L.B. Foster Company (FSTR) Earnings

Management highlights

• John mentioned strong start to the year with robust sales growth, improved profitability, and reduced gross leverage. • Bill reviewed consolidated results with net sales up, gross profit up, SG&A expenses up but percent of sales improved. • John covered market outlook and financial guidance, noting return to normal customer demand in rail and favorable end market developments in infrastructure. • Discussed capital allocation priorities like managing debt, capital spending, stock repurchases, and evaluating tuck-in acquisitions.

Guidance

• Trailing 12-months sales of $563.4 million and adjusted EBITDA of $42.4 million, both at or near midpoints of 2026 full-year guidance. • Reaffirming full-year financial guidance for now and will revisit outlook after second quarter.

Segment performance

Rail: Q1 revenues were $74.8 million, up 38.4% compared to last year. Rail margins of 21.6% were down 70 basis points. Q1 orders were down 3.2% but backlog was up 11.3%. Infrastructure solutions: Net sales increased $2.6 million, or 5.9%. Infrastructure gross profit increased $1.4 million, with margins up 200 basis points to 20.6%. Infrastructure orders declined $4.4 million, backlog totaling $107.4 million is down $38 million versus last year.

Risks & headwinds

• Fuel charges within freight costs starting to elevate, though not a big impact in Q1 but something to mitigate. • Volatile geopolitical environment could potentially impact end markets or demand of products, though not significant to date.

Analyst Q&A

• Q: John, in your prepared comments, you talked about friction management, which is a great driver of growth and margin. How difficult is it to take the North American model and move it over to European markets?

  A: Thanks for joining us today, Liam, and We've been working on that actually for the last five years of getting that acceptance, not just here in North America, but getting the excitement of this product over specifically in Western Europe. And we're going through Germany to make that happen. So we started working directly with the largest German transit authority over there, getting acceptance and accreditation of the product, and we're looking for continued as well as actual orders and sales happening this year, end of this year, as well as going to next year. So it is a slower adoption, if you will, because of the brand recognition is primarily North America. But they're picking up on the excitement, especially in the transit space over there, because it's just adding so much value. They're seeing the value. And the world, as far as friction management, is relatively small. And the So we're pretty excited about what we have right now and the ability to continue to grow that.

• Q: Bill, you had negative operating cash flow for the quarter, which is perfectly normal for seasonality purposes. But on a year-over-year basis, as you point out in your comments, it was significantly better. What contributed to that improvement?

  A: Yeah, a few things, Liam. The profitability of the business overall, first of all, was much better. And then working capital needs this quarter were also a bit lower. And then the incentive arrangements for the company were a bit higher last year than they were this year, just in terms of the payouts. So we would expect where our working capital is at the moment, We'll start to build further through the second quarter as we start to get ready for the growth expectations we see through the balance of the year. But just timing of some of the... I'm thinking about... and addressing our UK business and the working capital deployed over there. The model actually requires less working capital and that's part of the benefit that we saw in Q1. Just a quick follow-up and I'll turn it over. Do you see any change in your overall working capital metrics or is it just normal quarter-to-quarter seasonality? A: I would say overall, we are running at a lower working capital need overall on an average as a percentage of sales.

• Q: Hey, Bill, you mentioned that fuel costs within freight, fuel charges within freight costs for infrastructure solutions are starting to creep up. It's not a big surprise there, given the macro front. But can you highlight if higher fuel and freight costs are isolated to just the infrastructure solution segment, or is it the broader portfolio, and then also how you're navigating these costs And are there any other rising input costs that are worth highlighting?

  A: Yeah. So maybe just to start with the fuel costs, certainly that would be within our inbound and outbound freight cost structure. Obviously, with the current market conditions, that's been an escalating cost that we're seeing across the portfolio. It's the most significant for sure. within infrastructure, just given the delivery costs associated with the precast products being a heavier overall tar weight. But we've had different programs that we're implementing in terms of pricing where we can to mitigate those costs. Just like any other company, that's something that we're looking to pass on. It wasn't a significant driver in Q1, but certainly starting to see it here in Q2, and we're managing that cost with pricing actions where we can. And then I guess to follow up on your other question, in terms of other escalating costs, nothing of significance at this point that we would point to.

• Q: You highlighted you're seeing some early signs that the actions taken in the UK rail business are translating into improvements. Is that business becoming less of a drag? Was it less of a drag to your pre-tax profit here in the first quarter than it was in the fourth quarter? And what kind of sequential improvement in that business is kind of embedded in the 2026 outlook?

  A: Yeah, so our actions are definitely taking hold. You know, we made a number of structural changes over there as well as focus on what business that we have and more importantly what we want to do over there. And so we're seeing the benefits of that. And when Bill was mentioning the working capital as far as the amount of working capital as percent of sales, that's a big part of our improvement year over year. So we're very pleased with where we're at right now and we'll continue to make sure that we stay in front of what it is. But it's a big part of our company. It's a big part of rail. When we talk about the year-over-year improvement and the improvement of profitability, that's where the technology innovation is. And when earlier questioned by Liam, that's a big part of our continued growth that we're doing, specifically in friction management. And that's kind of our gateway to make that happen. So we've been taking quite a bit of action. Then we're going to stay focused to make sure that it's where we want it to be. But we are pleased with the first quarter results and coming out of where we ended last year.

• Q: And then last one for me would just be if you could touch on the inorganic growth pipeline for precast products and any other market penetration initiatives you currently have underway within precast products.

  A: Well, first of all, we really focus on organic. I just want to make sure we really hammer that. We've got a lot of really good Exciting things going on, and that's where我们're taking our capital. Bill mentioned we spent $3 million of capital in the quarter, 2.4% of sales. We talked about spending 2.7% as far as the year. That's where we're spending our money because we've got great growth, organic growth programs going on right now, specifically in the infrastructure business and namely in concrete. And, of course, we have our filter related to other inorganic opportunities where it makes sense. We continue to look at bolt-on type operations, and that will be able to add additional product lines or geographic expansion for us. And they're out there, and we're working through options or opportunities right now. But first and foremost, we're executing on what we have in front of us, and that's some nice growth here organically in those specific businesses. So we're pleased with results to date.