Safety and security company Federal Signal (NYSE:FSS) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 9.2% year on year to $463.8 million. The company’s full-year revenue guidance of $2.06 billion at the midpoint came in 0.5% above analysts’ estimates. Its non-GAAP profit of $0.76 per share was 3.9% above analysts’ consensus estimates.
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Federal Signal (FSS) Q1 CY2025 Highlights:
- Revenue: $463.8 million vs analyst estimates of $459.1 million (9.2% year-on-year growth, 1% beat)
- Adjusted EPS: $0.76 vs analyst estimates of $0.73 (3.9% beat)
- Adjusted EBITDA: $85.1 million vs analyst estimates of $82.38 million (18.3% margin, 3.3% beat)
- The company reconfirmed its revenue guidance for the full year of $2.06 billion at the midpoint
- Management slightly raised its full-year Adjusted EPS guidance to $3.76 at the midpoint
- Operating Margin: 14.2%, up from 12.8% in the same quarter last year
- Free Cash Flow Margin: 6.7%, up from 5.4% in the same quarter last year
- Backlog: $1.10 billion at quarter end, in line with the same quarter last year
- Market Capitalization: $4.62 billion
"With our teams' continued focus on operational execution and serving our customers, our businesses were able to deliver 9% year-over-year net sales growth, double-digit operating income improvement, gross margin expansion, and a 170-basis point increase in adjusted EBITDA margin during the first quarter," commented Jennifer L. Sherman, President and Chief Executive Officer.
Company Overview
Developing sirens that warned of air raid attacks or fallout during the Cold War, Federal Signal (NYSE:FSS) provides safety and emergency equipment for government agencies, municipalities, and industrial companies.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Federal Signal grew its sales at a solid 9% compounded annual growth rate. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Federal Signal’s annualized revenue growth of 12.9% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated. 
We can better understand the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Federal Signal’s backlog reached $1.10 billion in the latest quarter and averaged 10.8% year-on-year growth over the last two years. Because this number is lower than its revenue growth, we can see the company fulfilled orders at a faster rate than it added new orders to the backlog. This implies Federal Signal was operating efficiently but raises questions about the health of its sales pipeline. 
This quarter, Federal Signal reported year-on-year revenue growth of 9.2%, and its $463.8 million of revenue exceeded Wall Street’s estimates by 1%.
Looking ahead, sell-side analysts expect revenue to grow 9% over the next 12 months, a deceleration versus the last two years. Still, this projection is commendable and indicates the market is baking in success for its products and services.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Federal Signal has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.8%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.
Analyzing the trend in its profitability, Federal Signal’s operating margin rose by 4.1 percentage points over the last five years, as its sales growth gave it operating leverage.
In Q1, Federal Signal generated an operating profit margin of 14.2%, up 1.4 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Federal Signal’s EPS grew at a remarkable 12.9% compounded annual growth rate over the last five years, higher than its 9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
We can take a deeper look into Federal Signal’s earnings to better understand the drivers of its performance. As we mentioned earlier, Federal Signal’s operating margin expanded by 4.1 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For Federal Signal, its two-year annual EPS growth of 29% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q1, Federal Signal reported EPS at $0.76, up from $0.64 in the same quarter last year. This print beat analysts’ estimates by 3.9%. Over the next 12 months, Wall Street expects Federal Signal’s full-year EPS of $3.46 to grow 10.9%.
Key Takeaways from Federal Signal’s Q1 Results
It was great to see Federal Signal beat analysts’ backlog, revenue, EPS, and EBITDA expectations this quarter. We were also glad it slightly raised its full-year EPS guidance. Overall, we think this was a solid quarter with some key areas of upside. The stock remained flat at $76 immediately following the results.
Federal Signal put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.