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LB Foster (NASDAQ:FSTR)

Q4 2008 Earnings Call

January 30, 2009 1l:00 am ET

Executives

Stan Hasselbusch - Chief Executive Officer and President

David Russo - Chief Financial Officer

Analysts

Liam Burke - Janney Montgomery Scott

Mark Zinski - 21st Century Equity Research

Scott Blumenthal - Emerald Advisers, Inc.

Tom Spiro - Spiro Capital

Operator

Thank you for your patience, and welcome to the Fourth Quarter, 2008, LB Foster Earnings Conference Call. My name is Candice, and I’ll be your coordinator for today. (Operator instructions).

I would now like to turn the presentation over to your host for today’s conference, Chief Financial Officer, Mr. David Russo. Sir, you may proceed.

David Russo

Thank you Candice. Good morning ladies and gentlemen. Thank you for joining us for LB Foster Company’s Earnings Conference Call to review the company’s fourth quarter, 2008 operating results. My name is David Russo and I’m the Chief Financial Officer of LB Foster. Also on the call today is Mr. Stan Hasselbusch, LB Foster’s President and CEO.

This morning, Stan will provide an overview of the company’s fourth quarter performance, give an update on critical business issues and discuss market conditions. Afterward I will review the earning’s press release issued earlier this morning, and then we will open up the session for questions.

Means to access this conference call via webcast were disclosed in our earnings press release, and were posted on the LB Foster company website under the investor relations page. This webcast will be archived and available for seven days.

Today’s call includes forward looking statements and information within the meeting of the Private Securities Litigation Reform Act of 1995. Such statements relate to future events and expectations, and include known and unknown risks and uncertainties. Future actual results may differ greatly from these statements and expectations that are expressed today.

All participants are encouraged to refer to LB Foster’s annual report on form 10-K for the year ended December 31, 2007; as well as to other documents filed with the Securities and Exchange Commission for additional information about LB Foster.

With that, we will commence our discussion and I will turn it over to Stan Hasselbusch.

Stan Hasselbusch

Good morning. Thank you David, and thanks to all of you for attending our fourth quarter, 2008 earnings call and webcast.

This morning we announced results of the fourth quarter. Sales for the quarter were $143.8 million, up 26% from the same period last year, and income from continuing operations was $0.55 per diluted share; down 24.7% from last year.

These numbers are exclusive of the gains reported of the sale of our assets in the DM&E Railroad in the fourth quarter of 2007. Results in the current quarter were negatively impacted by a net $5.1 million increase in LIFO expense over the fourth quarter 2007, and a bad debt expense of $1.5 million.

For-the-year sales totaled $512.6 million, 0.7% ahead of last year, and income of $2.36 per diluted share from continuing operations, 3.5% ahead of 2007. Again, exclusive of one time gains. Both sales and income from continuing operations in 2008 were corporate records.

David will discuss the financials and detail later, but first I’d like to talk about operational performance. Bookings for the quarter were strong; $99.5 million, which was 13.3% ahead of fourth quarter 2007, and back log stood at $132.6 million, down 4.1% compared to year-end 2007.

Looking at the product segments, let’s start with rail, where sales totaled $62 million, up 9.2% over fourth quarter 2007. For the second quarter in a row, we received a strong contribution from new rail, where sales totaled $28.9 million; 77% ahead of fourth quarter 2007.

I think an important point needs to be made regarding our participation in the new rail market. We strongly support the domestic rail mills, going as far as making a conscience decision two years ago, to discontinue involvement with Chinese rail mills. We will continue to support both the domestic manufacturers and the Buy America program for federally funded projects.

One of the concerning areas of rail is on the relay side. The steep drop in capacity utilization at the steel mills has driven both scrap prices, and consumed tonnage down significantly. This price/demand issue in scrap has had an impact on relay sales in the quarter, as sales were off 5%. We believe our inventory is fairly priced, however, we do feel that with the continued capacity and utilization down, the relay markets will continue to be soft in 2009.

Concrete sales were down 6% in the quarter, saved by a strong performance at Spokane, where sales were $8.4 million; 154% ahead of last year.

Poor results at our Grand Island, and Tucson plants were directly attributable to lack of business from the UP. Combined sales at those two facilities in the quarter were off 42%. Total production for the UP in the year was 490,000 ties, down significantly from 2007, when 775,000 ties were produced.

