FEDERAL SIGNAL CORPORATION ANNOUNCES
THIRD QUARTER EPS OF $.21 PER SHARE
- -- Third Quarter Highlights --
o Diluted earnings per share of $.21, in line with revised guidance
o Sales increase 10% from 2002, higher in three of four segments
o Year-to-date operating cash flow continued strong at $58 million
- --------------------------------------------------------------------------------
Oak Brook, Illinois, October 22, 2003 -- Federal Signal Corporation reported
diluted earnings per share of $.21 for the third quarter of 2003 on sales of
$288 million. These results compare to the $.28 per share earned on sales of
$262 million in 2002's third quarter. Sales increased 10% as a result of refuse
truck body acquisitions in late 2002 and also benefited from the currency
translation benefit of stronger European and Canadian currencies. Operating
margins were lower in all groups, reflecting a lower margin sales mix in several
segments.
For the first nine months, diluted earnings per share from continuing operations
totaled $.55 on sales of $891 million. In the first nine months of 2002, sales
aggregated $765 million and earnings per share were $.73. The increase in sales
was largely associated with the refuse truck business acquisitions and high
initial fire rescue backlogs. Despite higher sales, earnings declined due to a
less favorable sales mix in several groups, costs associated with manufacturing
facility shutdowns and the expenses associated with headcount reductions in all
businesses.
Joseph J. Ross, chairman and chief executive officer, stated, "This has been a
difficult quarter for Federal Signal as we have experienced further softness in
our already weak municipal markets. Industrial markets, while stable, are not
yet showing conclusive signs of order recovery. Given this environment, our
focus remains on process improvements, cost management and new product
development to enhance our strong market positions."
Ross added, "Our Fire Rescue business continues to work to improve its operating
results in its U.S. plants. Our employees are realigning our production
processes and overhauling our ordering and design systems. Although this
quarter's operating results did not meet our expectations for continuous
improvement, that shortfall was in part attributable to the disruptive impact of
these very changes. Our plan is to stay the course; we will see gradual
improvement as these new processes take hold."
THIRD QUARTER GROUP RESULTS
Environmental Products Group
Sales and orders increased 28% in the quarter, in large part due to the effects
of the acquisitions of two refuse truck body businesses in late 2002. Street
sweeper orders were flat with last year, while sales rose 3% due to higher
shipments in Europe. The operating margin declined from 9.0% to 6.0% mainly due
to the results of the refuse truck business and also lower finance revenues from
leasing activities within the group.
Refuse truck operating profits have improved sequentially with each quarter of
2003; however, the margins remain well below the group average. The refuse truck
business continues to experience weak demand in both municipal and industrial
markets. A build-up in sales through the newly-established dealer channel has
only partially compensated for the generally weaker marketplace. The low sales
volumes have resulted in reduced throughput and cost absorption, therefore
lowering operating margins.
As part of its strategic assessment and alignment of the refuse truck business
with its other group operating units, the company recently implemented a
significant restructuring of its refuse truck workforce in Canada and the U.S.,
including an announced planned exit of a components production facility in
Kelowna, British Columbia. At the reduced employment and fixed cost levels, the
business expects volume and margins to improve as markets recover and dealer
sales grow.
The company has received a signed letter of intent to negotiate a new three-year
contract to supply front-loading refuse truck bodies to Waste Management
beginning in 2004. Upon execution of the new agreement, Federal Signal will
remain a key supplier to Waste Management for its Canadian and Western U.S.
requirements, although total volumes supplied to this customer under this
prospective contract will be materially reduced.
Fire Rescue Group
Third quarter orders totaled $83 million, down 10% sequentially and 22% versus
the prior year. The reduction from 2002 reflected weaker U.S. municipal and
governmental orders (down 8%), and the timing on international orders at our
Finland-based operation, which are even with the prior year for the nine-month
period. Third quarter sales increased 5% to $92 million due to additional
volumes of pass-through equipment sales associated with deliveries from our
Finland-based operation under a large contract with Brazil. Excluding these
pass-through sales, segment revenues declined slightly, due to lower sales of
aerial units and custom pumpers, partly offset by increased sales of rescue
units. Operating earnings declined from the prior year, as increases at our
European operations were more than offset by an adverse sales mix and higher
costs at our U.S. operations. Lower U.S. earnings were partly attributable to
production disruptions following a realignment of our Ocala, Florida based
production facilities to accommodate a plant closure early next year. Also
adversely affecting earnings were higher operating expenses associated in part
with strategic initiatives.
