FSTR Q1 Earnings Call: Rail Weakness Drives Revenue Miss, Management Maintains Bullish Full-Year Outlook

Railway infrastructure company L.B. Foster (NASDAQ:FSTR) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 21.3% year on year to $97.79 million. On the other hand, the company’s full-year revenue guidance of $560 million at the midpoint came in 3% above analysts’ estimates. Its GAAP loss of $0.20 per share was significantly below analysts’ consensus estimates.

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StockStory’s Take

L.B. Foster’s first quarter results were shaped by a sharp decline in its Rail segment, which management attributed to a combination of atypically strong prior-year comparisons and delayed government project funding. CEO John Kasel acknowledged that Rail segment sales dropped significantly due to lower backlog entering the year and "an apparent slowdown in the release of government funding," but noted that infrastructure sales, particularly in Precast Concrete, grew, offsetting some of the pressure on consolidated results. Management cited normal seasonality and lumpy order timing as contributors to the quarter’s outcomes.

Looking ahead, management reiterated its full-year guidance, emphasizing improving order rates and a stronger backlog mix as key reasons for confidence in a rebound. Kasel asserted, “We’re looking at a big Q2,” pointing to substantial order intake in the Rail business and ongoing strength in Precast Concrete. CFO Bill Thalman highlighted that the company’s backlog at quarter end improved in more profitable lines, which is expected to drive higher sales and margins as early as the next quarter. Management continues to watch for clarity on government funding programs but maintains its outlook assuming announced infrastructure investments proceed as planned.

Key Insights from Management’s Remarks

L.B. Foster’s management focused on factors driving the first quarter’s decline and signaled optimism about a near-term recovery. The primary deviation from Wall Street expectations stemmed from lower Rail segment sales, while improving order trends and backlog composition provided a basis for reaffirmed guidance.

• Rail Segment Volatility: The Rail segment experienced a sharp sales decline due to lower order book entry and lumpy government funding, with management noting that "rail distribution demand is lumpy at times," leading to swings in quarterly volumes.
• Backlog Recovery: Management called out a 46.9% increase in Rail segment backlog during the quarter, driven by improved order rates, especially in more profitable product lines like Friction Management, which saw a 71% year-over-year backlog rise.
• Strength in Precast Concrete: The Infrastructure segment's Precast Concrete business grew 33.7% in sales and saw robust order rates, underpinned by expansion into new markets such as Florida and continued demand from government-funded projects.
• Protective Coatings Momentum: The Protective Coatings business reported a 51.6% increase in backlog, with management hiring and adding capacity to meet expected demand, suggesting a multi-year growth opportunity.
• Capital Allocation and Share Buybacks: A new $40 million, three-year share repurchase program was authorized, reflecting a focus on shareholder returns and capital flexibility, though management’s primary operational focus remains on executing organic growth and maintaining prudent leverage.

Drivers of Future Performance

Management’s outlook for the balance of the year is underpinned by signs of improving demand and a more profitable backlog mix, with a particular focus on execution as government infrastructure funding and seasonality play out.

• Rail Orders and Government Funding: The anticipated release of delayed government funding is expected to support Rail Products demand, with management emphasizing that "the demand drivers for rail products are getting back on track."
• Infrastructure Segment Growth: Expansion of Precast Concrete operations, especially in new geographic areas, and ongoing strength in legacy government-funded projects are seen as critical growth drivers for Infrastructure Solutions.
• Tariffs and Steel Price Volatility: Management is closely monitoring steel tariffs, noting that the company has experience in passing higher input costs to customers, but recognizes this as an ongoing risk that could impact profitability if conditions shift unexpectedly.

Top Analyst Questions

• Julio Romero (Sidoti): Asked about sequential Rail Products volumes and the potential for another year-over-year decline in Q2; CEO John Kasel replied that the company expects a "very big Q2,” citing strong order intake and readiness of supply chain partners.
• Liam Burke (Unidentified): Inquired about whether rail customers are increasing capital expenditures during lower traffic periods; Kasel confirmed that current backlog growth reflects ongoing maintenance and infrastructure upgrades rather than capacity expansion.
• Christopher Sakai (Singular Research): Sought clarification on drivers behind strong infrastructure orders; Kasel pointed to robust Precast Concrete demand, expansion into new markets, and continued support from the Great American Outdoors Act.
• Justin Bergner (Gabelli Funds): Questioned margin impact from mix in the Rail segment; CFO Bill Thalman explained that lower rail distribution volumes and a temporary dip in total track monitoring contributed to the margin pressure.
• Justin Bergner (Gabelli Funds): Asked about the effect of higher steel prices on margins; Kasel stated the company is adept at passing steel cost increases to customers and expects to do so if tariffs raise input costs.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will monitor (1) whether the substantial increase in backlog—especially in higher-margin Rail and Precast Concrete lines—translates into improved revenue and margins in Q2 and Q3, (2) the pace and reliability of government funding for infrastructure projects, and (3) the company’s ability to mitigate risks from steel price volatility and tariffs. Execution on new facility ramp-ups and backlog conversion will also be key to tracking management’s guidance.

L.B. Foster currently trades at a forward EV-to-EBITDA ratio of 4.6×. Should you double down or take your chips? The answer lies in our free research report.

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