L.B. Foster Q3 2026 Earnings Call Transcript

L.B. Foster (NASDAQ:FSTR) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

L.B. Foster reported a strong third quarter with a 21.5% increase in sales, reaching $168 million, driven by higher volumes in both segments. The Rail segment saw a 32.3% sales increase, while Infrastructure Solutions sales grew by 7.6%, with robust demand in protective coatings.

The company completed the acquisition of Dalworth Enterprises, enhancing its manufacturing capabilities and expanding its presence in the precast wastewater market. The Dalworth acquisition is expected to contribute $18 million in annual revenue and $6.5 to $7.5 million in EBITDA post-integration.

Adjusted EBITDA rose 15.1% to $13.1 million, and cash flow from operations was $23.6 million, enabling significant debt reduction.

L.B. Foster raised its full-year sales and free cash flow guidance, while narrowing the range for adjusted EBITDA, forecasting sales between $570 to $590 million.

Management expressed confidence in future growth, supported by a healthy backlog of $234.7 million and strong order activity.

Full Transcript

Stephanie (Operator)

You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today’s conference call is being recorded. I would now like to hand the conference over to your first speaker today, Lisa Durante, Director of Financial Reporting and Investor Relations. Please go ahead.

Lisa Durante (Director of Financial Reporting and Investor Relations)

Thank you, operator. Good morning, everyone, and welcome to L.B. Foster’s third quarter of 2026 earnings call. My name is Lisa Durante, the company’s Director of Financial Reporting and Investor Relations. Our President and CEO, John Castle, and our Chief Financial Officer, Sean Riley, will be presenting our third quarter operating results, market outlook and business developments this morning. We’ll start the call with John providing his perspective on the company’s third quarter performance. Sean will then review the company’s third quarter financial results. John will provide perspective on market developments and company outlook in his closing comments. We will then open up the session for questions.

Today’s slide presentation, along with our earnings release and financial disclosures, were posted on our website this morning and can be accessed on our investor relations page at lbfoster.com. Our comments this morning will follow the slides in the earnings presentation. Some statements we are making are forward-looking and represent our current view of our markets and business today. These forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise or publicly release the results of any revisions to these statements in light of new information, except as required by securities laws. For more detailed risks, uncertainties and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and presentation.

We will also discuss non-GAAP financial metrics and encourage you to carefully read our disclosures and reconciliation tables provided within today’s earnings release and presentation as you consider these metrics. So with that, let me turn the call over to John.

John Castle (President and Chief Executive Officer)

Thanks, Lisa, and hello, everybody. Thanks for joining us today for our third quarter earnings call. Before discussing our quarterly results, I’d like to highlight our recent acquisition of Dalworth Enterprises, which we completed on October 28th. Dalworth is in Rice, Texas, which is approximately one hour outside Dallas, and specializes in residential precast wastewater products and the Aeris aerobic treatment system. This transaction advances our strategy of investing in attractive growth platforms, expands our manufacturing capabilities, and has proprietary technology that complements our existing offerings.

Turning to our results, I will begin on Slide 5 covering the key drivers of our third quarter results. I’m very pleased to report we delivered another strong quarter highlighted by sales growth of $29.7 million, or 21.5%, reflecting strong growth across both segments. Third quarter adjusted EBITDA increased to $13.1 million, up 15.1%, driven by sales growth and continued focus on profitability. During the quarter we generated $23.6 million in cash flow, enabling us to further reduce our debt to $28.7 million, the lowest level in more than a decade.

Backlog remained healthy at $234.7 million, providing visibility for the remainder of the year and supporting our confidence in the outlook for the business. Given our strong year-to-date performance and outlook for the balance of the year, we have increased our full year sales and free cash flow guidance while narrowing the range for our adjusted EBITDA. I’ll cover the market outlook and our financial guidance for the year after Sean runs through the financial details for the quarter. Over to you, Sean.

Sean Riley (Chief Financial Officer)

Thanks, John. Good morning, everyone. I’ll begin my comments on Slide 7 covering the consolidated results for the third quarter. As John indicated, net sales for the quarter were $168 million, a 21.5% increase from last year, driven by higher volumes in both segments. This resulted in gross profit increasing by $3.4 million from last year. Gross margin declined 200 basis points to 20.5%, primarily reflecting a higher mix of sales from our lower-margin rail distribution and U.K. businesses.

