L.B. Foster (FSTR) Q3 2026 Earnings Call: Sales Rise 21.5%, Guidance Raised

L.B. Foster Company (NASDAQ: FSTR) reported broad-based volume growth in the third quarter of 2026, with higher sales across both Rail and Infrastructure Solutions. Management raised full-year sales and free cash flow guidance while narrowing its adjusted EBITDA range.

Key Takeaways

• Third-quarter net sales increased 21.5% year over year to $168 million, driven by higher volumes in both operating segments.
• Adjusted EBITDA rose 15.1% to $13.1 million, although gross margin declined 200 basis points to 20.5% due to a greater mix of lower-margin Rail Distribution and U.K. sales.
• Operating cash flow reached $23.6 million. Quarter-end net debt fell by $20.8 million sequentially to $21.4 million, while the gross leverage ratio improved to 0.6x.
• Consolidated orders increased 35.7% to approximately $156 million. Excluding the prior-year cancellation of a $19 million Summit order, orders still rose 16.7%.
• Management now expects 2026 sales of $570 million to $590 million, adjusted EBITDA of $42 million to $45 million, and free cash flow of $20 million to $28 million.
• L.B. Foster completed its acquisition of Dulworth Enterprises on October 28. Management expects the acquired business to generate approximately $18 million in annual revenue and contribute $6.5 million to $7.5 million of EBITDA, including synergies, after integration.

Key Financial Data

Business and Operating Performance

Rail

Rail sales increased 32.3% to $102.9 million. Rail Products revenue rose $24.4 million, or 54.6%, on strong demand in Rail Distribution. Technology Services and Solutions sales grew 22.7% due to short-term project activity in the U.K.

Global Friction Management sales declined 9% in the quarter because some project activity was concentrated in the first half of 2026. On a year-to-date basis, however, the business remained up 13.8%.

Rail gross margin declined 320 basis points because of the higher contribution from lower-margin Rail Distribution and U.K. operations. Rail Products orders increased 55%, while Global Friction Management and Technology Services and Solutions orders fell 10.2% and 59.7%, respectively. Management attributed the latter decline to a large U.K. order received in the prior year.

Infrastructure Solutions

Infrastructure Solutions sales increased 7.6% to $65.1 million. Precast Concrete revenue rose 9%, or $3.9 million, while Steel Products sales increased 4.1%, led by higher Protective Coatings volumes.

Infrastructure gross profit increased by $0.9 million, though gross margin edged down to 21.9%. Orders increased by $40.2 million. Excluding the prior-year $19 million Summit order cancellation, orders grew 45.7%.

Infrastructure backlog reached $108.3 million, up $1.1 million year over year, supported by Protective Coatings demand. Precast Concrete backlog declined by $10 million because of faster-turning projects.

Balance Sheet and Capital Allocation

The company reduced outstanding debt to $28.7 million before completing the Dulworth transaction, its lowest level in more than a decade. Management said leverage remains within its target range following acquisition financing.

L.B. Foster expects 2026 capital spending to equal approximately 2% to 2.2% of sales. The company made no open-market share repurchases during the quarter but retains $28.7 million under an authorization that expires in February 2028.

Management Guidance

Management raised its 2026 sales and free cash flow outlook and narrowed its adjusted EBITDA range:

Management expects no material fourth-quarter contribution from Dulworth because the transaction closed during the seasonally slower construction period and integration work is underway. The integration is expected to take 12 to 18 months.

Risks and Watch Items

• Gross margin remains sensitive to sales mix, particularly growth in lower-margin Rail Distribution and U.K. operations.
• Project-based orders and sales can fluctuate significantly between quarters.
• Consolidated backlog declined 5.1%, mainly because of lower Rail backlog following high quarterly sales volumes and a multiyear U.K. order received in 2025.
• Management described the macroeconomic environment as dynamic despite stable Rail conditions and favorable Infrastructure demand.
• Dulworth’s expected EBITDA contribution depends partly on integration and cost synergies expected over 12 to 18 months.

Analyst Q&A Highlights

Management said Global Friction Management remains in a strong position, with future growth opportunities increasingly coming from markets outside North America and Western Europe.