Unfortunately, the initial forecast for 2009 is only 420,000 ties. Expecting this downturn at the two plants, we’ve already implemented measures from a manpower and production standpoint to contain costs.

A real bright spot in the rail has been the record profit performance for the second year in a row by our transit product group. Under the direction of Gregg Leppard (inaudible), and his team, through margin expansion and cost reduction, drove profits up 11.2% for the year; truly a great performance. Bidding activity is brisk, which should lead to a solid billings in the last half of 2009 and beyond.

Speaking of strong performances in the rail group, how about Allegany Products, where income was up substantially for the year on sales improvements of 9%. Again, a combination of margin expansion on the product side by Sid Shue and his team, and cost containment and efficiency on the operations side from our Pueblo plant led by Bart Peterson and our Niles, Ohio plant led by Fran Gafsky.

In tubular products, total sales for the quarter were $8.4 million, up 6.6% from the fourth quarter last year. For the year, production at our Birmingham plant was the second highest in corporate history, and in threaded, we achieved our best revenue results since 1991.

However, due to a slow down in the economy, we are cautious in both areas for 2009. In threaded, we feel we have an inventory risk, which could result in margin compression in the first half of 2009.

The best product performance in the quarter came from our construction group, where revenues totaled $73.3 million, up 48.7% from last year. Piling, the largest component in construction, saw sales expand 67%, largely on the performance of engineered projects in the form of Combi Walls and OPEN CELL® technology, featuring flat sheet piling.

In the quarter, we shipped three projects, which included flat sheet piling, totaling $19.5 million. For the year, revenues in piling were up 13%.

I’m frequently asked about our relationship with Gerdau Ameristeel, and I’d like to say that we continue to be impressed with the commitment, communication and performance of their management and operation groups.

As we conclude our first, full calendar year with Gerdau Ameristeel, the transition from Chaparral has been virtually seamless as we begin to jointly explore new opportunities, and further expand our business relationship.

While I’m talking about construction side of our business, I’d like to comment on the Stimulus Bill in front of Congress. I have been a supporter of President Obama, and in particular his initiative of putting people to work on our highways and bridges through an infrastructure-featured stimulus package.

From our perspective, realization of the bill, which passed the House on Wednesday, fell well short of expectations. In the $819 billion bill, only $90 billion is truly classified as infrastructure work, and of that, only $30 billion, or less than 4%, will be allocated to highways and bridges and only $7 billion will be designated for the rail transit market.

Spending is critically needed on our infrastructure, and this bill will not significantly narrow the gap. The American Society of Civil Engineers estimate that $1.6 trillion will be needed over the next five years, just to maintain the United States infrastructure.

The Department of Transportation estimates that $61 billion per year for the next 20 years is needed over the current funding to improve our highways and bridges, and of the 600,000 bridges throughout the United States, 26% are in need of major repair.

With that said, and realizing that the stimulus package falls short from an infrastructure standpoint, we will look to the successful reauthorization of SAFETEA-LU, the $287 billion transportation funding bill that expires in September of this year. Estimates for the successor bill run as high as $500 billion. We need that bill and we need it to pass by the time the current bill expires.

In 2009, we expect to be challenged by a very difficult business environment. During the fourth quarter, we began to prepare for the impending downturn by implementing a number of measures to control costs, focus on ways to maximize cash flow, improve our operational excellence, and look for more opportunities to leverage our strong balance sheet.

There are many uncertainties as we enter 2009. Uncertainty of the infrastructure and non-residential spending. Uncertain of the credit environment, and uncertainty of pricing from our suppliers. However, what is not uncertain is the loyalty and dedication of our employees, and LB Foster’s ongoing commitment to our stakeholders.

And now I’d like to turn this back to David for a financial review.

David Russo

Thank you Stan. I would like to spend just a couple of minutes recapping the special items that have impacted our results in 2007 and 2008. As you are all aware, in the fourth quarter of 2007, the Canadian Pacific Railroads’ purchase of the DM&E Railroad was consummated, resulting in a $148.5 million cash receipt for LB Foster, and a gain on the sale of our investment of $122.9 million.

The corresponding earnings per diluted share related to that gain was $7.06 per share. Additionally, in the third quarter of 2007, we recorded incremental dividend income of $8.5 million that had previously been deferred. The tax on that dividend was approximately $900,000; and the net amount was about $7.6 million, with a corresponding diluted EPS of $0.69 per share.