I’ll provide more color on the segments later in the presentation. SG&A expense increased $1.7 million, or 7.5%, compared to last year, reflecting higher employment-related costs including variable incentive-based compensation and medical costs. However, SG&A as a percentage of sales decreased 190 basis points to 14.1%. Adjusted EBITDA was $13.1 million, up 15.1% versus last year, driven by higher sales volumes, partially offset by higher SG&A costs. Third quarter operating cash flow was $23.6 million, driven by improved operating results and lower working capital.

Lastly, consolidated orders were up $41 million, or 35.7%, compared to the prior year. The prior year included a $19 million Summit order that was cancelled in the Infrastructure segment. Excluding the impact of this cancellation, new orders still improved by 16.7% compared to the prior year. Backlog remained at a healthy level of $234.7 million, a modest decline of 5.1% from the prior year. Turning to Slide 8, our financial profile reflects the seasonal nature of the business, with sales and adjusted EBITDA typically concentrated in the second and third quarter in line with construction activity. While our sales and profitability profile has remained fairly consistent with historical patterns, free cash flow has exceeded our typical seasonal trends, benefiting from strong cash generation in the second and third quarter due to strong operating performance and low working capital.

I’ll cover the segment performance on the next couple of slides, starting with Rail on Slide 9. Third quarter sales were $102.9 million, up 32.3% compared to last year. The primary driver was an increase in sales in Rail Products of $24.4 million, or 54.6%, driven by strong customer demand in our rail distribution business. Technology Services and Solutions sales increased $2.7 million, or 22.7%, due to short-term project work in our U.K. business.

Partially offsetting these increases was Global Friction Management, where sales decreased $1.9 million, or 9%, as timing of certain projects were concentrated in the first half of 2026. On a year-to-date basis, Global Friction Management sales increased 13.8% compared to the prior year. Rail margins were down 320 basis points, reflecting a higher mix of sales from our lower-margin rail distribution and U.K. businesses. Third quarter new orders were $87.1 million.

Rail Product orders improved 55%, which was partially offset by a decline of 10.2% in Global Friction Management. Technology Services and Solutions orders also declined 59.7%; however, this is due to a large order received in our U.K. business in the prior year. Rail backlog was down 9.8%, primarily due to higher sales volumes in the quarter. Turning to Infrastructure Solutions on Slide 10, net sales increased $4.6 million, or 7.6%, compared to last year. Precast concrete sales increased $3.9 million, or 9%, reflecting continued demand in our growth platform. Sales in our steel products business also increased $0.7 million, or 4.1%, due primarily to higher volumes in our protective coatings business. Infrastructure gross profit increased $0.9 million, driven by higher volumes. Gross margins declined slightly to 21.9%.

Infrastructure orders increased $40.2 million due to the prior-year $19 million Summit order cancellation. Excluding the impact of this cancellation, new orders improved $21.5 million, or 45.7%, compared to the prior year. Infrastructure backlog totaled $108.3 million at quarter end, an increase of $1.1 million from last year, driven by strong demand in our protective coatings business. Precast concrete backlog was lower by $10 million due to quicker-term projects.

Next I’ll cover some of the key takeaways from our year-to-date results on Slide 11. Sales increased 12.7% to $427.7 million, with growth in both segments contributing to the improvement. Rail sales increased $41.9 million, or 20.2%, with strong performance in all business units, while Infrastructure improved $6.1 million, or 3.6%, led by our precast business. Year to date, gross profit increased $8.9 million, driven by improved volumes and manufacturing execution.

In our Infrastructure segment, gross profit margins decreased 30 basis points to 21.3% due to unfavorable mix. In our Rail segment, SG&A costs increased $5.5 million over last year, attributable to higher employment costs, including $3.1 million of variable incentive-based compensation costs associated with our strong year-to-date performance and higher medical costs. Adjusted EBITDA was $29.9 million, up 17.6% versus the prior year, driven by higher volumes and gross profit improvement.

This was partially offset by higher SG&A costs. Turning to Slide 12, our strong cash generation and working capital management continued to drive meaningful balance sheet improvements during the quarter. We ended the quarter with net debt of $21.4 million, down $20.8 million from the end of the second quarter. Importantly, this positions us well for the Dalworth acquisition and associated increase in debt. Gross leverage ratio improved to 0.6 times, compared to 1.6 times a year ago, reflecting both higher earnings and continued debt reduction.

