Federal Signal Corporation Q2 FY2025 earnings call

• ESG delivered 18% year-over-year net sales growth and 26% increase in adjusted EBITDA with higher production levels, aftermarket growth, and contributions from recent acquisitions. Progress at Elgin Street Sweeper plant with capacity investments. Aftermarkets had 13% year-over-year revenue growth. - SSG had 3% top line growth, 17% increase in adjusted EBITDA, and 320 basis point improvement in adjusted EBITDA margin driven by price/cost management, volume increases, and in-sourcing benefits. - Strategic initiatives include good, better, best product strategy, cross-selling efforts, and ongoing M&A pipeline. - Revised EBITDA margin targets: ESG raised to 18%-24%, consolidated to 16%-22%.

ESG: Net sales for the quarter were $481 million, up $72 million or 18% compared to last year. Operating income was $91.9 million, up $19 million or 26% compared to last year. Adjusted EBITDA was $110.8 million, up $22.6 million or 26% compared to last year, with an adjusted EBITDA margin of 23.1%, an improvement of 150 basis points compared to last year. SSG: Net sales for the quarter were $84 million, up $3 million or 3% compared to last year. Operating income was $21.5 million, up $3.2 million or 17% compared to last year. Adjusted EBITDA was $22.6 million, up $3.3 million or 17%, with a margin of 26.9%, up 320 basis points compared to last year.

• Raised full-year adjusted EPS outlook to $3.92-$4.10 from $3.63-$3.90. - Raised net sales outlook to $2.07 billion-$2.13 billion from $2.02 billion-$2.10 billion. - Reaffirmed CapEx guidance of between $40 million and $50 million for the year.

• Monitoring tariff impacts on SSG business, as SSG has some exposure to tariffs.

Q: Tim Thein asked about ESG margin drivers and tax reform impact on demand and M&A.

A: Ian Hudson said increased production at ESG facilities was a major margin driver. Jennifer Sherman said tax reform could benefit industrial customers, but M&A impact not expected this year.

Q: Sam Karlov asked about margin targets and territory reassignment.

A: Jennifer Sherman said margin targets increased due to internal initiatives, and territory order intake was in line with expectations.

Q: Walter Scott Liptak asked about SSG margin outlook and in-sourcing.

A: Ian Hudson said SSG margin outlook was based on current state, and Federal Signal businesses evaluate in-sourcing opportunities.

Q: Steve Barger asked about product strategy and M&A multiples.

A: Jennifer Sherman discussed good, better, best strategy and M&A pipeline, noting multiples vary by asset.

Q: Chris Moore asked about orders and tariff pull-through.

A: Jennifer Sherman said orders were broad-based and no significant tariff pull-through.

Q: Mike Shlisky asked about July orders and good, better, best margin impact.

A: Jennifer Sherman said pending quarter orders not commented on, and new products have favorable economics.

Q: Greg Burns asked about SSG order timing and M&A markets.

A: Ian Hudson said SSG order timing was due to timing, and Federal Signal is looking at new markets and M&A opportunities.