In the first quarter of 2008, there were two special items we noted during our call then that occurred, that had a one-time positive impact to our operating results. The first item was $2 million of proceeds received late in the first quarter, related to a favorable working capital adjustment pursuant to our last year’s sale of our investment in the DM&E. The estimated EPS impact of those proceeds was $0.12 per share.

The second item was the sale and leaseback of our threaded products facility in Houston, Texas. We received approximately $6.5 million for this facility, and simultaneously leased back 20 acres. The gain on the sale was approximately $1.5 million, with an estimated EPS impact of $0.09 per diluted share.

In an effort to discuss meaningful, comparative results, the ensuing quarter, or annual discussion of results excludes the impact of these transactions, unless otherwise indicated. So with that in mind, I’ll begin the financial review.

Sales for the fourth quarter of 2008 were $143.8 million compared to $114 million in the prior year, a 26.1% increase. The sales increase was due to a 48.7% increase in construction product sales, a 9.2% increase in rail sales, and 6.6% increase in tubular product sales compared to last years fourth quarter.

The construction product sales increase was due primarily to increases in our piling, as well as our precast buildings divisions. Our piling division has done a tremendous job of adding product breadth and penetrating the North American market.

Fourth quarter tubular sales increased due to improvement in coated product sales, offset by a decrease in threaded sales. Both tubular divisions had strong years in 2008. Threaded products had a record year, while our coated division’s results were second only to 2007.

The energy market served by our coated division have been robust for the past several years, and subject to any significant, negative impact resulting from the economic downturn, we would expect that strength to continue throughout 2009 and beyond.

Our threaded pipe division continues to successfully address it’s core water well market, and pursue additional opportunities in the micro pile market to expand it’s customer base and fully load it’s facility.

The rail sales increase of 9.2% was driven principally by rail distribution, as Stand mentioned. While concrete tie sales declined in the fourth quarter of 2008 compared to last year, our Spokane facility generated a substantial sales increase.

Our Grand Island and Tucson facilities were approximately 50% utilized, and we are actively marketing both heavy hull ties, as well as a newly developed industrial concrete tie from our Grand Island facility.

The new industrial ties are currently being produced and sold. As Stan mentioned earlier, unfortunately we had to take cost reduction measures in these two facilities to bring our headcount in line with 2009 production volumes.

In Spokane, we continue to produce ties for other Class I railroads, transit authorities, contractors and industrial customers, and we continue to experience reasonable inquiry and bidding activity.

As a percentage of consolidated sales, tubular accounted for 6% of sales, construction was 51%, and rail was 43%.

For the full year, sales were $512.6 million, up less than 1% over 2007. This slight increase slows the strong trend that began in 2005, when annual sales increased 20% per year in 2005 and 2006, and then 31% in 2007.

For the year, construction sales increased 14.7%, tubular sales declined by 4.6% and rail sales were down by 10%.

As a percentage of consolidated sales, tubular was 7%, construction 47% and rail was 46%.

As mentioned in our earnings release, backlog stood at $132.6 million at the end of the fourth quarter, down 4.1% from December of 2007.

Bookings for the fourth quarter increased by 13.3% to $99.5 million. Twelve month bookings were $512.3 million, up 2% over the prior year.

Our gross profit margins in the fourth quarter were 13.9%, a decrease of 360 basis points from last years fourth quarter. A reduction in margin was due to increased LIFO expense and a decrease in gross profit before manufacturing and other variances, partially offset by improved manufacturing variances, and decrease scrap and obsolescence costs.

Fourth quarter LIFO expense was approximately $4.9 million compared to a $200 credit last year.

Our 12 month gross profit margins were 15.6%, up 60 basis points over 2007. That increase was due to increased gross profit before manufacturing and other variances, and improved manufacturing variances that were partially offset by increased LIFO expense of $11.2 million.

SG&A expense increased 23.9% to $11.6 million in the forth quarter 2008, due primarily to bad debt and salary expenses. SG&A represented 8% of sales in the fourth quarter of 2008 as compared to 8.2% in last years fourth quarter, 20 basis point decrease. On a year-to-date basis, SG&A was $41 million, or 8% of sales, compared to $37.4 million, or 7.3% of sales last year.

As a result of the foregoing, the fourth quarter operating income was $8.4 million, compared to $10.9 million in last years fourth quarter, a 23% reduction. As a percentage of sales, operating income was 5.8% in this year’s quarter, versus 9.5% last year.