Safety Products Group
Orders declined significantly from last year, which included the booking of the
initial $19 million portion of the Dallas/Ft. Worth International Airport
parking project; absent this project, orders were flat. Safety Products Group
sales increased 5% from the prior year to $70 million, with airport parking and
European municipal vehicular lights and sirens showing gains. Sales also
benefited from currency translation effects and pass-through installation and
shipping costs which were at low margins. Operating margins averaged 13.8%, a
decline from last year's third quarter, reflecting these lower margin sales as
well as increased pension and medical costs in the quarter. Operating margin
improved sequentially from the second quarter, which included restructuring
costs associated with the closure of a U.K.-based business.
Tool Group
Sales declined 2% as weak U.S. automotive markets continued to adversely affect
cutting tool sales. Precision punch and die component sales showed improvement,
in part due to strengthening foreign currencies. Operating margins declined to
9.2% in light of the lower sales level and continued higher pension costs, and
were also impacted by an unfavorable charge relating to inventory valuation.
CORPORATE AND OTHER
Corporate expense in the third quarter declined slightly to $2.9 million.
Interest expense increased 8% from the prior year due to higher average debt
balances.
The effective tax rate declined to 16% from last year's 20% reflecting the
higher relative impact of tax credits and tax-free municipal income. We expect
the full-year effective tax rate to be about 22%; the full-year rate also
includes the first quarter effect of a one-time benefit of a tax deduction
associated with the closure of a production facility in the U.K.
CASH FLOW AND DEBT
Operating cash flow aggregated $58 million year to date. Compared to the first
nine months of 2002, operating cash flow, though strong, was $20 million lower
than the prior year. During the quarter, the company made a $4 million
contribution to its pension funds.
While inventory productivity continued to show improvement, outstanding
receivables rose in light of the disproportionate increase in foreign sales with
longer payment terms and the mix of customer sales. Consistent with the
company's current full-year earnings estimate of $.80-.85, we expect to generate
approximately $75-80 million of operating cash flow in 2003.
Manufacturing debt was again reduced in the quarter; now at $270 million,
manufacturing debt represented 42% of capitalization, down from 44% at the
beginning of the year, and up slightly from 41% a year ago.
*******************************************************************************
Federal Signal will host its third quarter conference call Wednesday, October
22, 2003 at 11:00 a.m. Eastern Time to highlight results of the third quarter,
and discuss the company's outlook. The call will last approximately one hour.
You may listen to the conference call over the Internet through Federal Signal's
website at http://www.federalsignal.com. To listen to the call live, we
recommend you go to the website at least fifteen minutes in advance to register
and to download and install (if necessary) the required free audio software. If
you are unable to listen to the live broadcast, a replay accessible from our
website will be available shortly after the call concludes through 5:00 p.m.
Eastern Time, Wednesday, October 29, 2003.
Federal Signal Corporation is a global manufacturer of leading niche products in
four operating groups: environmental vehicles and related products, fire rescue
vehicles, safety and signaling products, and consumable industrial tooling.
Based in Oak Brook, Illinois, the company's shares are traded on the New York
Stock Exchange under the symbol FSS.
This release contains various forward-looking statements as of the date hereof
and we undertake no obligation to update these 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 such as the FIRE Act grant program and other risks and
uncertainties described in filings with the Securities and Exchange Commission.
