Federal Signal Reports Outstanding Fourth Quarter, with 83% Order Growth and 142% Improvement in Net Income

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Oak Brook, Illinois, February 28, 2018 — Federal Signal Corporation (NYSE:FSS), a leader in environmental and safety solutions, today reported results for the fourth quarter and year ended December 31, 2017. 

• Q4 orders of $303 million, up $137 million, or 83% from last year, including organic growth of $84 million, or 51%

• Q4 net sales of $248 million, up $72 million, or 41% compared to last year

• GAAP EPS of $0.48 per share for the quarter, up 140% from last year, and $1.00 for the year, up 56%

Includes benefits from tax reform and impact of non-cash pension settlement charge

• Adjusted EPS of $0.24 per share for the quarter, up 50% from last year, and $0.85 for the year, up 23%

• 2018 Adjusted EPS outlook of $1.10 to $1.20

Consolidated net sales for the fourth quarter were $247.6 million, up 41% versus the same quarter a year ago. Fourth quarter income from continuing operations was $29.3 million, equal to $0.48 per diluted share, up 142% compared to $12.1 million, or $0.20 per share, in the prior-year quarter. The Company also reported adjusted net income from continuing operations for the fourth quarter of $14.4 million, equal to $0.24 per diluted share, up 48% compared to $9.7 million, or $0.16 per share, in the same quarter a year ago.

Consolidated net sales for the year ended December 31, 2017 were $898.5 million, up 27% compared to the prior year. Income from continuing operations for the year was $60.5 million, equal to $1.00 per diluted share, up 54% compared to $39.4 million, or $0.64 per share, in the prior year. Adjusted net income from continuing operations for the year was $51.1 million, equal to $0.85 per diluted share, up 22% compared to $42.0 million, or $0.69 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. In the current quarter, such adjustments exclude a one-time, non-cash net tax benefit resulting from the enactment of the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) and a non-cash pension settlement charge. A reconciliation of these and other non-GAAP measures is provided at the conclusion of this news release.

Fourth Quarter Results Exceed Expectations, Contributing to Significant Improvement in Full-Year Results

“We had an outstanding finish to a strong year, with fourth quarter results that exceeded expectations,” said Jennifer L. Sherman, President and Chief Executive Officer. “I am particularly pleased with our execution against the strategic initiatives we have put in place over the last two years, and with the performance of our acquisitions. Both have contributed to a significant improvement in sales, orders and backlog.”

Consolidated fourth quarter orders were $302.7 million, an increase of $137.4 million, or 83%, compared to the prior-year quarter, and included organic order growth of approximately $84.2 million, or 51%, primarily represented by higher orders for street sweepers, vacuum trucks, sewer cleaners and refuse vehicles within our Environmental Solutions Group (“ESG”), and improved orders within our Safety and Security Systems Group (“SSG”). Consolidated backlog at December 31, 2017 was $257.5 million, up $120.5 million, or 88%, compared to last year.

Consolidated fourth quarter sales were $247.6 million, an increase of $71.5 million, or 41%, compared to the prior-year quarter, and included organic growth of approximately $27.4 million, or 16%, mainly due to improved sales of vacuum trucks, sewer cleaners and street sweepers within ESG.

Consolidated fourth quarter operating income was $14.9 million, up $1.1 million, or 8%, compared to the prior-year quarter, driven by a $9.7 million increase within ESG, partially offset by a $6.1 million non-cash pension settlement charge and higher expenses associated with hearing loss litigation.

Consolidated adjusted earnings before interest, tax, depreciation and amortization (“adjusted EBITDA”) for the fourth quarter of 2017 was $32.0 million, up $11.0 million, or 52%, compared to the prior-year quarter, and consolidated adjusted EBITDA margin was 12.9% compared to 11.9% last year.  ESG’s adjusted EBITDA for the quarter was up $11.9 million, or 74%, to $28.0 million, and its adjusted EBITDA margin was 14.6%, up from 13.2% last year. SSG’s adjusted EBITDA for the quarter was $10.0 million, compared to $10.2 million last year, and its adjusted EBITDA margin was 18.0%, compared to 18.7% last year.

