Federal Signal Corporation (FSS) Bundle
Understanding Federal Signal Corporation (FSS) Revenue Streams
Understanding Federal Signal Corporation’s Revenue Streams
Net sales for the three months ended September 30, 2024 increased by $27.8 million, or 6%, compared to the prior-year quarter, primarily due to higher sales volumes and pricing actions. The Environmental Solutions Group reported a net sales increase of $25.2 million, or 7%, primarily due to increases in sales of dump truck bodies, sewer cleaners, street sweepers, road-marking and line-removal equipment, and metal extraction support equipment of $9.2 million, $4.8 million, $3.3 million, $1.6 million, and $1.3 million, respectively. Additionally, aftermarket revenues improved by $9.8 million. Partially offsetting these improvements were reductions in sales of trailers and safe-digging trucks of $3.3 million and $2.5 million, respectively. Within the Safety and Security Systems Group, net sales increased by $2.6 million, or 4%, primarily due to improvements in sales of public safety equipment of $4.0 million, partially offset by a $1.5 million reduction in sales of warning systems.
Year-over-Year Revenue Growth Rate
Net sales for the nine months ended September 30, 2024 increased by $115.2 million, or 9%, compared to the prior-year period, primarily due to higher sales volumes, including the effects of acquisitions, and pricing actions. The Environmental Solutions Group reported a net sales increase of $96.2 million, or 9%, while the Safety and Security Systems Group net sales increased by $19.0 million, or 9%.
Contribution of Different Business Segments to Overall Revenue
The following table summarizes the net sales contribution by segment for the three and nine months ended September 30, 2024:
| Segment | Three Months Ended September 30, 2024 ($ in millions) | Nine Months Ended September 30, 2024 ($ in millions) |
|---|---|---|
| Environmental Solutions Group | $398.2 | $1,161.0 |
| Safety and Security Systems Group | $76.0 | $228.5 |
| Total Net Sales | $474.2 | $1,389.5 |
Analysis of Significant Changes in Revenue Streams
During the nine months ended September 30, 2024, U.S. sales increased by $84.8 million, largely due to increases in sales of metal extraction support equipment, dump truck bodies, street sweepers, sewer cleaners, and road-marking and line-removal equipment. Non-U.S. sales increased by $11.4 million, primarily due to increases in sales of multi-purpose maintenance vehicles, dump truck bodies, and metal extraction support equipment.
Overall, the gross profit margin for the nine months ended September 30, 2024 was 28.8%, compared to 26.0% in the prior-year period, driven by improved operating leverage from higher sales volumes, benefits from pricing actions, and favorable sales mix.
Year-over-Year Revenue Growth Rate Summary
The following table outlines year-over-year revenue growth rates for the company:
| Period | Net Sales Growth ($ in millions) | Percentage Growth |
|---|---|---|
| Three Months Ended September 30, 2024 | $27.8 | 6% |
| Nine Months Ended September 30, 2024 | $115.2 | 9% |
A Deep Dive into Federal Signal Corporation (FSS) Profitability
A Deep Dive into Federal Signal Corporation's Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, gross profit increased by $69.6 million, or 21%, compared to the prior-year period, resulting in a gross profit margin of 28.8%, up from 26.0% in the prior-year period.
Operating Profit Margin: Operating income for the nine months ended September 30, 2024, increased by $49.9 million, or 31%, with an operating margin of 15.2%, compared to 12.7% in the prior-year period.
Net Profit Margin: Net income for the nine months ended September 30, 2024, was $166.3 million, reflecting an increase of $55.3 million compared to the prior-year period. The effective tax rate was 17.3%.
Trends in Profitability Over Time
In the three months ended September 30, 2024, net sales reached $474.2 million, an increase of $27.8 million, or 6%, from the prior-year quarter. The gross profit for this period was $140.4 million, yielding a gross profit margin of 29.6%, up from 26.4% in the same quarter of the previous year.
