L.B. Foster Highlights Rail Tech Growth as Cash Flow Hits Best Level Since 2017

L.B. Foster highlighted 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. The company 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. The company also highlighted off-track monitoring technology, including LIDAR-based systems intended to provide early warnings of obstacles or other conditions on rail lines. Rail Products and certain U.K. and steel operations are described as stable, cash-generating businesses, while Global Friction Management, Total Track Monitoring and precast concrete are identified as the company’s growth platforms. L.B. Foster invests about 2.7% of sales in capital programs to support those organic-growth initiatives. In the infrastructure segment, the company produces turnkey precast concrete buildings and related niche products. Demand has benefited from labor constraints at construction sites, as customers increasingly seek products designed in factories and delivered for more rapid installation. The company’s concrete facilities are largely located in the South and Southeast, including markets such as Dallas, Florida, Tennessee and the Carolinas. Facilities near areas benefiting from data-center development are operating at or near capacity. The company’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. 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. 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%. Operating cash flow totaled $17.9 million in the quarter, which was called the company’s best quarterly operating cash flow result since 2017. Backlog declined 8.8%, or $24 million, but $19 million of that change related to an order cancellation during the prior year’s third quarter. Sales were up 7.6% year over year in the first half. First-half adjusted EBITDA increased 19.6%. Second-quarter operating cash flow was $17.9 million. Quarter-end debt was $42 million, compared with $77 million in the prior-year second quart.