L.B. Foster Company — 2023 Form 10-K Summary
Business context and reporting period
L.B. Foster Company is a global provider of engineered, manufactured products and services for rail and infrastructure markets. The filing covers the fiscal year ended December 31, 2023, with comparative fiscal 2022 information. Beginning in the fourth quarter of 2023, the Company reorganized its reporting structure into two segments: Rail, Technologies, and Services (“Rail”) and Infrastructure Solutions (“Infrastructure”).
- Rail represented 57% of 2023 sales; Infrastructure represented 43%.
- The Company had 1,065 employees at December 31, 2023.
- Approximately 15% of 2023 sales were outside the United States, compared with 24% in 2022.
Financial performance and liquidity
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $543.7 million | $497.5 million | Up 9.3% |
| Gross profit | $112.8 million | $89.6 million | Up 25.9% |
| Gross margin | 20.7% | 18.0% | Up 270 bps |
| Operating income (loss) | $10.1 million | $(7.2) million | Improved $17.3 million |
| Net income (loss) | $1.3 million | $(45.7) million | Improved $47.0 million |
| Diluted EPS | $0.13 | $(4.25) | Improved $4.38 |
| Adjusted EBITDA | $31.8 million | $24.2 million | Up 31.4% |
| Cash flow from operations | $37.4 million | $(10.6) million | Improved $48.0 million |
| Capital expenditures | $4.9 million | $7.6 million | Down $2.7 million |
| Total debt | $55.3 million | $91.9 million | Down $36.6 million |
| Net debt | $52.7 million | $89.0 million | Down $36.3 million |
At December 31, 2023, cash and cash equivalents were $2.6 million. The $130.0 million revolving credit facility had $55.1 million outstanding, $2.8 million of letters of credit, and $72.1 million of net borrowing availability, subject to covenants. Total available funding capacity, including cash, was $74.7 million. The facility matures August 13, 2026, and the Company was in compliance with all covenants at year-end.
Interest expense increased to $5.5 million from $3.3 million because of higher interest rates and higher average borrowings during the year. The Company maintains $40.0 million of SOFR-based interest-rate swaps, with a year-end fair value asset of $1.2 million.
Material changes versus the prior comparable period
- Organic sales increased 11.7%; acquisitions contributed 4.0%, while divestitures reduced sales by 6.4%.
- Rail sales increased 3.8% to $312.2 million, with segment operating profit rising 4.2% to $11.9 million.
- Infrastructure sales increased 17.6% to $231.6 million, while segment operating profit improved to $10.0 million from a $9.1 million loss.
- Infrastructure benefited from stronger precast and protective-coatings performance, pricing, volume, and portfolio changes.
- Gross margin improvement reflected higher volumes, pricing, product mix, and the effects of portfolio changes.
- Accounts receivable declined to $53.5 million from $82.5 million, and days sales outstanding improved to 43 days from 48 days.
- Backlog declined to $213.8 million from $272.3 million, including Rail backlog of $84.4 million and Infrastructure backlog of $129.4 million.
- The Company acquired Cougar Mountain Precast for $1.6 million in November 2023 and sold the Chemtec and Ties businesses for aggregate proceeds of $7.7 million.
- The Bridge Products grid deck product line was discontinued. The exit reduced 2023 sales by $2.0 million, reduced gross profit by $3.1 million, and generated $1.4 million of exit costs. Remaining customer obligations are expected to be completed in 2024.
Guidance, outlook, risks, contingencies, and unusual items
The filing does not provide formal 2024 revenue, earnings, or cash-flow guidance. Management stated that available cash, operating cash flow, and revolving-credit capacity are expected to support operations, debt service, capital expenditures, share repurchases, and selective acquisitions.
- Management expects the adverse effects of inflation, labor costs, supply-chain constraints, and material-cost volatility to continue, although the timing and magnitude are uncertain.
- Rail new orders declined 4.7% and Rail backlog declined 19.8%, primarily because of lower Rail Distribution orders and timing of large orders.
- Infrastructure new orders declined 3.4% and backlog declined 22.5%, affected by the Chemtec divestiture and Bridge Exit.
- Goodwill and intangible-asset impairment charges were $0 in 2023 versus $8.0 million in 2022. The 2023 impairment analysis identified limited headroom in the Rail Technologies and Precast Concrete Products reporting units, creating potential future impairment risk if performance or projections weaken.
- The 2023 effective tax rate was a benefit of 37.6%. A $40.1 million valuation allowance remained against deferred tax assets, including federal, state, and foreign loss carryforwards.
- The Company must pay $8.0 million under the Union Pacific Railroad settlement in 2024. The settlement also involves targeted purchases of Company products and services through December 2024.
- The Company remains a potentially responsible party associated with the Portland Harbor Superfund Site. Environmental reserves were approximately $2.4 million, but the ultimate obligation cannot be reliably estimated and an unfavorable resolution could be material.
- Key risks include economic and infrastructure-funding conditions, customer and order concentration, raw-material and labor costs, supplier availability, interest rates, leverage and covenant compliance, cybersecurity, foreign exchange, regulatory and environmental matters, litigation and warranty claims, and execution of acquisitions and divestitures.
- The Company repurchased 134,208 shares for $2.3 million under a $15.0 million authorization extending through February 2026. No dividends were declared in 2023 or 2022.
Most important facts for investors to verify
- Whether the improved profitability and 20.7% gross margin are sustainable after excluding portfolio changes and unusual items.
- The effect of declining backlog and new orders on 2024 revenue, particularly in Rail Distribution and Infrastructure.
- Progress and remaining costs associated with the Bridge Exit and completion of related customer obligations.
- Debt reduction, interest expense, borrowing availability, and compliance with the revolving-credit covenants.
- Realization of deferred tax assets and potential changes in the $40.1 million valuation allowance.
- Potential exposure from the Union Pacific settlement, Portland Harbor environmental matter, product warranties, and other contingencies.
- Whether management can achieve expected benefits from the reorganized two-segment structure, acquisitions, divestitures, and cost-reduction initiatives.
- The filing’s audited financial statements and internal-control assessment, both of which received unqualified opinions from Ernst & Young LLP.