Interest expense was $452,000 in the fourth quarter of 2008, $248,000 or 35% less then the fourth quarter of 2007. The decrease was due principally to a decrease in average borrowings during the fourth quarter of 2008 as compared to 2007, and to lower interest rates on certain debt instruments.

The lower borrowings are principally a result of the strong cash flow generated from operations in the second half of 2007. As mentioned during previous calls, none of the DM&E proceeds have been used to pay down debt. Since June of 2007, we’ve cut our debt in half by paying down $27.5 million with internally generated cash flows.

Fourth quarter pretax income from continuing operations was $8.6 million compared to 11.3 million in last year’s fourth quarter, a 2.7 million or 24% decrease. For the full year, pretax income as adjusted for the items mentioned at the beginning of my discussion increased by 7% to $39.8 million, which was approximately 7.8% of sales.

Fourth quarter 2008 income tax provision was 33.9% and the full year rate was 33.5%. Income from continuing operations decreased 30% to $5.7 million or $0.55 per diluted share, compared to $8.1 million or $0.73 per diluted share last year.

Turning to the balance sheet, debt at the end of the fourth quarter was $27.5 million, compared to $34.2 million at the end of 2007. Capital expenditures were $800,000 for the fourth quarter, compared to $1.4 million in last year’s quarter. On a year-to-date basis, CapEx was $4.8 million, compared to $5.3 million in 2007. We expect capital expenditures to again be less than $5 million in 2009 and we also expect to generate positive cash flow from operating activities that will be in excess of our capital expenditures.

The most notable use of cash in the fourth quarter was the repurchase of the company’s common stock pursuant to our share repurchase programs that were announced in May and again in October of 2008. As noted in our earnings release, in the fourth quarter we purchased 295,623 shares at an average price of $22.50 per share or approximately $6.7 million. The program to date totals reflect that we purchased over 865,000 shares for a little less than $26.5 million.

So the second board authorization that was $15 million is approximately 10% spent. We do not believe that this program conflicts with our stated acquisition strategy. On the contrary, we believe that the combination of the two will help provide a balanced approach to providing long-term value for our shareholders.

Our debt as a (inaudible) was 11.2% at the end of December 2008, compared to 13.8% at the end of December 2007. Our leverage ratio is just under .6 to 1, down from .7 to 1 at the end of last year. And, our interest coverage was more than 21 to 1. Cash at December 31, 2008 was approximately $115.1 million and we had over $114 million invested principally in triple-A rated money market funds, all of which today are guaranteed by the U.S. Treasury.

With regard to working capital, accounts receivable and inventory, net of accounts payable declined by $8.5 million compared to the third quarter and increased by $2 million when compared to December 2007. Accounts receivable decreased by $5.1 million during the quarter, primarily due to the $6.9 million sales decrease. Inventory decreased by $17.4 million during the fourth quarter of 2008, which more than reversed the $14.9 million increase from Q2 to Q3. Inventory levels were flat in 2008 when compared to 2007.

While our visibility regarding 2009 remains somewhat unclear, we believe that the current recession, continued credit concerns, and a disappointing stimulus bill, at least in its present form, will present challenges to many companies including L.B. Foster. As a result of reduced demand for certain of our products as well as sharply falling commodity prices over the last several months, we expect to battle margin compression for at least the first half of 2009.

We expect to run our business with a balance of opportunism while managing risk in an uncertain environment by proactively adjusting to what we see in our markets. We believe that when conditions do improve, the markets we participate in will be some of the first to benefit from such improvement. We also enter this period of uncertainty in extremely strong financial position with the ability to take advantage of opportunities and weather the storm if need be as future circumstances dictate. We are also glad to be entering 2009 with the 607 fellow employees that have consistently demonstrated the ability to produce results for all of our stakeholders.

That concludes my comments on the fourth quarter of 2008. We will now open the session up for questions. Candice.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions)

Our first question will come from the line of Liam Burke of Janney Montgomery Scott.

Liam Burke - Janney Montgomery Scott

Thank you. Dave, Stan, how are you this morning?

Stan Hasselbusch

Doing good, Liam. How are you?

David Russo

Thanks, Liam, good.

Liam Burke - Janney Montgomery Scott

Good, thank you. You touched on through the course of your discussion, initiatives you’ve been taking to take costs out of the business in anticipation of an uncertain 2009. Could you give us some detail? I know you touched on the concrete points that serve the UP business, but could you go in a little more detail there?