Despite the additional debt incurred to fund the Dalworth acquisition, our gross leverage ratio today is approximately 1.5 times, still within our target range. Operating cash flow for the quarter was $23.6 million, bringing year-to-date operating cash flow to $31 million. Additionally, we have approximately $64 million in federal NOLs available, which should continue to minimize cash taxes paid for the next several years. Turning to capital allocation on Slide 13, managing our debt and leverage at reasonable levels remains a top priority. While the Dalworth acquisition has increased our outstanding debt, we remain committed to managing our debt and leverage. We also remain committed to investing in our growth platforms, with capital spending targeting organic growth initiatives across the business. We expect capital spending to be approximately 2% to 2.2% of sales. 2026 share repurchases remain an important component of our capital allocation strategy. While we did not make any open market repurchases in the third quarter, the program does not expire until February of 2028, and we have $28.7 million remaining to spend on buybacks.

I’ll finish my remarks with some additional color on order rates and backlog on Slides 14 and 15. As we have noted previously, order and sale activities can be lumpy from quarter to quarter given the project-based nature of many of the end markets we serve. The trailing twelve-month book-to-bill ratio at the end of the third quarter was 0.98 to 1, due primarily to lower order rates in the fourth quarter of 2025. Both the Rail and Infrastructure segments have orders that have outpaced sales on a year-to-date basis in 2026.

Turning to Slide 15, consolidated backlog was $234.7 million at the end of the quarter, down $12.7 million from last year, driven primarily by a 9.8% decline in Rail due to a multi-year order received in our U.K. business in 2025. I’ll close by saying we are very pleased with our 2026 results, including our cash generation, debt levels, and our strong year-to-date sales and EBITDA growth. Thank you for the time this morning. I’ll now hand it back to John for his closing remarks. Back to you, John.

John Castle (President and Chief Executive Officer)

Thanks, John. I’ll begin my closing remarks on Slide 17 reviewing the developments in our key end markets. In Rail, we continue to see stable market conditions with federal programs that support our customers’ infrastructure maintenance and safety initiatives. Our Infrastructure end markets developments remain favorable as well. As a result, we continue to see a healthy pipeline of project opportunities and bidding activity. In precast, we are seeing attractive growth opportunities, and we further strengthened our position in this market with the acquisition of Dalworth Enterprises, expanding our presence in the precast wastewater market and strengthening our capabilities in a strategic geographic location. Overall, we’re pleased with the demand environment across our key end markets. Healthy backlog levels, active project pipelines and continued customer investment support our confidence in the outlook for the business.

While the macro environment remains dynamic, we continue to execute well and remain focused on driving profitability growth and creating long-term shareholder value. Turning to Slide 18, with our year-to-date performance and outlook for the balance of the year, we have raised our sales and free cash flow guidance while narrowing our adjusted EBITDA guidance. We now expect sales of approximately $570 to $590 million and free cash flow of $20 to $28 million, with adjusted EBITDA expected between $42 to $45 million.

In closing, the Dalworth-based business is expected to generate revenue of approximately $18 million per annum and is expected to provide an EBITDA contribution, including synergy benefits, of approximately $6.5 million to $7.5 million after the completion of integration activities, which are estimated to take 12 to 18 months. Since the acquisition closed in the fourth quarter, which is a seasonally slower period for the construction industry, and given our focus on integration activities, our guidance assumes no material impact from the acquisition in Q4.

Thank you for your time and continuing interest in L.B. Foster. Turn it back to the operator for the Q&A session.

Stephanie (Operator)

Thank you. At this time we will conduct the Q&A session. As a reminder, to ask a question you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Liam Burke of B. Riley Securities. Your line is now open.

Liam Burke (Analyst)

Thank you. Good morning, John. Good morning, Sean.

John Castle (President and Chief Executive Officer)

Good morning, Liam.

Liam Burke (Analyst)

John, on Friction Management, I know it was down and it’s lumpy. It’s a project-based business, so it’s totally understandable, especially since it’s up year to date, year over year. Are there any major accounts that you’re underpenetrated in where you could see some step up in sales growth?

John Castle (President and Chief Executive Officer)

We’ve had a fantastic year, as you acknowledged, and last year was great, and this year is going to be an even better year. So as far as our major customers, where we’re at today, and our deployment of our consumables and our equipment, we feel pretty good about where we’re at today. And our real growth we’re seeing is moving outside North America into Western Europe, and we’re just seeing the fruits of that start here in the third quarter. It’ll move into next year.

So we’re in a very solid position in that business right now.

Liam Burke (Analyst)

Great. And on the Dalworth acquisition, you highlighted a range of potential EBITDA contribution with synergies. Are those all cost synergies, or do you see revenue opportunities there?

