Federal Signal Corp. stock jumps on fourth-quarter earnings

by Nicole Duarte

published by the Medill News Service, February 21, 2006

Oak Brook-based Federal Signal Corporation saw its stock jump more than 5 percent despite reporting a net loss in fourth-quarter earnings, which the company largely attributed to two businesses it is exiting.

The company reported a net loss of $25.9 million or 54 cents per diluted share for the quarter ended Dec. 31, compared with earnings of $6.1 million or 13 cents per diluted share in the year-earlier quarter. Federal Signal is a niche manufacturer of environmental and fire rescue vehicles, safety and signaling products and consumable industrial tools.

The company's negative earnings per share fell far short of one analyst's projection of 15 cents per diluted share. No analysts could be reached for comment.

The company said in a release the fourth-quarter earnings performance was slightly better than its expectations.

Federal Signal CEO and President Robert Welding said in a conference call, "Recently, we made the decision to exit the Leach refuse truck body business in order to improve operating earnings and allow management teams to focus on our areas of strength."

He added the company was currently pursuing potential buyers for the refuse business and hoped to complete the divestiture by the end of 2006.

Federal Signal also closed Federal APD do Brasil, a Brazilian subsidiary, in the fourth quarter. Both enterprises were listed as discontinued operations in the earnings statement. The company said discontinued operations skewed year-on-year earnings comparisons and impaired a healthy earnings picture in other company sectors.

"I am pleased with the company's performance in 2005. Revenue grew 9 percent and we more than doubled our earnings excluding the tax and divestiture gains," said Welding in a release. "Nearly all operating units improved their economic value through higher operating earnings and reduced capital employed."

The company reported $13.5 million in income from continuing operations in the fourth quarter 2005, compared with a loss of $100,000 in the year-prior quarter.

Revenue from all operations increased 2 percent, to $306.8 million from $300.4 million in the year-earlier quarter.

For the first quarter of 2006, the company projected revenue growth of 6-8 percent, and a 10-15 percent increase in earnings excluding tax and divestiture gains. "This improvement is in spite of the 6 cents after-tax cost per share in higher compensation expense from expensing stock options and changes to our pension accounting assumptions," Welding added.

Welding also said "reaching a break-even run rate before mid-year 2006 is unlikely," referring to the company's net losses.

For the year ended Dec. 31, 2005, the company reported a net loss of $4.6 million or 10 cents per diluted share, down from a loss of $2.3 million or 5 cents per diluted share in 2004.

Sales for the year totaled $1.16 billion, a 9 percent increase over $1.06 billion in the 2004.

Income from continuing operations was $47.3 million compared with $9.5 million in 2004. Discontinued operations reported a loss of $50.3 million, a substantially larger loss than the $18.5 million in the year earlier.

Welding said in a conference call, "We've clearly turned a corner and reversed what was about a 10-year trend of declining performance."

The stock closed at $18.42, up 94 cents or 5.38 percent.