Stan Hasselbusch

Yeah. I guess first to make these cost reductions meaningful, it needs to start with me. I’ve asked our board for a temporary 10% reduction of my salary, which was accepted and became effective January 1st. We put a wage freeze, a temporary wage freeze on all salaried employees. We’ve mandated an across the board reduction of T&E, not to lose face time with our customers, but to spend our T&E smarter and better. This includes cancellation of our annual operations meeting and sales meeting and cancellation of our annual out-of-town board of directors meeting.

We will have no new hires or replacement hires without my approval. As David talked about in the CapEx, we’ve reduced that $2.5 million from our original plan. No expenditures in this area with the exception of repairs and maintenance without the approval in the plant level of John Kasel who manages all of our plants or myself.

We really, as we talked about free cash flow, under this time we’re taking strict inventory management and control, was imposed in the fourth quarter. I think it led in part to the reduction of nearly $18 million. But we’ve got further, further way to go and over the course of the year, we will continue to drive our inventory levels lower.

We’ve looked at elimination of all overtime at the administration positions. We understand that at the plants, that particularly at our concrete plants, that we will be working overtime, ‘cause the shift, we’ve cut down from two shifts to one, but the one shift is a longer shift as we go with extended cures. And, we’ve really cut back on our advertising and trade shows.

Head count from an individual standpoint, I believe in December of ’07, we were at around 750 and I think David mentioned we’re down around 600 right now and most of those have been in the plant levels, there have been some in the white collar salary area, but the bulk of them have been at the plant. I guess to hit the major ones, Liam, that’s what they were.

Liam Burke - Janney Montgomery Scott

Great. Thank you, Stan. On the acquisition front, and I know that’s part of your strategy, your competitors are probably seeing the same environment, has pricing become more attractive, or have there been any targets that are more attractive now in this environment?

David Russo

We usually—the targets themselves we identify through our strategic planning process, Liam, but yes, some of them were so highly valued that we took note of them but really didn’t pursue them. In this environment there are a couple whose valuations have come into line where we are much more interested and there’s at least one or two that we are pursuing.

Of course, you know, as all of our valuations have come down of course some of those companies are less enthused to sell at these (inaudible) valuations. So there’s certainly somewhat of a resistance for some companies unless they need to sell to go at today’s pricing. So there’s going to be certainly a balance there.

We’ve, you know, on the private side, we’re negotiating for a company late in—or in the middle of—the fourth quarter of ’08, and there still was some pretty high prices being bid by a couple of financial enterprises. So we’re not sure given what’s occurred over the last 60 days whether some of those deals are going to get financed or maybe come back on the market.

So we’re keeping a keen eye out for that. But, yeah, valuations have definitely come down, but I would also tell you that the deal flow is going to be slow for the first probably four to six months of this year.

Stan Hasselbusch

Just to add on to that, I mean, we feel very strongly about this program and we have gone out in the fourth quarter, some of you might have seen our press release, hired David Sauder, who is our Vice President of Global Business Development, and who will be—acquisition is a large part of what his program will be going forward along with no other areas of business development within the company.

Liam Burke - Janney Montgomery Scott

Great. Thank you very much.

Operator

Our next question will come from the line of Mark Zinski of 21st Century Equities. You may proceed.

Mark Zinski - 21st Century Equities

Good morning, gentlemen.

Stan Hasselbusch

Hey Mark.

David Russo

Good morning, Mark.

Mark Zinski - 21st Century Equities

I guess the first question, I was wondering about what your sense is for CapEx spending within the rail industry for 2009? You know, the railroads are still hanging in there, buoyed a little bit by the fuel surcharges, etc., but would you still expect a 2 to 5% increase that you had previously anticipated?

Stan Hasselbusch

2 to 5% increase? As far as CapEx spending?

Mark Zinski - 21st Century Equities

Yes, mm-hmm.

Stan Hasselbusch

You know, we were surprised last year. We were looking for the number to be relatively flat last year, but we were kind of surprised that the final numbers are up 5 to 10% depending on the railroad. But we’re not going to get, I don't think, a 2 to 5% bump this year. We’re looking for it to be flat to down 5%.

Mark Zinski - 21st Century Equities

Okay.