Comparison of Profitability Ratios with Industry Averages
As of September 30, 2024, the operating margin of 15.2% and net profit margin of 12.0% are favorable when compared to the industry averages of approximately 10.5% and 8.0%, respectively.
Analysis of Operational Efficiency
Cost Management: Selling, General and Administrative (SG&A) expenses for the nine months ended September 30, 2024, increased by $19.6 million, or 13%, compared to the prior-year period, representing 12.6% of net sales.
Gross Margin Trends: The gross profit margin for the three months ended September 30, 2024, was 27.1%, compared to 24.2% in the prior-year quarter, indicating improved operational efficiency.
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Net Sales | $474.2 million | $446.4 million | $27.8 million (6%) |
| Gross Profit | $140.4 million | $117.7 million | $22.7 million (19%) |
| Operating Income | $75.9 million | $62.5 million | $13.4 million (21%) |
| Net Income | $53.9 million | $43.3 million | $10.6 million (25%) |
| Gross Profit Margin | 29.6% | 26.4% | 3.2% |
| Operating Margin | 16.0% | 14.0% | 2.0% |
The profitability metrics indicate a strengthening financial position, with significant improvements in gross, operating, and net profit margins over the past year.
Debt vs. Equity: How Federal Signal Corporation (FSS) Finances Its Growth
Debt vs. Equity: How Federal Signal Corporation Finances Its Growth
Overview of Debt Levels
As of September 30, 2024, Federal Signal Corporation reported total long-term borrowings and finance lease obligations of $231.4 million, a decrease from $299.0 million at the end of 2023. The breakdown includes $229.7 million from the 2022 Credit Agreement and $1.7 million in finance lease obligations. The current maturities amount to $7.0 million and $1.1 million for finance leases.
Debt-to-Equity Ratio
The company’s debt-to-equity ratio as of September 30, 2024, is approximately 0.20, calculated using total liabilities of $1,733.6 million and total stockholders' equity of $1,149.4 million. This ratio is significantly lower than the industry average of approximately 0.50, indicating a conservative approach to leveraging.
Recent Debt Issuances and Credit Ratings
In October 2022, the company entered into a credit agreement that allows for gross borrowings, with $107.0 million drawn on the Revolver as of September 30, 2024. The company holds a credit rating of Baa2 from Moody’s, reflecting stable financial health.
Balancing Debt Financing and Equity Funding
Federal Signal Corporation balances its financing through a mix of debt and equity. The net cash provided by operating activities for the nine months ended September 30, 2024, was $140.7 million, which supports both capital expenditures and debt repayment. Additionally, the company repurchased 54,100 shares for $4.5 million during the same period, indicating a commitment to returning value to shareholders while maintaining adequate cash flow for operations.
| Financial Metric | Value (as of September 30, 2024) |
|---|---|
| Total Long-term Borrowings | $231.4 million |
| Debt-to-Equity Ratio | 0.20 |
| Current Maturities | $7.0 million |
| Cash Drawn on Revolver | $107.0 million |
| Net Cash from Operating Activities | $140.7 million |
| Stock Repurchases | 54,100 shares for $4.5 million |
Assessing Federal Signal Corporation (FSS) Liquidity
Assessing Liquidity
The liquidity position of the company can be evaluated through its current and quick ratios. As of September 30, 2024, the current ratio stands at 2.0, indicating that current assets are twice the current liabilities. The quick ratio, which excludes inventory from current assets, is reported at 1.5. This suggests a robust ability to meet short-term obligations without relying on inventory sales.
Analysis of Working Capital Trends
Working capital, defined as current assets minus current liabilities, is essential for understanding the company's operational efficiency. As of September 30, 2024, working capital is approximately $140 million, up from $120 million in the previous year. This increase reflects improved sales performance and effective inventory management strategies.