FEDERAL SIGNAL CORPORATION (NYSE)
Consolidated Financial Data
For the Third Quarter and First Nine Months 2003 and 2002 (Unaudited)
(in thousands except per share data)
Percent
2003 2002 change
---- ---- ------
Quarter September 30:
Sales $ 287,810 $ 261,615 10%
Net income 9,939 12,493 -20%
Share earns (diluted): Net income .21 .28 -25%
Average common shares outstanding 48,051 45,358
Sales $ 287,810 $ 261,615 10%
Cost of sales (209,764) (187,553)
Operating expenses (61,329) (52,474)
------- -------
Operating income 16,717 21,588 -23%
Interest expense (5,132) (4,739)
Other income (expense) 212 (1,251)
Minority interest 3 40
------- -------
Income before income taxes 11,800 15,638
Income taxes (1,861) (3,145)
------- -------
Net income $ 9,939 $ 12,493 -20%
======= =======
Gross margin on sales 27.1% 28.3%
Operating margin on sales 5.8% 8.3%
Comprehensive income 10,280 11,524
Percent
2003 2002 change
---- ---- -------
9 months:
Sales $ 890,802 $ 765,123 16%
Income:
Income from continuing operations 26,353 32,999 -20%
Income from discontinued operations,
loss on sale net of tax (369)
Cumulative effect of change in
accounting (7,984)
------- -------
Net income 25,984 25,015 4%
======= =======
Share earns (diluted):
Income from continuing operations .55 .73 -25%
Income from discontinued operations,
loss on sale net of tax (.01)
Cumulative effect of change in
accounting (.18)
------- -------
Net income .54 .55 -2%
======= =======
Average common shares outstanding 47,977 45,371
Sales $ 890,802 $ 765,123 16%
Cost of sales (655,316) (546,424)
Operating expenses (188,444) (158,096)
------- -------
Operating income 47,042 60,603 -22%
Interest expense (15,167) (14,586)
Other income (expense) 404 (1,537)
Minority interest 212 25
------- -------
Income before income taxes 32,491 44,505
Income taxes (6,138) (11,506)
------- -------
Income from continuing operations 26,353 32,999 -20%
Income from discontinued operations,
loss on sale net of tax (369)
Cumulative effect of change in
accounting (7,984)
------- -------
Net income $ 25,984 $ 25,015 4%
======= =======
Gross margin on sales 26.4% 28.6%
Operating margin on sales 5.3% 7.9%
Net cash provided by operations:
Net income $ 25,984 $ 25,015
Cumulative effect of change in
accounting 7,984
Depreciation 18,018 15,639
Amortization 1,676 1,622
Working capital changes and other 11,829 27,105
------ ------
Net cash provided by operations 57,507 77,365 -26%
====== ======
Capital expenditures 12,498 12,931
Comprehensive income 35,141 28,860
Percent
2003 2002 change
---- ---- ------
Group results:
Quarter September 30:
Sales
Environmental Products $ 88,014 $ 68,551 28%
Fire Rescue 91,718 87,717 5%
Safety Products 69,748 66,263 5%
Tool 38,330 39,084 -2%
------- -------
Total group revenues $ 287,810 $ 261,615 10%
======= =======
Operating income
Environmental Products $ 5,308 $ 6,189 -14%
Fire Rescue 1,225 3,127 -61%
Safety Products 9,605 10,047 -4%
Tool 3,511 5,294 -34%
------ ------
Total group operating income $ 19,649 $ 24,657 -20%
====== ======
9 months:
Sales
Environmental Products $ 260,952 $ 213,843 22%
Fire Rescue 302,999 237,701 27%
Safety Products 207,990 195,230 7%
Tool 118,861 118,349 0%
------- -------
Total group revenues $ 890,802 $ 765,123 16%
======= =======
Operating income
Environmental Products $ 12,183 $ 18,707 -35%
Fire Rescue 8,741 8,347 5%
Safety Products 24,039 28,145 -15%
Tool 12,197 14,464 -16%
------ ------
Total group operating income $ 57,160 $ 69,663 -18%
====== ======
September 30, December 31,
2003 2002
---- ----
(unaudited)
Assets
Manufacturing activities:-
Current assets:
Cash and cash equivalents $ 7,631 $ 9,782
Trade accounts receivable, net
of allowances for doubtful accounts 204,166 181,843
Inventories 182,225 183,802
Prepaid expenses 15,531 19,390
-------- --------
Total current assets 409,553 394,817
Properties and equipment 135,034 143,932
Goodwill, net of accumulated
amortization 351,908 348,435
Other deferred charges and assets 63,602 44,046
-------- --------
Total manufacturing assets 960,097 931,230
Net assets of discontinued operations,
including financial assets 10,392
Financial services activities - Lease
financing receivables, net of
allowances for doubtful accounts 227,875 226,788
--------- ---------
Total assets $ 1,187,972 $ 1,168,410
========= =========
Liabilities
Manufacturing activities:-
Current liabilities:
Short-term borrowings $ 72,216 $ 16,432
Trade accounts payable 88,393 76,082
Accrued liabilities and income
taxes 145,465 129,370
--------- ---------
Total current liabilities 306,074 221,884
Long-term borrowings 198,222 279,544
Long-term pension liabilities 39,161 32,656
Deferred income taxes 36,157 33,495
--------- ---------
Total manufacturing liabilities 579,614 567,579
--------- ---------
Financial services activities - Borrowings 199,391 202,022
Minority interest in subsidiary 532 744
Shareholders' equity 408,435 398,065
--------- ---------
Total liabilities and shareholders'
equity $ 1,187,972 $ 1,168,410
========= =========
Supplemental data:
Manufacturing debt 270,438 295,976
Debt-to-capitalization ratio:
Manufacturing 42% 44%
Financial services 87% 87%