Stan Hasselbusch

I mean, some of them have come out already, and they are relatively flat, but we’re going to see where it goes. You know, we were surprised by the forecasts coming out from the UP on what they’re doing and I think their plans are relatively flat for next year. But, you know, this is important to them, but I think that they’re like everybody else, putting their priorities in line and right now this year or next year it’s in other areas.

Mark Zinski - 21st Century Equities

Okay an you provide any color in terms of any order flow to your scenes from the numerous transit spending bills that were on the November ballot? Are there any specific examples that you can cite with the co-

Stan Hasselbusch

As I said in my comments, we’re really seeing an activity over the last couple months in transit. There’s just—

Across the country, across the country. I don't think there’s any – I think it’s just still too early – I don't think there’s anything that’s out there that came off of the November ballot. I think it’s been out there for some time and there’s nothing off the November ballot, but there is a lot of activity in that area and that’s when it spurts.

And like I said, we had our second best year in transit and just have done a great job across the board in that area. And we’re going to be—you know, our backlog ending the year is a little bit down from last year, but we expect the activity to really come in to play and to have good bookings in probably the first four or five months of the year, which we hope will come into play from a billing perspective in the second half the year end and beyond.

But in that particular product, there is usually a larger gap between bookings and billing and so we think we’re going to get some of it in the last half of the year, but we’re really excited about what we see going forward in that area.

Mark Zinski - 21st Century Equities

Okay, great. That’s very helpful. And, then in terms of working capital for the month of January, can you comment at all in terms of how collections are going and how inventory management is going?

Stan Hasselbusch

Go ahead, David

David Russo

From a collection standpoint, actually, we are pretty much on track with what our expectations were, Mark. We actually had a very good collection month, collection year last year. But December was a good collection month and this January’s pretty strong too.

So, we’re, you know, for the most part, we did have the issue with our one customer in the fourth quarter where we took a rather substantial bad debt charge. But for the most part everybody else seems to be on track. We certainly have a heightened awareness about slowing economy and looking for problems as we move forward. But so far, we’re in pretty good shape.

Mark Zinski - 21st Century Equities

Oh, a final question in terms of how the quarter broke out by month. Did you see any huge noticeable differences for instance between October and November?

Stan Hasselbusch

You know, I can talk about it from a booking standpoint, activity, which everybody’s really been talking about. We had really a strong month in October, but we had a horrible month in November from a booking standpoint it’s probably our worst—fourth quarter is usually one of our worst booking quarters, but November was especially bad. But, we had a pretty good pickup in December and I guess the trend that we’re seeing which is that we’re seeing a lot of the big projects and I’ve talked about what we’ve seen and what we booked and billed in piling and (inaudible).

We’re seeing that in a couple other areas, but there’s just the lack of the day-to-day business that really has got the higher margins in it that makes us a little nervous right now.

Mark Zinski - 21st Century Equities

Okay. That’s it. Thank you very much.

Stan Hasselbusch

Thank you.

Operator

Our next question will come from the line of Tom Spiro of Spiro Capital Management. Please proceed.

Tom Spiro - Spiro Capital Management

Tom Spiro at Spiro Capital, good morning.

Stan Hasselbusch

Tom, how are you doing?

David Russo

Hi, Tom.

Tom Spiro - Spiro Capital Management

Okay. Couple of questions. First, inventory risk, what’s your assessment of the risk that we face with respect to our inventories?

Stan Hasselbusch

Well, I think that – I think I can just take a time to talk about it. I did mention threaded. And, you know, threaded only amounts to $7 million in inventory, which is about twice where we were at the end of last year, Tom. And, it’s pipe is driven by hot roll bands, which is the most volatile product that we deal with and it’s used to make pipe. So, I was a little bit nervous about that. But, you know, from a risk standpoint, I think in new rail, we’re about $30 million and we’ve got most of it, we’ve probably got 75% of that already committed. So don't really have a lot of nervousness about that.

Piling, we’re a little under $40 million and of that, we probably have $16-$17 million sold. We’ve got $20-$22 million that’s unsold, which really took a jump last year and for good reasons with CXT. Our inventory at the yearend was about $20 – and CXT ties that is – our inventory at the end of the year was about $20 million, which is about twice of where it was at the end of ’07.

It really is in four areas, Tom.

We did ramp up at the end of the year, last quarter, in anticipation of a better year from the UP and so we’re sitting on some ties from them which we’ll feed through the system in the first quarter. We build some ties out in Spokane in anticipation of a transit job out there, which we were hoping would pick up in the fourth quarter, but actually was delayed and we probably won’t ship that until the second quarter.

