We downgraded our long-term recommendation on
L.B. Foster Company
) to Underperform from Neutral on Aug 22, 2013, due to weak
results for the second quarter of 2013.
Why the Downgrade?
Foster reported weak results for the second quarter of 2013,
with adjusted earnings per share of 71 cents, declining 17.4%
year over year. Earnings also missed the Zacks Consensus Estimate
of 98 cents by 27.6%. Revenues for the quarter came in at $149.9
million, down 8.1% year over year, and also missed the Zacks
Consensus Estimate of $175.0 million.
The decline in results was due to a reduction in the Rail
Products and Construction Products segments' sales. Rail Products
segment's sales declined 10.3% year over year to $90.9 million,
due to a drop in the concrete tie and rail technology businesses,
which was partially offset by stronger sales in the transit
products division. Also, Construction Products segment's sales
dropped 8.7% year over year to $43.7 million, on the back of a
weakness in fabricated bridge business.
Moreover, Foster expects the revenue mix to change in the
second half of 2013, with Tubular, Construction and Rail segments
generating 4%, 29% and 67% of total revenue, respectively. With
the contribution increasing from low-margin Construction
Products, but declining from the high-margin Tubular Products,
margins are expected to decline further in the second half of
Additionally, the presence of many players in the industry
endangers the company's growth prospects. Also, a negative
revision of spending by public and private institutions on
various projects impacted the company's revenues.
Other Stocks to Consider
Foster currently carries a Zacks Rank #5 (Strong Sell). Other
stocks worth a watch in the services industry are
DXP Enterprises, Inc.
). Each of these companies carries a Zacks Rank #2 (Buy).
DXP ENTERPRISES (DXPE): Free Stock Analysis
FOSTER LB CO (FSTR): Free Stock Analysis
SCANSOURCE INC (SCSC): Free Stock Analysis
TERNIUM SA-ADR (TX): Free Stock Analysis
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