L.B. Foster (NASDAQ:FSTR) capped off 2025 with a robust fourth quarter, showcasing significant sales growth across its operating segments. The company’s performance was bolstered by strong demand, improved operational efficiencies, and substantial cash generation that allowed for a reduction in net debt and continued share repurchases.
Fourth Quarter Highlights: Growth and Margins
President and CEO John Kasel characterized the fourth quarter as an “exceptional” close to the year, with gross profit increasing by 10.6%. Despite this growth, gross margin experienced a decline of 260 basis points, settling at 19.7%. The company pointed to reduced margins in its Rail segment, particularly within the Track, Structures & Signals (TS&S) business in the U.K., as a key factor behind this shift. Additionally, a change in product mix due to higher sales volumes in Rail products contributed to the margin contraction.
Management reported a notable improvement in selling, general, and administrative (SG&A) expenses, which fell by $1.3 million. SG&A costs as a percentage of sales improved significantly, decreasing by 470 basis points to 14.4%. The adjusted EBITDA for the quarter reached $13.7 million, reflecting an increase of 89% compared to the previous year.
Segment Performance: Rail and Infrastructure
In the Rail segment, fourth-quarter revenue surged to $98.0 million, marking a 23.7% year-over-year increase. This rise was largely driven by increased volumes in Friction Management, which saw a remarkable 41.6% growth, and Rail Products, which rose by 31.1%. CFO Bill Thalman noted that Rail Products achieved its highest sales figures for a fourth quarter on record, while Friction Management delivered 19% growth for the entire year.
Despite these gains, Rail margins fell to 17.8%, down 440 basis points. Contributing factors included lower sales volumes, rising costs, and $1.0 million in restructuring costs associated with the downsizing of its U.K. operations. While Rail orders were softer during the quarter, the Rail backlog increased by an impressive 55.3% year-over-year, with positive contributions from all three Rail business units.
In the Infrastructure Solutions segment, revenue rose by $13.4 million, or 27.3%, driven by growth in both business units. Steel Products sales soared by 58.2%, primarily due to a 206.5% increase in Protective Coatings. Precast Concrete sales also saw a rise, increasing 18.7% for the quarter and 19.9% for the year. The gross margin for Infrastructure improved slightly to 22.8%, supported by higher sales volumes.
Management indicated that the Infrastructure backlog remains lower compared to the previous year, primarily due to a $19 million order cancellation reported in the third quarter. Nonetheless, with the construction season approaching, they expect the backlog to increase.
Looking ahead, L.B. Foster continues to prioritize financial health, having completed a restructuring of its U.K. Rail business that incurred a charge of $2.2 million. This restructuring is anticipated to yield annual savings of $1.5 million to $2.0 million in 2026. Operating cash flow for the fourth quarter was $22.2 million, consistent with seasonal trends, while capital expenditures reached $2.4 million.
The company also repurchased $3.3 million worth of stock during the quarter and reduced net debt by $16.9 million, ending the period with a net debt of $38.4 million. The gross leverage ratio improved significantly to 1.0x, down from 1.6x at the start of the quarter.
For the full year of 2025, L.B. Foster recorded total sales of $540 million, representing a 1.7% increase. The Infrastructure segment saw a notable increase of 14.9%, while Rail sales faced a decline of 6.5%, attributed to U.S. government funding impacts and ongoing adjustments in the U.K. business.
In terms of future expectations, management has set a target of 3.7% sales growth and 11.3% growth in adjusted EBITDA for 2026. With an optimistic outlook for Rail products demand, particularly in light of federal funding for infrastructure, the company aims to leverage its elevated backlog to support its growth trajectory.
As L.B. Foster navigates a challenging market landscape, it remains committed to enhancing operational efficiencies and capitalizing on emerging opportunities in both the Rail and Infrastructure sectors.