Impact of the 2017 Tax Act

In the fourth quarter of 2017, the Company recorded a net tax benefit of $20.0 million, or $0.33 per diluted share (on a GAAP basis), representing the estimated impact of corporate income tax changes resulting from the 2017 Tax Act. The components of the net tax benefit recognized in the fourth quarter of 2017 are summarized as follows ($ in millions):

Remeasurement of net U.S. deferred tax liabilities.......................................................................................................................................................................

$

23.0

 

Valuation allowance impacts.......................................................................................................................................................................

(3.0

)

Total estimated net tax benefit.......................................................................................................................................................................

$

20.0

 

The ultimate impact of the 2017 Tax Act may differ from these estimates, due to, among other things, changes in interpretations and assumptions made by the Company, additional guidance that may be issued by the U.S. Department of the Treasury and actions that the Company may take.

The Company expects that its effective tax rate in 2018 will be in the range of 26% to 27%, based on its current interpretations of the provisions of the 2017 Tax Act.

Strong Q4 Cash Flow Supports Additional Debt Pay Down

Net cash of $21.4 million was provided by continuing operating activities in the fourth quarter of 2017, compared to $9.6 million in the prior-year quarter. For the year ended December 31, 2017, cash provided by continuing operating activities totaled $73.5 million, an increase of $46.8 million compared to the prior year.  At December 31, 2017, total debt was $278 million, total cash and cash equivalents were $38 million and the Company had $106 million of availability for borrowings under its credit facility.

“Our balance sheet and liquidity remain healthy,” said Sherman.  “Since we closed the TBEI transaction at the beginning of June, our strong cash flow has facilitated a reduction in debt of almost $34 million, lowering our debt leverage ratio at the end of 2017 to 2.2 times adjusted EBITDA, which is down from 2.7 times adjusted EBITDA at the completion of the acquisition.”

The Company funded dividends of $4.2 million during the fourth quarter, bringing the totals for the year to $16.8 million, and the Board of Directors also recently declared a $0.07 per share dividend that will be payable in the first quarter of 2018.

Outlook

“We entered 2018 with strong order momentum contributing to a healthy backlog. In addition, we are seeing positive economic indicators across many of our end markets,” Sherman continued. “While we expect to realize significant benefits from tax reform, we are committed to utilizing some of those savings to accelerate our longer-term growth initiatives, such as developing new products and enhancing our sales channels. We currently expect that the reduction in the corporate tax rate, net of these planned investments, will benefit our 2018 earnings by approximately $0.10 per share. We are anticipating meaningful year-over-year improvement in the first quarter, although seasonal effects typically result in our first quarter earnings being lower than subsequent quarters. For the year, we expect adjusted earnings per share* to be between $1.10 and $1.20, which would represent a year-over-year improvement of between 29% and 41%”.

* Adjusted earnings per share (“EPS”) is a non-GAAP measure, which includes certain adjustments to reported GAAP net income and diluted EPS. In 2017, we made adjustments to exclude the impact of restructuring activity, executive severance costs, acquisition and integration-related expenses, purchase accounting effects, pension settlement charges, hearing loss settlement charges and special tax items, where applicable. Should any similar items occur in 2018, 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).

CONFERENCE CALL

Federal Signal will host its fourth quarter conference call on Wednesday, February 28, 2018 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 https://www.federalsignal.com or by dialing phone number 1-800-281-7829 and entering the pin number 8998696. An archived replay will be available on Federal Signal’s website shortly after the call.

About Federal Signal

Federal Signal Corporation (NYSE: FSS) provides products and services to protect people and our planet. 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: https://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; 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, ihudson@federalsignal.com

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