Federal Signal Corporation Reports Second Quarter Earnings

In the Environmental Solutions Group, sales were down $27.2 million, or 19%, primarily due to lower sales of vacuum trucks. Sales in the Safety and Security Systems Group decreased by $5.9 million, or 10%, on reduced sales into industrial markets, offset by improved sales into public safety markets. Ongoing effects related to oil and gas end markets continue to adversely impact industrial sales in both groups.

Consolidated second quarter operating income was $14.3 million, down from $29.2 million in the prior-year quarter. Operating income in the current-year quarter includes $0.4 million of acquisition related expenses. Consolidated operating margin was 8.3%, compared to 14.2% last year. The margin decrease was primarily due to lower sales volume and changes in mix within the Environmental Solutions Group. Corporate expenses for the quarter were about the same as a year ago at $7.2 million. The effective income tax rate for the quarter, at 33.8%, was slightly lower than the prior-year quarter and expectations for the full year. The cash tax rate for the year is expected to be approximately 15-20%.

Consolidated orders were $187.3 million for the quarter, up 7% compared to last year and up 38% compared to the first quarter of 2016. Consolidated backlog of $149.8 million was up 11% from the end of the first quarter. The increase in orders and backlog was primarily due to the acquisition of JJE.

Strong Financial Position Supports M&A and Cash Returns to Shareholders

In addition to completing the JJE acquisition, the Company funded share repurchases of $16.8 million and dividends of $4.3 million during the second quarter. At June 30, 2016, we had approximately $36 million remaining under our authorized share repurchase programs. The Board of Directors also recently declared a $0.07 per share dividend that will be payable in the third quarter.

"Our debt remains low and our financial position continues to be very strong, allowing us to return $21.1 million of value to our shareholders in the quarter, the most in any quarter in nearly 15 years," said Sherman.

Net cash of $10.6 million was provided by continuing operating activities in the second quarter of 2016, compared to $30.0 million in the prior-year quarter. For the first half of 2016, net cash of $3.9 million was provided by continuing operating activities, compared to $30.8 million in the same period of 2015. The operating cash flow in both current-year periods was lower by approximately $11 million as a result of the non-cash settlement, in connection with the acquisition, of accounts receivable due from JJE.

At June 30, 2016, consolidated debt was $67 million, compared to $49 million a year ago, with $240 million of availability for borrowings. Cash and cash equivalents at June 30, 2016 were $39 million, compared to $36 million a year ago.

Outlook

"We remain confident in our businesses and our markets for the long term. With our strong balance sheet and ongoing actions to bring our cost structure in line with current demand, we are well-positioned to work through the headwinds raised by the ongoing weakness in our industrial markets," commented Sherman. "We are committed to pursuing additional strategic acquisitions and maintaining appropriate levels of investment in our sales efforts and new products to build momentum for future growth.

"Continued softness in industrial demand has weighed on our orders and revenue outlook during the first half of the year, particularly in our businesses that serve oil and gas related end markets, and we do not believe these markets will recover meaningfully during the second half of the year. On a positive note, some of this decline has been offset by healthy municipal demand, our cost reduction initiatives and sales of new products. When we provided our outlook for 2016 earlier in the year, we mentioned that a likely accounting implication of the JJE acquisition would be a change in the timing of revenue and profit recognition, which should normalize over a period of about three years. We now expect that this temporary profit deferral could reduce our 2016 EPS outlook by up to $0.05.  Considering these factors, we are adjusting our 2016 EPS outlook from a range of $0.70 to $0.80 to a range of $0.65 to $0.75."

CONFERENCE CALL

Federal Signal will host its second quarter conference call on Thursday, July 28, 2016 at 10:00 a.m. Eastern Time. The call will last approximately one hour. The call may be accessed over the internet through Federal Signal's website at http://www.federalsignal.com or by dialing phone number 1-888-438-5519 and entering the pin number 7949735. A replay will be available on Federal Signal's website shortly after the call.

About Federal Signal

Federal Signal Corporation (NYSE: FSS) provides products and services to protect people and our planet. Founded in 1901, Federal Signal is a leading global designer and manufacturer of products and total solutions that serve municipal, governmental, industrial and commercial customers. Headquartered in Oak Brook, Ill., with manufacturing facilities worldwide, the Company operates two groups: Environmental Solutions and Safety and Security Systems. For more information on Federal Signal, visit: http://www.federalsignal.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995

This release contains unaudited financial information and various forward-looking statements as of the date hereof and we undertake no obligation to update these forward-looking statements regardless of new developments or otherwise. Statements in this release that are not historical are forward-looking statements. Such statements are subject to various risks and uncertainties that could cause actual results to vary materially from those stated. Such risks and uncertainties include but are not limited to: economic conditions in various regions; product and price competition; supplier and raw material prices; foreign currency exchange rate changes; interest rate changes; increased legal expenses and litigation results; legal and regulatory developments and other risks and uncertainties described in filings with the Securities and Exchange Commission.

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three Months Ended June 30,								Six Months Ended June 30,
(in millions, except per share data)	2016				2015				2016				2015
Net sales	$	172.3			$	205.4			$	345.1			$	401.9
Cost of sales	127.3				144.7				252.7				286.3
Gross profit	45.0				60.7				92.4				115.6
Selling, engineering, general and administrative expenses	30.3				31.1				59.9				61.5
Acquisition and integration related expenses	0.4				—				0.9				—
Restructuring	—				0.4				1.2				0.4
Operating income	14.3				29.2				30.4				53.7
Interest expense	0.4				0.6				0.8				1.2
Debt settlement charges	—				—				0.3				—
Other (income) expense, net	(0.3)				—				(1.0)				1.2
Income from continuing operations before income taxes	14.2				28.6				30.3				51.3
Income tax expense	(4.8)				(10.4)				(10.5)				(18.7)
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