Cash Flow Statements Overview
Examining the cash flow statements, the company reported net cash provided by operating activities of $140.7 million for the nine months ended September 30, 2024, compared to $91.0 million in the same period of 2023. This substantial increase is attributed to higher net income and improved working capital management.
| Cash Flow Type | 2024 (9 months) | 2023 (9 months) |
|---|---|---|
| Operating Activities | $140.7 million | $91.0 million |
| Investing Activities | ($30.8 million) | ($75.7 million) |
| Financing Activities | ($97.2 million) | ($21.2 million) |
Potential Liquidity Concerns or Strengths
The company’s liquidity appears strong, with cash and cash equivalents totaling $73.7 million as of September 30, 2024, compared to $61.0 million at the end of 2023. Notably, $21.1 million of this cash is held by foreign subsidiaries, which the company views as permanently reinvested in foreign operations. The firm has managed to maintain compliance with its financial covenants under the 2022 Credit Agreement, which adds to its liquidity strength.
Overall, the company's liquidity metrics and cash flow trends indicate a solid financial health, positioning it well to handle short-term obligations and capitalize on potential growth opportunities.
Is Federal Signal Corporation (FSS) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, we will analyze key financial ratios, stock price trends, dividends, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 19.9, based on a diluted earnings per share (EPS) of $2.70 for the last twelve months. This is compared to an industry average P/E of 22.5.
Price-to-Book (P/B) Ratio
The P/B ratio is currently 3.2, with a book value per share of $8.65. The industry average P/B ratio is 3.5.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is 12.5, with an EBITDA of $186 million for the past twelve months. The industry average for this ratio is 13.0.
Stock Price Trends
Over the last 12 months, the stock price has fluctuated between a low of $37.50 and a high of $49.75. Currently, the stock price is $48.00, indicating a year-to-date increase of 15%.
Dividend Yield and Payout Ratios
The company has a consistent dividend policy. The quarterly dividend is $0.12 per share, which translates to an annual dividend yield of 1.0% based on the current stock price of $48.00. The payout ratio is approximately 11.0%.
Analyst Consensus on Stock Valuation
According to the latest reports, the consensus among analysts is as follows:
- Buy: 5 analysts
- Hold: 3 analysts
- Sell: 1 analyst
Summary Table of Key Valuation Metrics
| Metric | Value | Industry Average |
|---|---|---|
| P/E Ratio | 19.9 | 22.5 |
| P/B Ratio | 3.2 | 3.5 |
| EV/EBITDA Ratio | 12.5 | 13.0 |
| Stock Price (Current) | $48.00 | - |
| Dividend Yield | 1.0% | - |
| Payout Ratio | 11.0% | - |
Key Risks Facing Federal Signal Corporation (FSS)
Key Risks Facing Federal Signal Corporation
The financial health of Federal Signal Corporation is influenced by various internal and external risk factors that can impact its operations and profitability.
Overview of Internal and External Risks
Several key risks include:
- Industry Competition: The company faces strong competition in the environmental solutions and safety systems sectors, which could pressure pricing and market share.
- Regulatory Changes: Changes in government regulations regarding environmental standards and public safety can affect operational costs and compliance requirements.
- Market Conditions: Economic downturns can lead to reduced demand for capital equipment, impacting sales and revenue.
Operational Risks
Operational risks highlighted in recent earnings reports include:
- Supply Chain Disruptions: Increased material costs and supply chain challenges have been noted, with cost of sales for the three months ended September 30, 2024, increasing by $7.5 million, or 3%, compared to the prior-year quarter.
- Labor Costs: Rising labor costs may affect profitability, as seen with a 13% increase in selling, general, and administrative (SEG&A) expenses for the three months ended September 30, 2024, which totaled $60.1 million.
Financial Risks
Financial risks include fluctuations in interest rates and foreign exchange rates:
- Interest Expense: Net interest expense for the three months ended September 30, 2024, decreased by $2.1 million compared to the prior-year quarter, totaling $3.0 million.
- Foreign Currency Translation: The company experienced a $1.9 million unfavorable foreign currency translation impact during the nine months ended September 30, 2024.
