Oak Brook, Illinois, February 28, 2017 — Federal Signal Corporation (NYSE:FSS), a leader in environmental and safety solutions, today reported results for the fourth quarter and year ended December 31, 2016.
• GAAP EPS of $0.20 per share for the quarter and $0.64 for the year
• Adjusted EPS of $0.16 per share for the quarter and $0.69 for the year
• Cash returns to shareholders totaled $54.7 million for the year, up from $26.2 million last year
• 2017 EPS outlook of $0.70 to $0.78 per share, supported by recent uptick in U.S. industrial orders
Consolidated net sales for the fourth quarter were $176.1 million, down 6% versus the same quarter a year ago. Fourth quarter income from continuing operations was $12.1 million, equal to $0.20 per diluted share, compared to $17.4 million, or $0.27 per share, in the prior-year quarter. The Company also reported adjusted net income from continuing operations for the fourth quarter of $9.7 million, equal to $0.16 per diluted share, compared to $16.0 million, or $0.25 per share, in the same quarter a year ago.
Consolidated net sales for the year ended December 31, 2016 were $707.9 million, down 8% compared to the prior year. Income from continuing operations for the year was $39.4 million, equal to $0.64 per diluted share, compared to $65.8 million, or $1.04 per share, in the prior year. Adjusted net income from continuing operations for the year was $42.0 million, equal to $0.69 per diluted share, compared to $64.7 million, or $1.02 per diluted share, in the prior 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. All results discussed herein are for continuing operations, and previously reported results have been recast to reflect the Fire Rescue Group as a discontinued operation following the sale of the Bronto Skylift business in January 2016. The results of Joe Johnson Equipment (“JJE”) are also included from the time of its acquisition in June 2016.
Fourth Quarter and Full-Year Results
“Our fourth quarter results helped us deliver solid full-year earnings towards the higher end of our recent expectations,” said Jennifer L. Sherman, President and Chief Executive Officer. “Although 2016 was a challenging year for many industrial companies, with persistent market headwinds, we responded well and maintained our focus on positioning the Company for long-term growth. We started the year by selling Bronto and securing additional financial capacity with the execution of a new credit facility. We also completed the acquisition and integration of JJE, which is ahead of our expectations and is executing on solid growth prospects.”
Consolidated fourth quarter operating income was $13.8 million, down from $24.3 million in the fourth quarter of 2015. Operating income in the current-year quarter includes $0.9 million of expense associated with purchase accounting effects resulting from the JJE acquisition, $0.2 million of acquisition-related expenses and $0.1 million of restructuring charges. Consolidated operating margin, including the aforementioned items, was 7.8%, compared to 13.0% last year. Excluding these items, consolidated operating margin for the quarter was 8.5%, compared to 13.0% last year. The margin decrease was primarily due to negative operating leverage and changes in mix, with fewer sales into industrial markets and a higher percentage of sales of products manufactured by other companies, which tend to earn a lower margin. Corporate expenses for the quarter of $5.4 million were down $1.7 million from the prior-year quarter.
Consolidated full-year operating income was $57.7 million, down from $103.2 million in the prior year. Consolidated full-year operating margin, excluding purchase accounting effects, acquisition-related expenses and restructuring charges of $3.9 million, $1.4 million and $1.7 million, respectively, was 9.1%, compared to 13.5% in 2015. The fourth quarter and full-year effective tax rate benefited from a $2.2 million net release of income tax valuation allowance. Excluding special tax items, the effective income tax rate for the year was approximately 34%.
Orders were $165.3 million for the quarter, down 8% compared to last year. For the full-year, orders of $674.4 million were down 2% compared to the prior year. Consolidated backlog was $137 million, down from $149 million at the end of the third quarter.
Healthy Financial Position Supports Growth Initiatives and Strong Cash Returns to Shareholders
The Company funded dividends of $4.1 million and share repurchases of $4.0 million during the fourth quarter, bringing the totals for the year to $16.9 million and $37.8 million, respectively. At December 31, 2016, there was approximately $31 million remaining under our share repurchase authorization. The Board of Directors also recently declared a $0.07 per share dividend that will be payable in the first quarter of 2017.
“Our balance sheet and liquidity remain extremely strong,” said Sherman. “They support our investment priorities, which include sales efforts and new products to drive organic growth, strategic acquisitions and cash returns to shareholders. In that regard, we doubled our cash returns to our shareholders during 2016, funding over $54 million of dividends and share repurchases.”
Net cash of $9.6 million was provided by continuing operating activities in the fourth quarter of 2016, compared to $30.7 million in the prior-year quarter. The decrease was a result of lower operating income and deliberate investments in working capital during the latest quarter. At December 31, 2016, total debt exceeded total cash and cash equivalents by $13 million and we had $244 million of availability for borrowings. Consolidated debt at December 31, 2016 was $64 million, compared to $44 million a year ago, while our cash and cash equivalents at December 31, 2016 totaled $51 million, compared to $76 million a year ago.
“We are excited about our strategic initiatives, which position us well to benefit as our markets strengthen, and we are cautiously optimistic about the near-term economic outlook,” Sherman continued. “For the full-year 2017, we expect solid top-line growth and year-over-year earnings improvement. The first quarter is likely to be soft as a result of a less favorable backlog and stronger seasonal effects than a year ago. However, our municipal markets, which represent about 60% of our revenues, remain stable overall. In addition, since early December, we have seen a strong increase in U.S. industrial orders and sales opportunities which should benefit us beginning in the second quarter. With that, we expect adjusted earnings per share for the year to be between $0.70 and $0.78.”
Federal Signal will host its fourth quarter conference call on Tuesday, February 28, 2017 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 http://www.federalsignal.com or by dialing phone number 1-888-230-5944 and entering the pin number 2296045. An archived replay will be available on Federal Signal’s website shortly after the call.