John Castle (President and Chief Executive Officer)

Yeah, cost primarily. Of course, revenue—we’re looking at doing things, accelerating activities related to cost and efficiency. But more than likely we’re gonna see everything flowing through cost, and we’re not really relying on a lot of synergies to make this thing work. It’s right in our backyard. It makes sense to what we’re doing. We’re expanding our geographic location, and this is something we’ve been eyeing up for a long period of time. And we really like this acquisition.

Liam Burke (Analyst)

Great. Well, thank you, John.

John Castle (President and Chief Executive Officer)

Thanks, Liam.

Stephanie (Operator)

Thank you. Our next question is from Julio Romero of Sidoti & Company. Your line is now open.

Julio Romero (Analyst)

Thanks. Hey, good morning.

John Castle (President and Chief Executive Officer)

I’m sorry. Hey, morning. Sorry, Julio. My bad.

Julio Romero (Analyst)

All good. My first question is just on the guidance. You raised the sales range by $20 million at the midpoint, and then you narrowed the adjusted EBITDA guide. And I think the implied fourth quarter margin implies a nice step up sequentially and year over year to somewhere between 8.5% and 9.5%, or call it 9% margin for the fourth quarter. Just can you talk about what drives that margin step up?

John Castle (President and Chief Executive Officer)

Yeah. A lot of leverage going on right now, Julio. We had a fantastic quarter, as you mentioned, and the sales are there. The things we were looking for to happen this year are definitely coming together. Bidding activity, a strong backlog sitting at $234 million, really gives us a very strong ending to the year, as well as we’re projecting a nice start into next year as well. We’re seeing the activity in the coating side coming through, which is a nice business for us.

That’s a nice pickup and upside, but it’s just the leverage on the overall business in both segments. We’re busy, our plants are absorbing, and we have the opportunity to really put together a nice fourth quarter.

Julio Romero (Analyst)

Excellent. And can you talk a little bit about the precast mix and what’s going on there with the orders rising and kind of outpacing the backlog?

John Castle (President and Chief Executive Officer)

Yeah. Well, again, we’ve had a wonderful year-over-year performance in our legacy precast business. Started with our buildings business, if you will. That’s been a really good step up in profitability for the company. And now on the acquisition side, the VanHooseCo acquisition, which we did just over four years ago, we’re seeing really nice growth opportunities happening out of that part of the country as well as down the South, Southeast. So business from that point of view is very, very strong.

And we’re doing this without a lot of data center work. In fact, less than 2% of our sales is in data centers. So we feel very good about just being very strong with the work we have today and continuing to build out the infrastructure here in the U.S.

Julio Romero (Analyst)

Got it. And less than 2% in data centers would be specific to precast or the overall segment or company?

John Castle (President and Chief Executive Officer)

That’s overall. But the heaviest play we have is in precast. But that’s an overall number.

Julio Romero (Analyst)

Okay, great. And then last one for me is just any early thoughts on how we should be thinking about 2027 from a growth standpoint as we sit here today.

John Castle (President and Chief Executive Officer)

Well, again, our bidding activity is strong, our backlog is strong. The orders that we built up in the quarter, $156 million of orders, has really put us in a nice position for growth into next year. So we’ll come out with the guidance next year as we always do. But we’re looking for continuation of driving shareholder value return not just in the fourth quarter, but into next year as well.

Julio Romero (Analyst)

Excellent. I’ll pass it on. Thank you.

Stephanie (Operator)

We do have time for some additional questions. As a reminder, if you would like to ask a question, press star one one on your telephone and wait for your name to be announced. Thank you. Any additional questions? Okay. I’m not showing any further questions at this time, and I would like to now turn it back to John Castle for closing remarks.

John Castle (President and Chief Executive Officer)

Thanks, Stephanie, and thank you for joining us today. And I’d just like to once again welcome the folks from Dalworth Enterprises to the L.B. Foster Company. We’re very excited about this acquisition. It really puts us in a stronger position with what we’re doing in the Southeast related to our precast products. What we found with those folks there is a nice alignment, not just on the product side, but on the people and the culture side. So this is where the one and one equals three and beyond.

So again, welcome to the Dalworth Enterprises team, and we look forward to seeing continuation of growth and opportunities in that part of the country and the world. So thanks again for your time today, and look forward to catching up with you next year and with a strong, favorable end to our year. Take care.

Stephanie (Operator)

Thank you for your participation in today’s conference. That does conclude the program. You may now disconnect.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.