Federal Signal Raises 2026 Adjusted EPS Outlook After Q3 Orders Jump 33%

Federal Signal Corp. (NYSE: FSS) raised its full-year adjusted earnings outlook after reporting higher third-quarter sales, profit and orders, led by a 21% sales increase in its Environmental Solutions Group. The company now expects 2026 adjusted earnings per share of $5.20 to $5.32, compared with its previous range of $5.12 to $5.30.

Federal Signal also narrowed its full-year net sales forecast to between $2.61 billion and $2.64 billion from $2.58 billion to $2.67 billion, primarily because of anticipated delays in deliveries of third-party refuse trucks. The revised range would represent annual sales growth of 20% to 21%, according to the company.

Sales, earnings and orders increase

Third-quarter net sales rose 18% to $655.5 million from $555.0 million a year earlier. Operating income increased 19% to $111.4 million, while the operating margin edged up to 17.0% from 16.9%.

Net income was $79.6 million, up 17%, and GAAP diluted EPS increased 16% to $1.29. Adjusted EPS rose 18% to $1.34. Adjusted EBITDA advanced 21% to $140.4 million, with the adjusted EBITDA margin expanding to 21.4% from 20.9%.

Gross margin slipped to 28.9% from 29.1%, while selling, engineering, general and administrative expenses declined as a percentage of sales to 10.6% from 11.1%. Net interest expense increased to $5.3 million from $2.8 million.

Orders climbed 33% to $620.1 million, and quarter-end backlog totaled approximately $967 million. Excluding third-party Labrie refuse-truck orders and backlog acquired with Western Technology, orders increased about $158 million, or 34%, from the prior-year period. The backlog included approximately $33 million of third-party Labrie refuse orders.

Environmental Solutions drives growth

Environmental Solutions Group sales increased 21% to $563.8 million, and operating income rose 19% to $101.4 million. Adjusted EBITDA gained 20% to $126.4 million, while adjusted EBITDA margin was 22.4%, compared with 22.5% a year earlier and within the upper half of the group’s 18% to 24% target range.

Excluding third-party Labrie refuse-truck sales, the group recorded mid-single-digit organic sales growth, the company said. Aftermarket sales rose 21% and accounted for about 26% of the segment’s quarterly revenue, supported by double-digit increases in parts, used-equipment sales and rental income. ESG orders increased 43% to $529.7 million.

Safety and Security Group sales rose 2% to $91.7 million, while operating income increased 4% to $22.8 million. Adjusted EBITDA was up 4% at $23.9 million, and adjusted EBITDA margin improved by 50 basis points to 26.1%, placing it in the upper half of the group’s 22% to 28% target range. Orders declined 6% to $90.4 million.

Cash generation supports investment and acquisitions

Federal Signal generated approximately $91 million of operating cash flow during the quarter, about 50% more than a year earlier. Operating cash flow for the first nine months reached approximately $306 million, up 94%. Management continues to target annual cash conversion of 100%, measured as operating cash flow divided by net income.

The company repaid about $34 million of debt during the quarter and approximately $143 million during the first nine months. At September 30, Federal Signal had about $74 million of cash and cash equivalents, net debt of approximately $347 million and roughly $1.04 billion available under its revolving credit facility.

Federal Signal completed the approximately $9 million acquisition of Western Technology in July. After the quarter ended, it acquired Global Vacuum Systems for an initial payment of about $29 million. The Texas-based company makes custom liquid vacuum tank trucks used to collect and transport regulated or hazardous materials. Federal Signal said the acquisition fills a gap in its vacuum-truck portfolio and identified potential sales-channel and platform synergies.

Management also said the integrations of New Way and Mega were ahead of schedule and that both businesses had exceeded internal margin and profit-contribution expectations in each quarter of 2026.

Federal Signal expects 2026 capital expenditures of $45 million to $55 million. Its outlook assumes net interest expense of approximately $24 million to $25 million without additional acquisitions, other expense of $3.0 million to $3.5 million, and a fourth-quarter effective tax rate of about 25% excluding additional discrete items.

The outlook remains subject to economic and political uncertainty, tariffs and other trade conflicts, inflation, supply-chain disruptions, raw-material availability and pricing, foreign-exchange movements and interest-rate changes. Federal Signal also identified acquisition integration, cybersecurity, regulatory developments, litigation and product competition among the factors that could cause actual results to differ materially from its expectations.