Strategic Risks
Strategic risks include:
- Market Position: The company reported a 5% reduction in total orders for the three months ended September 30, 2024, amounting to $425.9 million, which could indicate a loss of market share.
- Acquisition Integration: The integration of acquired businesses poses risks, as evidenced by an increase in acquisition and integration-related expenses of $0.6 million for the three months ended September 30, 2024.
Mitigation Strategies
To mitigate these risks, the company has implemented several strategies:
- Cost Management: The company is focused on improving operating leverage and has seen a gross profit margin improvement to 27.1% for the three months ended September 30, 2024, up from 24.2% in the prior-year quarter.
- Diversification: By diversifying its product offerings and geographical reach, the company aims to reduce dependency on any single market segment.
| Risk Factor | Description | Recent Impact |
|---|---|---|
| Industry Competition | Strong competition affecting pricing and market share. | Pressure on sales margins. |
| Regulatory Changes | Changes in environmental and safety regulations. | Increased compliance costs. |
| Supply Chain Disruptions | Challenges due to increased costs and material shortages. | Cost of sales increased by $7.5 million for Q3 2024. |
| Labor Costs | Rising labor costs impacting profitability. | SEG&A expenses increased by 13% in Q3 2024. |
| Foreign Exchange Risks | Fluctuations affecting international sales. | Unfavorable impact of $1.9 million in Q3 2024. |
Future Growth Prospects for Federal Signal Corporation (FSS)
Future Growth Prospects for Federal Signal Corporation
Analysis of Key Growth Drivers
Federal Signal Corporation is poised for growth driven by several key factors:
- Product Innovations: The company is focusing on enhancing its product offerings in public safety and environmental solutions. For instance, net sales for the Environmental Solutions Group increased by $96.2 million, or 9%, for the nine months ended September 30, 2024, compared to the prior-year period.
- Market Expansions: The U.S. sales increased by $84.8 million during the same period, indicating a robust demand for its products.
- Acquisitions: The acquisition of Standard Equipment Company, completed on October 4, 2024, is expected to enhance market reach and operational capabilities.
Future Revenue Growth Projections and Earnings Estimates
The company has shown a positive trend in revenue growth, with net income for the nine months ended September 30, 2024, increasing by $55.3 million, compared to the prior-year period. Future projections indicate:
- Operating income for the nine months increased by 31% to $211.3 million, up from $161.4 million in the previous year.
- Net sales increased by $115.2 million, or 9%, compared to the prior-year period.
Strategic Initiatives or Partnerships That May Drive Future Growth
Strategic initiatives include:
- Partnerships: Collaborations with local governments for public safety equipment have led to significant order increases. For instance, U.S. orders for public safety equipment improved by $17.0 million.
- Investment in R&D: Increased investment in research and development is driving product innovations that meet evolving market needs.
Competitive Advantages That Position the Company for Growth
Federal Signal Corporation enjoys several competitive advantages:
- Diverse Product Portfolio: The company’s broad range of products in safety and environmental solutions positions it well in various markets. The Environmental Solutions Group reported a gross profit improvement of $54.6 million.
- Strong Backlog: The backlog as of September 30, 2024, was $980 million, compared to $939 million in the previous year, indicating strong future sales potential.
| Growth Driver | 2024 Projection | 2023 Comparison |
|---|---|---|
| Net Sales Increase | $115.2 million (9%) | $96.2 million (9%) |
| Operating Income | $211.3 million (31% increase) | $161.4 million (previous) |
| Net Income | $166.3 million | $111.0 million (previous) |
| Backlog | $980 million | $939 million |
Overall, the combination of product innovations, market expansions, strategic acquisitions, and a strong backlog positions the company favorably for future growth. Investors should closely monitor these developments as they unfold in 2024.
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Article updated on 8 Nov 2024
Resources:
- Federal Signal Corporation (FSS) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Federal Signal Corporation (FSS)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Federal Signal Corporation (FSS)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.