Federal Signal Corporation (FSS) Q2 2010 Earnings Call Transcript July 30, 2010 10:00 am ET Executives Bill Barker – SVP and CFO Bill Osborne – President and CEO Analysts Ned Borlad – Hudson Securities Charlie Brady – BMO Capital Walt Liptak – Barrington Research Steve Barger – KeyBanc Capital Markets Presentation Operator
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And now, I'll turn the call over to Bill Osborne.Bill Osborne Thank you, Bill. There's a lot to discuss regarding the second quarter of Federal Signal. We continue to see strong order growth across most of our businesses, but we also felt the impact of the European debt crisis. We improved our gross margin versus last year on flat revenues and are well-positioned for further gross margin improvement in the second half of the year. We created a new operating group, Federal Signal Technologies or FSTech for short. We also completed an equity offering. And we took a charge for restructuring actions that will enhance our future profitability. Let me start with our Q2 orders. As we reported in our earnings release earlier today, total company orders increased by 23% versus last year, with orders for our existing businesses, those which we have owned for at least one year, up by 16%. In particular, we are encouraged by the continued strength in our industrial and FSTech markets. We achieved order growth rates in excess of 20% in several of our key businesses, PIPS ALPR cameras, Federal APD parking, our industrial safety and security business, the Guzzler industrial vacuum trucks, and Vactor Sewer Cleaner businesses. We also achieved 17% of our growth in our JetStream water blaster business. These businesses combined a comp for roughly 40% of total company revenue. However, our European-focused businesses were impacted by the debt crisis and its impact on European municipal and government budgets. As an example, second quarter orders for our Bronto Skylift business were 37% below the order rate in Q1 and were down 6% versus last year. And this is after being up more than 50% in the first quarter. More specifically, Bronto's average monthly order rate in Q1 was about $10.5 million. But in June, monthly orders were only $4 million. Some early Q2 orders for BAMA, our European lightbar and siren business, were 34% lower than in the first quarter.
There continues to be a high level of uncertainty around European public sector spending as indicated by the recently announced austerity programs in several European countries. We expect the lower second quarter order rate will likely result in lower revenues in the second half of 2011 than we had previously expected. I'll talk a little bit more about our expectation for the second half of the year and 2011 in a little bit.Turning to our gross margin for the quarter, we began to see the benefits of our product cost reduction efforts and our emphasis on growing our higher margin businesses. Our gross margin for the quarter was nearly a point higher than last year on flat revenue. We expect this trend to continue in the second half of the year, with our Q4 gross margin higher than what we achieved in the second quarter. We reported earnings per share of $0.2 cents for continuing operations for the second quarter. This included the $0.04 per share impact from restructuring charges. Adjusting our EPS calculation to exclude the impact of a $3.7 million restructuring charge would yield an adjusted EPS of $0.6. Bill Barker will go through the financials and some details in a moment, but I'd like to explain the restructuring actions. As we discussed, we created a new operating group, FSTech, during the quarter. When we formed FSTech, we moved two of our existing businesses, the PIPS ALPR camera business and our Federal APD parking business from our safety and security group to FSTech. The creation of this new group structure caused to reevaluate our business support needs at both the group and corporate levels. We're reducing headcount, outsourcing some support activities, and sharing resources across the groups. We believe that the restructuring actions will provide more efficient support for our business and will result in lower costs. We expect the annualized savings from these actions to be roughly $5 million, with $1.5 million of savings recognized in 2010, and the balance to be realized in 2011. Read the rest of this transcript for free on seekingalpha.com