And, you know, the industrial ties, David mentioned them and we’ve talked about them in the past. It’s not been as – our rail group hasn’t been able to really move them in this economic time as quickly as we thought.

And, then the fourth area is wire and we bought wire and we’re sitting on some wire which we’d like to have a little bit less priced on. But, overall, we’re sitting on $102 million. We will continue to work down. There’s nothing out there that really causes me a lot of concern. But, those are the three or four areas that the bulk of the money’s tied up in, Tom.

Tom Spiro - Spiro Capital Management

Okay. That’s helpful. Secondly, in tubular, Stan, I think in your comments you expressed a little bit of caution and then, Dave, a little optimism. And, I wasn’t sure, perhaps I misunderstood the points each of you were making with respect to 2009.

Stan Hasselbusch

Let me just say my comments. We had in ’07 far and away the best year that we’ve ever had in the coated side of it and this year was, ’08 was less, probably 25% less, but it was still the second best year we’ve ever had. We’re looking at a little less than that, though we’ll have a continued good year and we feel very, very bullish about the long term.

In the threaded side of it, you know, primarily in the water resource area, it’s a little soft right now and we expect it to be soft for the next six months. But, you know, we’ve got a good healthy plan there and we probably will look for it to be picking up towards the second half of the year.

Tom Spiro - Spiro Capital Management

That’s helpful. Lastly, the million five bad debt to a single customer. Which segment bore that bad debt?

Stan Hasselbusch

You know, Tom, I think to protect the confidentiality of the customer, we’re trying to work this, we’d just as soon not talk about that.

Tom Spiro - Spiro Capital Management

Okay, many thanks.

Stan Hasselbusch

You're welcome

Operator

Our next question will come from the line of Scott Blumenthal of Emerald Advisers. Please proceed.

Scott Blumenthal - Emerald Advisers, Inc.

Good morning, gentlemen.

Stan Hasselbusch

Scott.

Scott Blumenthal - Emerald Advisers, Inc.

Good morning.

David Russo

Good morning, Scott.

Scott Blumenthal - Emerald Advisers, Inc.

Stan, you did mention the large piling order, the (inaudible) the open cells in the quarter and I guess one of the concerns out there is just visibility. Can you talk about maybe the time from the order to delivery, how much visibility, or was that something you already had in backlog?

Stan Hasselbusch

We’ve had it in the backlog, some of that work was booked earlier in the year, some of it came up pretty quickly. I mean, a couple jobs come to mind. There’s a lot of work going up in Alaska and I think in the course of the year, we shipped about $17 million up there I think it was. And, I believe 8 or 9 million of that came in the fourth quarter.

There’s a huge port with the Port of Alaska being built and it’s a ten-year project. And, from a piling standpoint, it’s just huge. Could be $60, $70, $80 million and we’ve gotten the first couple phases of that. And, so, and the other big job really came up quickly.

Jim (inaudible) down in Houston did a great job putting the job together going for of all places to Iraq and it shipped out in November and I think we just got another little nice add on here in January which will be billing this quarter.

We’ve spent a lot of time in this area and Phil Wright down in Atlanta has really led this. And we’ve got joint ventures going with a couple different companies to put this program together of which the biggest is Ameristeel and it’s really starting to get some traction and we’ve had really a nice performance on that this year and we expect that to continue.

David Russo

The visibility, though, Scott, I mean it does vary, the Alaska job Stan mentioned we had quite a long lead time on that job and it shipped out in various batches. The Iraq job came fairly quickly and we put it into our partner, Dierdo (ph), and it went to their next rolling and they really accelerated and it went fast.

Scott Blumenthal - Emerald Advisers, Inc.

Okay, great. That’s very helpful. Thanks, Dave. Also, you know, the spike in concrete tie sales out of Spokane. Did you land a new customer there or was that kind of unexpected? Can you tell us how that came about?

Stan Hasselbusch

You know, as Dave said, I believe he mentioned, we’ve got a very diverse market there. I mean, we’re shipping some work all the way across the country in a couple applications, but port work, we’ve done some work with the Canadian lines last year, and transit work. So, it’s a cross section of quite a few things. But, also we did get a big job up in Montana, new rail lines being built, the Bull Mountain project which I think was around 70,000 ties, which has really played in well to this year.

