L.B. Foster (FSTR)

Railway infrastructure company L.B. Foster (NASDAQ:FSTR) fell short of the markets revenue expectations in Q3 CY2025, with sales flat year on year at $138.3 million. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $540 million at the midpoint. Its GAAP profit of $0.40 per share was 35% below analysts’ consensus estimates.

Company Overview

Founded with a $2,500 loan, L.B. Foster (NASDAQ:FSTR) is a provider of products and services for the transportation and energy infrastructure sectors, including rail products, construction materials, and coating solutions.

Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand for general industrial machinery companies. Those who innovate and create digitized solutions can spur sales and speed up replacement cycles, but all general industrial machinery companies are still at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include Trinity Industries (NYSE:TRN), Quanta Services (NYSE:PWR), and Aegion (NASDAQ:AEGN).

A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, L.B. Foster struggled to consistently increase demand as its $507.8 million of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards and is a sign of lacking business quality.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. L.B. Foster’s recent performance shows its demand remained suppressed as its revenue has declined by 3.6% annually over the last two years.

L.B. Foster also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. L.B. Foster’s backlog reached $247.4 million in the latest quarter and averaged 18.4% year-on-year growth over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for L.B. Foster’s products and services but raises concerns about capacity constraints.

This quarter, L.B. Foster’s $138.3 million of revenue was flat year on year, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 12% over the next 12 months, an improvement versus the last two years. This projection is healthy and suggests its newer products and services will catalyze better top-line performance.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

L.B. Foster has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 19.9% gross margin over the last five years. Said differently, L.B. Foster had to pay a chunky $80.11 to its suppliers for every $100 in revenue.

This quarter, L.B. Foster’s gross profit margin was 22.5%, down 1.4 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

L.B. Foster was profitable over the last five years but held back by its large cost base. Its average operating margin of 2.2% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, L.B. Foster’s operating margin rose by 2.2 percentage points over the last five years.

In Q3, L.B. Foster generated an operating margin profit margin of 6%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for L.B. Foster, its EPS declined by 31.4% annually over the last five years while its revenue was flat. However, its operating margin actually improved during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

Diving into the nuances of L.B. Foster’s earnings can give us a better understanding of its performance. A five-year view shows L.B. Foster has diluted its shareholders, growing its share count by 2.1%. This dilution overshadowed its increased operational efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For L.B. Foster, its two-year annual EPS growth of 45.4% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q3, L.B. Foster reported EPS of $0.40, down from $3.27 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects L.B. Foster’s full-year EPS of $0.45 to grow 333%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

L.B. Foster has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.1%, lousy for an industrials business.

Taking a step back, an encouraging sign is that L.B. Foster’s margin expanded by 7.1 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

L.B. Foster’s free cash flow clocked in at $26.37 million in Q3, equivalent to a 19.1% margin. This result was good as its margin was 3.3 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

L.B. Foster historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.5%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, L.B. Foster’s ROIC has increased significantly over the last few years. This is a good sign, and we hope the company can continue improving.

L.B. Foster reported $3.43 million of cash and $84.43 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $32.65 million of EBITDA over the last 12 months, we view L.B. Foster’s 2.5× net-debt-to-EBITDA ratio as safe. We also see its $2.40 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its revenue missed and its EBITDA fell short of Wall Street’s estimates. The company also dropped its full-year revenue guidance Overall, this was a weaker quarter. The stock traded down 1.7% to $27.05 immediately following the results.

Updated: December 3, 2025 at 10:31 PM EST

Before deciding whether to buy L.B. Foster or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

L.B. Foster’s business quality ultimately falls short of our standards. For starters, its revenue growth was weak over the last five years. And while its backlog growth has been marvelous, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

L.B. Foster’s EV-to-EBITDA ratio based on the next 12 months is 6.2x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $29 on the company (compared to the current share price of $27.32).