For Dulworth, expected synergies are primarily cost-based. Management said the acquisition expands L.B. Foster’s geographic reach and precast wastewater capabilities without relying heavily on synergies to support the transaction.

Management attributed the expected fourth-quarter profitability improvement to operating leverage, strong bidding activity, Protective Coatings demand, and better plant absorption across both segments.

Precast demand remains strong across the legacy buildings business and the VanHooseCo operations. Management also noted that data centers account for less than 2% of total company sales.

The company did not provide numerical 2027 guidance. Management said healthy bidding activity, a strong backlog, and approximately $156 million of third-quarter orders provide a favorable starting position for next year.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Good day, and thank you for standing by. Welcome to the L.B. Foster's Third Quarter 2026 Earnings Conference Call. [Operator Instructions] 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 Services. Please go ahead.

Lisa Durante

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 Kasel; and our Chief Financial Officer, Sean Reilly, 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 Kasel

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 Dulworth Enterprises, which we completed on October 28. Dulworth is in Rice, Texas, which is approximately 1 hour outside of Dallas and specialized 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 add proprietary technology that complement 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 increased our full year sales and free cash flow guidance while narrowing the range for 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 Reilly

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 canceled 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 lower 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 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 turn 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 Dulworth acquisition and associated increase in debt.

Gross leverage ratio improved to 0.6x compared to 1.6x a year ago, reflecting both higher earnings and continued debt reduction. Despite the additional debt incurred to fund the Dulworth acquisition, our gross leverage ratio today is approximately 1.5x, 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 Dulworth 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 in 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 Slide 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 12-month book-to-bill ratio at the end of the third quarter was 0.98: 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 multiyear 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 Kasel

Thanks, Sean. I'll begin with 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. For 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 Dulworth 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 million to $590 million and free cash flow of $20 million to $28 million with adjusted EBITDA expected between $42 million to $45 million.

In closing, the Dulworth-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 the 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.

I'll turn it back to the operator for the Q&A session.

Operator

[Operator Instructions] Our first question comes from Liam Burke of B. Riley Securities.

Question-and-Answer Session

Liam Burke

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 -- 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 Kasel

We've had a fantastic year, as you acknowledge, and last year was great, and this year is going to be even a 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 of North America and Western Europe. And we're just seeing the fruits of that start here in the third quarter, and it will move into next year. So we're in a very solid position in that business right now.

Liam Burke

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

John Kasel

Yes, cost primarily. Of course, revenue, we're looking at doing things, consolidating activities related to cost and efficiency. But more and large, more likely, we're going to see everything is going to be falling 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.

Operator

Our next question is from Julio Romero of Sidoti & Company.

Julio Romero

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 Kasel

Yes, 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're 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 in upside. But it's just the leverage of the overall business. In both segments, we just -- we're busy. Our plants are absorbing, and we have the opportunity to really put together a nice fourth quarter.

Julio Romero

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 Kasel

Yes. Well, again, we've had a wonderful year-over-year performance in our legacy Precast business, starting 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 4 years ago, we're seeing really nice growth opportunities happening out of that part of the country as well as down in 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 very strong with the work we have today and continuing to build out the infrastructure here in the U.S.

Julio Romero

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

John Kasel

That's overall. But the heaviest play we have is in Precast, but that's an overall number.

Julio Romero

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 Kasel

Well, again, the 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 a guidance next year as we always do, but we're looking for a continuation of driving shareholder value return, not just in the fourth quarter, but into next year as well.

Operator

[Operator Instructions] 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 Kasel for closing remarks.

John Kasel

Thanks, Stephanie, and thank you for joining us today. And I'd just like to once again welcome the folks from Dulworth Enterprises to the L.B. Foster Company. We're very excited about this acquisition. It really puts us in a stronger position in what we're doing in the Southeast related to our Precast products. What we found with those folks there is they're a nice alignment, just not just on the product side, but on the people and the culture side. So this is where the 1&1 equals 3 and beyond.

So, again, welcome to the Dulworth 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 I look forward to catching up with you at the next year and with a strong favorable end to our year. Take care.

Operator

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