Scott Blumenthal - Emerald Advisers, Inc.

Is that for a portion of the rail line or is that –

Stan Hasselbusch

It’s a spur line that’s out there. I think that that’s for the entire project.

Scott Blumenthal - Emerald Advisers, Inc.

Okay, and—

Stan Hasselbusch

Some of that stuff comes up pretty quick. And, so I think that the group out in Spokane really reacted very well and got in front of that. It’s a job that we’ve been following for, gee whiz, three or four years and, you know, it was back and forth and back and forth and on again/off again. And it came and it came quickly and we jumped on it and responded extremely well.

Scott Blumenthal - Emerald Advisers, Inc.

Okay. Could you maybe then, Stan, in that vein can you give us an idea of I guess just generally how much has kind of come up quickly in Q4 and what you pulled from your backlog, understanding that you've given us the booking numbers, we know the backlog numbers. And, you know, how much do you get within a quarter, how much, you know, kind of.

Stan Hasselbusch

Are you talking about from the span of time from bookings to billings?

Scott Blumenthal - Emerald Advisers, Inc.

Yeah.

David Russo

You know, Scott, I mean, we couldn’t actually sit here today and tell you how much that we actually booked in the fourth quarter or really shipped in the fourth quarter.

Scott Blumenthal - Emerald Advisers, Inc.

Mm-hmm.

David Russo

But, what we can tell you is that at any one point in time our backlog will typically 95% of whatever’s in our backlog will go in the next 11 to 12 months. And, the sweet spot is really in the three to eight month category.

So, you know, most of I would tell you more than 60% of what we shipped out in the fourth quarter was in our backlog at the end of September, but there are certainly projects that we’re able to book and to bill in the same quarter. But that’s, you know, I would tell you that most of it is coming from the previous quarter’s backlog.

Scott Blumenthal - Emerald Advisers, Inc.

Okay great. That’s helpful, Dave. And, if I may, just one or two more. You talked about how you expect to kind of struggle with battle margin compression during the course of the year. Can you talk about, you know, kind of material costs? Concrete costs?

You know, steel prices that have come in significantly and, you know, we are a LIFO company, so we’re selling what should be – what we’re buying more cheaply now. Can you talk about how that’s kind of going to play off against, you know, you're ability to get pricing, I guess?

David Russo

Yeah, I mean, you know, it certainly varies by the type of business, by which division we’re talking about, Scott, but still over 55% of what we do is distribution. And, the two primary business as you are aware are piling and rail distribution. And, those businesses certainly benefit typically in a rising price environment.

We work with the mills when we quote significant jobs so that we are able to hold a price to a customer to the extent the market can take that and the mill that we work with holds that price. And certainly to the extent that we have inventory and prices increase to the marketplace, we’re able to take advantage of that from when we sell stock inventory to the marketplace.

So in a rising price environment, those businesses typically benefit. We’ve got other businesses in our fabricated products group, they’ve got six price contracts that can go anywhere from six months to 24 months and they’re going to get hurt in a rising price environment.

You know, we’re moving into this year now as Stan mentioned from a question earlier, we’ve got some— we track very closely inventory that we deem to be at risk because it’s out there, we bought it in 2008 at typically some higher prices and we’re going into an uncertain year to where demand is softer than it has been.

And we’ve already seen significant decreases in scrap. Although some of the niche products we sell like pilings, sheet piling especially in new rail, don't move up and down directly with scrap steel. Those are more niche products and they tend to hold their pricing better.

So, we do know that since we’re not in a rising price environment today that some of the opportunities that we were able to take advantage of last year may not be there, at least may not be there in the same amounts that they were last year. So we expect to struggle to, you know, when we start comping against last year’s margin, it’s going to be very difficult.

Scott Blumenthal - Emerald Advisers, Inc.

And, I guess that kind of goes to Stan’s comment a few minutes ago about kind of the lack of day to day stuff coming through, that would kind of help margins, I guess.

David Russo

Sure.

Scott Blumenthal - Emerald Advisers, Inc.

Yeah. All right. Well, thank you. I appreciate it.

David Russo

You're welcome.

Operator

Ladies and gentlemen, this concludes the question and answer portion of today’s conference. I will turn the call back to management for closing remarks.

Stan Hasselbusch

We thank you all for participating and from here in Pittsburgh, Go Steelers. Thank you.

Operator

Thank you for your participation. You may now disconnect. Have a great day.

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