Oak Brook, Illinois, July 31, 2019 — Federal Signal Corporation (NYSE:FSS), a leader in environmental and safety solutions, today reported results for the second quarter ended June 30, 2019.
• Net sales of $324 million, up $33 million, or 11%, from last year
• Operating income of $46.3 million, up $8.2 million, or 22%, from last year
• GAAP EPS of $0.54, up $0.10, or 23%, from last year
• Adjusted EPS of $0.55, up $0.11, or 25%, from last year
• Executed new five-year $500 million revolving credit facility
• Raising full-year adjusted EPS* outlook to a new range of $1.64 to $1.72, from the previous range of $1.50 to $1.60
Consolidated net sales for the second quarter were $324.3 million, a record for the Company, and up $33.3 million, or 11%, versus the same quarter a year ago. Net income for the second quarter was $32.8 million, equal to $0.54 per diluted share, compared to $26.9 million, equal to $0.44 per share, in the prior-year quarter.
The Company also reported adjusted net income for the second quarter of $33.6 million, equal to $0.55 per diluted share, another Company record, and up from $27.1 million, or $0.44 per diluted share, in the second quarter of last year. The Company is reporting adjusted results to facilitate comparisons of underlying performance on a year-over-year basis. A reconciliation of these and other non-GAAP measures is provided at the conclusion of this news release.
Outstanding Q2 Results Exceed Expectations; Reflect Significant Increases in Sales and Income
“We were anticipating a strong second quarter in what is typically a seasonally-strong period for many of our businesses. Our outstanding results surpassed those expectations,” commented Jennifer L. Sherman, President and Chief Executive Officer. “We reported double-digit organic growth in both net sales and orders, and our operating income was up 22% year-over-year. Each of our groups delivered margin performance in excess of our target ranges, translating to a consolidated adjusted EBITDA margin of 17.6%. Within the Environmental Solutions Group, we realized benefits from higher sales volumes, favorable sales mix, strong aftermarket demand and operational efficiencies resulting from increased production levels, associated with our ongoing efforts to reduce backlogs for certain product lines with extended lead times. I was also pleased that the Safety and Security Systems Group largely overcame the effects of some temporary softness in domestic public safety markets, which we had anticipated, and improved its adjusted EBITDA margin by 240 basis points.”
In the Environmental Solutions Group, net sales were up $33.9 million, or 15%, to $267.2 million, primarily due to increases in shipments of vacuum trucks, sewer cleaners, and dump truck bodies, as well as a 14% improvement in aftermarket revenues, represented by higher rental income and increases in parts, service and used equipment sales. Net sales in the Safety and Security Systems Group of $57.1 million were generally consistent with the prior-year quarter.
Consolidated operating income for the second quarter was $46.3 million, up $8.2 million, or 22%, compared to the prior-year quarter, primarily driven by increases of $7.6 million and $1.3 million within the Environmental Solutions Group and Safety and Security Systems Group, respectively. Consolidated operating margin was 14.3%, up from 13.1% in the prior-year quarter.
Consolidated adjusted earnings before interest, tax, depreciation and amortization (“adjusted EBITDA”) for the second quarter was $57.1 million, up $9.8 million, or 21%, compared to the prior-year quarter, and consolidated adjusted EBITDA margin was 17.6%, compared to 16.3% last year.
Adjusted EBITDA in the Environmental Solutions Group was up $8.9 million, or 20%, to $54.4 million, and its adjusted EBITDA margin was 20.4%, up from 19.5% last year. Within the Safety and Security Systems Group, adjusted EBITDA was $10.3 million, up $1.3 million, or 14%, from last year, and its adjusted EBITDA margin was 18.0%, compared to 15.6% last year.
Consolidated orders for the second quarter were $308.0 million, up $30.4 million, or 11%, compared to the prior-year quarter, primarily due to organic order growth of $35.9 million, or 17%, within the Environmental Solutions Group. Consolidated backlog at June 30, 2019 was $348 million, up $25 million, or 8%, compared to last year.
