L.B. Foster Company — Form 10-Q Summary
Business Context and Reporting Period
L.B. Foster Company is a global provider of engineered and manufactured infrastructure products and technology-enabled services. Its reportable segments are Rail, Technologies, and Services; Precast Concrete Products; and Steel Products and Measurement. This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared primarily with the corresponding 2022 periods. Dollar amounts are in thousands except per-share data.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2023 | Year-over-Year Change | Six Months Ended June 30, 2023 | Year-over-Year Change |
|---|---|---|---|---|
| Net sales | $148,034 | 12.6% | $263,522 | 14.4% |
| Gross profit | $32,252 | 38.5% | $55,543 | 39.8% |
| Gross margin | 21.8% | Up 410 basis points | 21.1% | Up 380 basis points |
| Operating profit | $6,349 | 156.0% | $6,852 | Improved from $193 |
| Net income attributable to L.B. Foster | $3,531 | 75.7% | $1,379 | 210.6% |
| Diluted earnings per share | $0.32 | Up from $0.18 | $0.12 | Up from $0.04 |
Six-month interest expense increased to $2,962 from $754, while other expense was $2,546 compared with other income of $1,264 in the prior-year period. The six-month effective tax rate was 1.6%, compared with 44.5% in 2022; management expects tax-rate variability because a full valuation allowance remains against U.S. deferred tax assets.
Six-month net cash used in operating activities was $3,333, an improvement from $13,382 used in 2022. Investing activities provided $7,716, primarily from $7,706 of proceeds from business dispositions. Financing activities used $3,563, including net debt repayments. Cash increased by $998 to $3,880 at June 30, 2023.
Total debt, including finance leases, was $89,505 at June 30, 2023, compared with $91,879 at December 31, 2022. Revolving-credit borrowings were $89,280. The $130,000 revolving facility had $39,547 of net availability after borrowings and letters of credit, producing total available funding capacity of $43,427 including cash. The facility matures August 13, 2026, and the Company was in compliance with its financial covenants.
Backlog was $290,076 at June 30, 2023, compared with $250,845 at June 30, 2022 and $272,251 at December 31, 2022. Approximately 12.0% of the June 30, 2023 backlog was expected to extend beyond June 30, 2024.
Material Changes Versus the Prior Comparable Period
- Rail, Technologies, and Services second-quarter sales increased 12.0% to $91,616, with segment operating profit up 65.8% to $6,627. Six-month sales increased 7.2% to $156,000.
- Precast Concrete Products second-quarter sales increased 43.4% to $33,865 and segment operating profit improved to $1,296 from a $125 loss. The VanHooseCo acquisition contributed materially to the increase.
- Steel Products and Measurement second-quarter sales declined 13.6% to $22,553, primarily because of the Chemtec divestiture and weaker bridge-grid-decking demand, but segment operating profit increased 91.1% to $1,456.
- Company-wide gross margin expanded materially because of portfolio changes, higher volumes, improved product mix, pricing, and stronger margins in selected businesses.
- Selling and administrative expense increased 26.5% in the quarter and 25.2% for the six months, driven primarily by personnel costs, acquisitions, and portfolio actions. As a percentage of sales, six-month expense increased to 17.4% from 15.9%.
- The Company sold its Chemtec business in March 2023 and its Ties business in June 2023, recording combined six-month losses of $3,074. These dispositions generated $7,706 of cash proceeds, which were used primarily to reduce debt.
Outlook, Commentary, Risks, and Unusual Items
Management stated that it is continuing a strategic transformation toward a technology-focused infrastructure solutions provider, with emphasis on Rail Technologies, Precast Concrete, organic growth, debt reduction, and shareholder value. The filing does not provide a clear quantitative full-year revenue, earnings, or cash-flow guidance range.
Management cited strong demand in domestic rail markets and in southern and northeastern U.S. precast markets, government infrastructure investment tailwinds, improved pricing, and growth in Protective Coatings. Offsetting factors included weak U.K. economic conditions, completion of the Crossrail project, softer bridge-grid-decking demand, higher personnel costs, interest-rate exposure, and working-capital requirements.
- The Company must make remaining UPRR settlement payments of $6,000 during the remainder of 2023 and $8,000 in 2024.
- The Company is a potentially responsible party related to the Portland Harbor Superfund Site. Environmental reserves were approximately $2,447 at June 30, 2023. Management does not currently expect a material adverse effect, but acknowledges that an unfavorable allocation or remediation outcome could be material.
- Backlog may be canceled or changed by customers and is not considered a reliable indicator of future revenue or financial performance.
- Variable-rate debt remains exposed to interest-rate changes, although the Company has $40,000 of SOFR-based interest-rate swaps.
- Future goodwill impairment charges remain possible if projections for the Rail, Technologies, and Services or Precast Concrete Products reporting units deteriorate.
- The Company authorized up to $15,000 of common-stock repurchases through February 2026, subject to liquidity and covenant restrictions; $662 was repurchased during the first six months.
- Management reported effective disclosure controls as of June 30, 2023 and no material changes to internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm the sustainability of gross-margin expansion after the Chemtec and Ties divestitures and the integration of VanHooseCo and Skratch.
- Monitor operating cash conversion, inventory growth, contract assets, and the Company’s reliance on revolving-credit availability.
- Assess the effect of higher interest expense and future interest rates on earnings and liquidity.
- Review the remaining UPRR settlement obligations and potential exposure from the Portland Harbor environmental matter.
- Evaluate backlog quality, customer concentration, cancellation risk, and the timing of conversion into revenue.
- Reconcile reported earnings with unusual divestiture losses, tax-rate fluctuations, foreign-currency effects, and other nonrecurring items.
- Review the amended bylaws filed after quarter-end, effective August 7, 2023, particularly shareholder nomination, proxy solicitation, and forum-selection provisions.