- Consolidated Net Sales: $490 million, up $48 million or 11% year-over-year.
- Consolidated Operating Income: $81.1 million, up $21.7 million or 37% year-over-year.
- Consolidated Adjusted EBITDA: $97.7 million, up $22.2 million or 29% year-over-year.
- EBITDA Margin: 19.9%, up from 16.1% last year.
- GAAP EPS: $0.99 per share, up $0.33 per share or 50% year-over-year.
- Adjusted EPS: $0.95 per share, up $0.28 per share or 42% year-over-year.
- Order Intake: $473 million, contributing to a backlog of $1.08 billion, up $73 million or 7% year-over-year.
- ESG Net Sales: $409 million, up $36 million or 10% year-over-year.
- ESG Operating Income: $72.9 million, up $16.7 million or 30% year-over-year.
- ESG Adjusted EBITDA: $88.2 million, up $17.5 million or 25% year-over-year.
- ESG Adjusted EBITDA Margin: 21.6%, up 260 basis points year-over-year.
- SSG Net Sales: $82 million, up $12 million or 18% year-over-year.
- SSG Operating Income: $18.3 million, up $4.2 million or 30% year-over-year.
- SSG Adjusted EBITDA: $19.3 million, up $4.1 million or 27% year-over-year.
- SSG Adjusted EBITDA Margin: 23.7%, up 180 basis points year-over-year.
- Corporate Operating Expenses: $10.1 million, down from $10.9 million last year.
- Consolidated Gross Margin: 29.4%, up 290 basis points year-over-year.
- Cash from Operations: $41 million for the quarter, up $5 million year-over-year.
- Net Debt: $207 million with $533 million availability under the credit facility.
- Dividends Paid: $7.4 million, reflecting $0.12 per share.
- Full Year Adjusted EPS Outlook: Raised to $3.20 to $3.35 from $2.95 to $3.15.
- Full Year Net Sales Outlook: Reaffirmed at $1.85 billion to $1.9 billion.
- CapEx Outlook: $35 to $40 million for the year.
Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Federal Signal Corp (FSS, Financial) reported record-high consolidated net sales of $490 million for Q2 2024, an 11% increase year-over-year.
- The company achieved a 37% increase in consolidated operating income, reaching $81.1 million.
- Adjusted EBITDA for the quarter was $97.7 million, up 29% from the previous year, translating to a margin of 19.9%.
- GAAP EPS for the quarter was $0.99 per share, a 50% increase from last year, with adjusted EPS at $0.95 per share, up 42%.
- Order intake remained strong at $473 million, contributing to a backlog of $1.08 billion, a 7% increase year-over-year.
Negative Points
- Despite strong financial performance, the ESG segment's orders for the quarter were $396 million, down from $409 million last year.
- The company faces a $10 million year-over-year net sales headwind in the second half of the year due to fewer chassis orders.
- Supply chain performance has not fully recovered to pre-pandemic levels, impacting production efficiency.
- The medium-duty chassis market remains tight, representing a small but significant portion of the business.
- The company anticipates fewer production days in the second half of the year, which could impact overall output.
Q & A Highlights
Q: Can you talk through the ESG incremental margin of 46% following 40% in the first quarter? What do you expect for incrementals in the back half?
A: (Ian Hudson, CFO) The breakdown on the top line was 8% volume growth, 2.5% price, and a 1% drag from fewer chassis. The margin improvement was driven by volume, favorable price-cost dynamics, and growth in our aftermarket business. For the back half, we expect incrementals for ESG to be north of 30%.
Q: Why is $0.95 not a sustainable run rate given the backlog and capacity?
A: (Ian Hudson, CFO) We have fewer production days in the second half of the year, a $10 million chassis impact on the top line, and incremental rental fleet investment primarily in the second half. These factors contribute to the lower run rate.
Q: Can you discuss the cadence of dump truck orders and expectations for the second half?
A: (Jennifer Sherman, CEO) Orders were strong due to strategic initiatives, pent-up demand, and improved chassis availability. We expect consistent order activity going into the third quarter, supported by geographic expansion and infrastructure benefits.
Q: What are the pluses and minuses around increasing production in the second half?
A: (Jennifer Sherman, CEO) Encouraged by Q2 performance, we need to ramp and train labor, manage supply chain, and deal with fewer production days. We expect gradual improvement in production rates and lead times.
Q: Is there something driving the increased demand for MRL road striping related to autonomous vehicles?
A: (Jennifer Sherman, CEO) The shift towards smart features in cars that require solid road striping is driving demand. Our products support these features, contributing to increased sales.
Q: How will the rent-to-own strategy be impacted if interest rates come down?
A: (Jennifer Sherman, CEO) We expect continued demand for rental products, especially for industrial customers. Our flexible approach allows us to cater to various customer needs, regardless of interest rate changes.
Q: Are there underpenetrated geographies for your product lines?
A: (Jennifer Sherman, CEO) Yes, we have opportunities for geographic expansion, particularly with newer acquisitions like trackless. We are leveraging our existing footprint and dealer partnerships to penetrate new regions.
Q: Can you discuss the ESG segment backlog decline and its impact on top-line growth?
A: (Felix Boeschen, VP Corporate Strategy) The decline is due to reducing lead times by increasing production while maintaining healthy order intake. The chassis impact will have a $25 million effect on orders but minimal earnings impact.
Q: What are your priorities for organic growth initiatives?
A: (Felix Boeschen, VP Corporate Strategy) We focus on operational efficiencies through investments in lasers, robots, and other technologies. Our CapEx is typically split between maintenance and growth initiatives.
Q: Do you expect organic growth to exceed the historical 7% rate?
A: (Jennifer Sherman, CEO) We expect strong organic growth as we continue to execute strategic initiatives. Our M&A pipeline is robust, and we believe we can achieve the necessary growth to meet our targets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