New Credit Facility Further Strengthens Our Financial Position, Providing Additional Financial Flexibility to Fund Growth Opportunities
Net cash of $34.6 million was provided by operating activities during the second quarter, up $7.1 million, or 26%, compared to the prior-year quarter. At June 30, 2019, consolidated debt was $209 million, total cash and cash equivalents were $39 million and the Company had $180 million of availability for borrowings.
The Company also announced today the completion of a new five-year $500 million revolving credit facility, to replace its existing $400 million credit facility. The new arrangement also provides the Company with the flexibility to borrow up to an additional $250 million for permitted acquisitions, subject to approval by applicable lenders.
“We are extremely pleased to announce this new credit facility, which provides further financial flexibility to invest in organic growth initiatives and pursue strategic acquisitions,” said Sherman. “The terms of the new facility are more favorable to the Company, reflecting the strength of our performance, cash flow and balance sheet. This marks another important milestone on our path to disciplined, strategic growth.”
The Company also funded dividends of $4.8 million during the second quarter, reflecting a dividend of $0.08 per share, and the Board of Directors recently declared a similar dividend that will be payable in the third quarter.
“Conditions in our end markets remain positive and our organic growth initiatives are continuing to gain traction,” Sherman noted. “With our record second quarter results, the strength of our backlog, and a modest earnings contribution from the recently-completed MRL acquisition, we are raising our 2019 adjusted EPS* outlook to a new range of $1.64 to $1.72, from a range of $1.50 to $1.60. The new range equates to a year-over-year improvement of between 16% and 22%.”
Federal Signal will host its second quarter conference call on Wednesday, July 31, 2019 at 10:00 a.m. Eastern Time. The call will last approximately one hour. The call may be accessed over the internet through Federal Signal’s website at www.federalsignal.com or by dialing phone number 1-877-705-6003 and entering the pin number 13692737. A replay will be available on Federal Signal’s website shortly after the call.
About Federal Signal
Federal Signal Corporation (NYSE: FSS) builds and delivers equipment of unmatched quality that moves material, cleans infrastructure, and protects the communities where we work and live. Founded in 1901, Federal Signal is a leading global designer, manufacturer and supplier of products and total solutions that serve municipal, governmental, industrial and commercial customers. Headquartered in Oak Brook, Ill., with manufacturing facilities worldwide, the Company operates two groups: Environmental Solutions and Safety and Security Systems. For more information on Federal Signal, visit: www.federalsignal.com.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
This release contains unaudited financial information and various forward-looking statements as of the date hereof and we undertake no obligation to update these forward-looking statements regardless of new developments or otherwise. Statements in this release that are not historical are forward-looking statements. Such statements are subject to various risks and uncertainties that could cause actual results to vary materially from those stated. Such risks and uncertainties include but are not limited to: economic conditions in various regions; product and price competition; supplier and raw material prices; risks associated with acquisitions such as integration of operations and achieving anticipated revenue and cost benefits; foreign currency exchange rate changes; interest rate changes; increased legal expenses and litigation results; legal and regulatory developments and other risks and uncertainties described in filings with the Securities and Exchange Commission.
Contact: Ian Hudson, Chief Financial Officer, +1-630-954-2000, firstname.lastname@example.org
* Adjusted EPS is a non-GAAP measure, which includes certain adjustments to reported GAAP net income and diluted EPS. Our outlook assumes certain adjustments to exclude the impact of acquisition and integration-related expenses and purchase accounting effects, where applicable. In 2018, we also made adjustments to exclude the impact of hearing loss settlement charges and special tax items, where applicable. Should any similar items occur during 2019, we would expect to exclude them from the determination of adjusted EPS. However, because of the underlying uncertainty in quantifying amounts which may not yet be known, a reconciliation of our Adjusted EPS outlook to the most applicable GAAP measure is excluded based on the unreasonable efforts exception in Item 10(e)(1)(i)(B). In addition, to facilitate comparisons with prior periods, when reporting our interim and annual non-GAAP results in 2019, we are adjusting our previously-issued non-GAAP results for 2018 to exclude the recognition of a deferred gain, which will no longer occur in 2019 following the adoption of the new lease accounting standard. On this basis, Adjusted EPS for 2018 would have been $1.41. See Exhibit 99.1 to the Form 10-K for the year ended December 31, 2018 for the associated non-GAAP reconciliation.
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