CEO: Lower municipal spending is Federal Signal's biggest concern

Will Atkinson | May 02, 2008 1:19pm EDT | Comment

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Federal Signal Corp. (NYSE:FSS) interim president and CEO James Goodwin said the company is closer to finding a new CEO and is in advanced discussions to sell E-One, a maker of fire trucks and mission-critical vehicles. Federal Signal makes a variety of products including street cleaning equipment and security systems for municipal, government and other customers. Goodwin made the comments during a midday conference call.

The interim chief executive recognized difficult conditions in the wider economy.

“While we made significant progress on a number of fronts, I would be remiss if I didn’t acknowledge the macroeconomic headwinds and softening domestic economy, which began to adversely impact several of the markets we serve in the first quarter,” he said. “Our biggest concern today is the decline in municipal spending in North America.”

Municipal spending lags recovery in the general economy because of the delay in tax receipts and the mechanics of municipal budgeting processes, he said. Some municipal customers have begun to delay orders “until visibility improves,” Goodwin said.

Former CEO Robert Welding resigned on Dec. 12 in order to retire from the company. Welding joined Federal Signal in 2003. Since Welding took the helm, Federal Signal’s stock price has been down about 35%.

“We are making progress identifying a world-class candidate to lead the company in the coming years,” Goodwin said. “Given the interest level of some highly qualified candidates to whom we have been speaking, I would expect we will be able to announce a new CEO by the end of the second quarter.”

Federal Signal also announced Thursday morning that its board approved a plan to sell E-One.

“I’m pleased to report that we are currently in advanced discussions with a potential buyer and may reach an agreement as early as the second quarter this year,” Goodwin.

The other important item Goodwin mentioned was a lawsuit by 27 Chicago fire fighters, who accused the firm’s sirens of causing hearing loss. The trial cost the firm $3 million. A week ago, Federal Signal reported that it was not held liable. Over the last five years, more than 2,400 firefighters have sued Federal Signal in separate cases claiming it failed to warn of the noise danger.

“This was a landmark case for us and we couldn’t be happier with the court’s decision,” Goodwin said. “Importantly, this announcement comes on the heels of a dismissal of a similar case filed in New York late in 2007. We are confident our position is justified and we will continue to vigorously defend our company to the fullest.”

The Oak Brook, Ill.-based company reported early Friday that it swung to a loss of $84.9 million, or $1.77 per share, versus a profit of $30.7 million, or $0.64 per share, a year earlier. Wall Street analysts expected earnings of $0.10 per share. The loss resulted mostly from a $27.1 million charge related to its discontinued industrial tools business and a $58.4 million impairment charge due to the company’s investment in E-One.

Earnings on a continuing operations basis declined to $4.3 million, or $0.09 per share, compared with $7.3 million, or $0.15 per share, a year earlier. The lower profits were due to litigation, contract dispute and severance expenses.

Quarterly sales for the three months ended March 31 edged up 7% to $228.1 million from $213 million a year earlier. The sales results also missed Wall Street’s expectation of $306.7 million.

In midday trading, FSS shares are down 12.32%, or $1.75, at $12.46.