacity for organic investment and selective bolt-on acquisitions.
Near-term conditions remain challenging. Management expects inflationary labor and material costs, supply-chain constraints, labor shortages, and lingering COVID-19 effects to continue pressuring margins through 2022 or longer. The Coatings and Measurement outlook remains weak because pipeline projects continue to be deferred, although some areas showed modest improvement. Freight rail activity and transit ridership improved but remained below pre-pandemic levels.
- The company remains exposed to COVID-19 impacts, project delays, supply-chain disruption, labor availability, and inflation.
- Other significant risks include energy-price volatility, reduced government infrastructure funding, customer concentration, competition, foreign-currency and international risks, Brexit-related uncertainty, cybersecurity, ERP implementation, and LIBOR transition.
- The company experienced a cyberattack in October 2020 that temporarily disrupted operations; management stated it did not result in a material adverse effect.
- The Union Pacific settlement requires $8.0 million annual payments through 2024; $24.0 million remained payable after 2021.
- The company is a potentially responsible party in the Portland Harbor Superfund matter. Management stated that the ultimate impact cannot be predicted but does not currently expect a material adverse effect. The environmental liability recorded at December 31, 2021 was $2.5 million.
- Revenue recognition on long-term contracts depends on estimates of costs to complete and was identified as a critical audit matter. Deferred tax asset realizability and valuation allowances were also identified as critical audit matters.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether Rail and Precast growth can offset continued weakness in Steel Products and Measurement.
- Whether price increases and cost actions can recover inflationary labor, material, and supply-chain costs and restore gross margins.
- The conversion of the $210.2 million backlog into revenue, including cancellation, timing, and margin risk.
- Operating cash flow, working-capital requirements, and the company’s ability to fund the remaining Union Pacific settlement payments.
- Compliance with credit agreement leverage and fixed-charge coverage covenants, particularly if earnings remain weak or acquisitions are pursued.
- The timing and amount of the remaining $1.2 million Piling divestiture proceeds and the ongoing effects of the divestiture on sales and backlog.
- Potential changes in deferred-tax valuation allowances, environmental liabilities, product warranties, and other legal contingencies.
- Progress on ERP and financial-planning system implementations and the effectiveness of cybersecurity controls.