L.B. Foster discloses quarterly results

L.B. Foster Company’s 2011 second quarter operating results include income of $6.4 million or $0.61 per diluted share. Second quarter sales increased by $54.2 million or 45.4% due to the inclusion of Portec Rail Products Inc. sales, as well as a 21.5% sales increase in the legacy L.B. Foster business.

“Gross Profit margin was 15.1%, 190 basis points below the prior year,” said the company, primarily as a result of “unfavorable gross profit adjustments of $4.4 million primarily related to costs incurred to exit our CXT Grand Island, Neb., facility, which was engaged in the manufacture of concrete ties.”

Second quarter net income of $6.4 million compared to $6.0 million or $0.58 per diluted share last year. The $4.4 million of charges related to the Grand Island tie business equated to $0.26 per diluted share. Adjusted EBITDA (Earnings before taxes, interest, depreciation, amortization and other purchase accounting charges not considered amortization) was $12.3 million, compared to $11.7 million in the prior year quarter. Second quarter bookings were $128.3 million, compared to $120.6 million last year, an increase of 6.4%. Excluding Portec, bookings were 17.8% lower than last year. At quarter end, the backlog was $191.4 million, 7.6% lower than the prior year (18.4% lower without Portec).

L.B. Foster also disclosed that it received a “significant customer product claim. . . . On July 12, 2011, the Union Pacific Railroad notified the Company and CXT Incorporated, a subsidiary of the Company (CXT), of a warranty claim under CXT’s 2005 supply contract relating to the manufacture of prestressed concrete railroad ties for the UPRR. The UPRR has asserted that a significant percentage of concrete ties manufactured in 2006 through 2010 at CXT’s Grand Island, Nebraska facility fail to meet contract specifications, have workmanship defects, and are cracking and failing prematurely. Approximately 1.6 million ties were sold from Grand Island to the UPRR during the period the UPRR has claimed nonconformance. The 2005 contract calls for each concrete tie which fails to conform to the specifications or has a material defect in workmanship to be replaced with 1.5 new concrete ties, provided, that UPRR within five years of a concrete tie’s production, notifies CXT of such failure to conform or such defect in workmanship. The UPRR’s notice does not specify how many ties manufactured during this period are defective nor which specifications it claims were not met or the nature of the alleged workmanship defects. CXT believes it uses sound workmanship processes in the manufacture of concrete ties and has not agreed with the assertions in the UPRR’s warranty claim notice. The UPRR has also notified CXT that ties have failed a certain test that is specified in the 2005 contract. CXT has not been able as yet to verify this test failure or the test protocols used. CXT is in the process of reviewing the warranty claim asserted in UPRR’s notice and related matters and will conduct a thorough battery of tests of a sample of the concrete ties in question. No adjustments were made in the second quarter as a result of this claim as the impact, if any, cannot be estimated at this time.”