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L. B. Foster Faces Business Risks, Retains Scope for Growth

On Sep 8, 2014, we issued an updated research report on premium railroads manufacturing firm L. B. Foster Co.FSTR . The company offers a variety of non-imitable products and services to the rail, construction, energy and utility markets through its Rail, Products, Construction and Tubular Product segments. However, with a wide global network, the company is vulnerable to stiff competition within the industry.

Bearish Factors

L.B. Foster reported lower-than-expected results for second-quarter 2015. Quarterly earnings were down 45.5% year over year, missing the Zacks Consensus Estimate by 41.5%. The company also reduced its guidance for full-year earnings to a range of $2.15-$2.50 and that for revenues to $685-$725 million. The slash in guidance was triggered by declining demand witnessed in both the Rail and Piling Products divisions, certain litigation-related costs associated with handling and defense of the Union Pacific lawsuit, and anticipation of lower returns from new acquisitions in energy market.

Moreover, L.B. Foster's business encounters severe threats of competition. In order to lower risks of market share loss and increase its competency in the market, the company invests heavily toward technological innovations. However, such expenses often prove to be futile, if the newly invented technology becomes obsolete in a short span of time.

Also, steel is used as the key raw material for most of L.B. Foster's operations. Nonetheless, due to cyclicality of the steel industry, its price and availability remain uncertain. Also, the company depends on a handful of suppliers for its operations. In case there is a disruption in the adequate or timely supply of raw materials, the company may incur losses.

Scopes of Improvement

L.B. Foster's revenues for second-quarter 2015 came in at $171.4 million, up 2.7% year over year. The growth was driven by greater sales in Construction and Tubular Product segments. Stronger pre-cast building sales and higher liquidity stemming from the divestiture of previously owned businesses primarily drove sales growth in the company's Construction, Tubular Product, and Energy Services segments.

These positives are expected to partially offset the current adversities and support growth in the company's revenues and margin, going forward. The company makes concerted efforts toward improving its margins on the back of greater operational efficiency and strategic cost-saving programs. Moreover, to fund future investments related to inorganic growth, the company aims to enhance its corporate liquidity through better management of working capital.

Stocks to Consider

L.B. Foster currently carries a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the industry include ThyssenKrupp AG TYEKF , AirMedia Group Inc. AMCN and Barrett Business Services Inc. BBSI . All three stocks hold a Zacks Rank #2 (Buy).

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FOSTER LB CO (FSTR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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