Federal Signal (NYSE:FSS) reported record results for the fourth quarter and full year of 2025, driven by strong performance in both of its operating groups and contributions from recent acquisitions. Management also introduced its 2026 outlook, calling for another record year as the company integrates New Way and Mega Equipment and advances a set of multi-year growth initiatives.
Full-year 2025 results set new records
Chief Financial Officer Ian Hudson said 2025 net sales increased 17% year over year to a record $2.18 billion, including 11% organic growth. Operating income rose 21% to $340.9 million, while net income increased 14% to $246.6 million.
Orders for the year totaled $2.22 billion, up 20%, and year-end backlog increased 5% to $1.04 billion.
Fourth quarter: stronger sales, margin gains, and higher orders
For the fourth quarter of 2025, consolidated net sales were $597 million, up 27% from the prior-year quarter, including 18% organic growth. Operating income rose 19% to $83.5 million and net income increased 22% to $60.8 million.
Adjusted EBITDA grew 34% to $119.4 million, producing a 20.0% margin, up 110 basis points year over year. GAAP diluted EPS increased to $0.99 from $0.81. On an adjusted basis, EPS was $1.16 versus $0.87 last year; management said the adjusted figures exclude items such as acquisition and integration-related expenses, debt settlement charges, and purchase accounting effects (and, in the prior-year quarter, a pension settlement charge).
Fourth-quarter orders jumped 45% to $647 million, including $132 million of acquired backlog tied to the New Way acquisition.
Segment performance: ESG and SSG both improved profitability
In the Environmental Solutions Group (ESG), fourth-quarter sales increased 27% to $504 million and adjusted EBITDA rose 31% to $109 million. ESG adjusted EBITDA margin expanded 70 basis points to 21.6%. ESG orders were $566 million, up 55% year over year.
CEO Jennifer Sherman said ESG benefited from acquisitions, higher production levels, and continued price realization. She highlighted efforts to “build more trucks” and reduce lead times for sewer cleaners and four-wheel street sweepers, noting double-digit percentage sales increases across several ESG verticals such as sewer cleaners, safe digging trucks, street sweepers, metal extraction support equipment, and road marking and line removal trucks. Sherman also said the company’s capacity expansions completed from 2019 to 2022, access to labor, and productivity investments position ESG to absorb more volume.
Aftermarket demand was described as strong. Sherman said aftermarket revenue grew 20% year over year in the quarter, driven by higher parts demand, increased service activity, and rental income growth. She also pointed to an internal “Build More Parts” initiative focused on vertical integration of certain parts production to expand recurring revenue and margins over time.
In the Safety and Security Systems Group (SSG), fourth-quarter sales increased 23% to $93 million. Adjusted EBITDA rose 43% to $23.4 million, with margin up 360 basis points to 25.2%. SSG orders were approximately $82 million, generally in line with the prior year. Sherman attributed SSG margin expansion to volume, increased demand for public safety equipment in the U.S. and Europe, price-cost management, and cost savings. She added that the installation of a fourth printed circuit board manufacturing line at the University Park facility—completed slightly ahead of schedule in Q4—should support efficiency and accelerate new product development in 2026.
Acquisitions: New Way integration, Mega Equipment added in January
Corporate operating expenses rose to $26.5 million in Q4 from $10.5 million a year earlier, primarily due to a $13 million increase in acquisition and integration-related costs. Hudson said the company recognized $13.3 million of acquisition-related expenses in the quarter, including $6.8 million associated with increasing the fair value of contingent consideration tied to the Hog and Standard acquisitions and costs incurred in connection with the New Way deal.
Hudson said Federal Signal completed the New Way acquisition during the quarter for an initial payment of approximately $413 million. In early January, the company completed the acquisition of Mega for an initial payment of approximately $45 million.
Sherman provided an update on the company’s Canada refuse truck distribution strategy following the New Way acquisition. Federal Signal had previously distributed third-party Labrie refuse trucks through its Joe Johnson Equipment (JJE) sales channel in Canada for more than 20 years. Beginning in Q4 2025, the company stopped taking orders for third-party Labrie refuse trucks and began selling New Way through the JJE network in Canada. Management said it expects to deliver the remaining $80 million of third-party Labrie backlog over the next four quarters and ultimately wind that backlog down to zero, with margin tailwinds expected in 2027 and 2028 as lower-margin third-party trucks are replaced by New Way sales.
On synergies, Sherman reiterated a target of $15 million to $20 million in annual synergies from New Way by the end of 2028, split roughly evenly between cost and sales synergies. She said an 80/20 operational optimization approach is part of the plan, and the company has assigned a senior 80/20 leader to work directly with the New Way team.
Regarding Mega, Sherman said the acquisition strengthens the company’s metal extraction support equipment platform (alongside Ground Force and TowHaul), increases reach into underpenetrated regions such as South America, and creates cross-selling and aftermarket opportunities. Management said Mega’s aftermarket parts business has historically represented about 25% of its net sales and identified operational benefits including production savings and freight opportunities. Mega generated approximately $40 million in net sales over the last 12 months, and management expects the acquisition to be modestly accretive to cash flow and EPS in 2026.
2026 outlook: record year expected, with EPS headwinds noted
For 2026, management guided to net sales of $2.55 billion to $2.65 billion and adjusted EPS of $4.50 to $4.80. Sherman said the outlook includes an aggregate $0.16 per share headwind from higher acquisition-related intangible amortization and tax rate normalization. Hudson said the company expects a 2026 tax rate of approximately 25%, excluding discrete tax benefits, compared with a 24% GAAP effective rate in 2025 that included discrete benefits.
In Q&A, management indicated the 2026 revenue outlook implies approximately 17% to 22% year-over-year growth, with about 5% to 9% organic growth and the balance from New Way and Mega. Sherman said ESG is expected to grow organically faster than SSG, with SSG tracking more like “GDP-plus.” She also said the company has not baked any meaningful “pre-buy” dynamics into guidance, adding that publicly funded customers do not materially engage in pre-buy activity.
On seasonality, Sherman said the earnings cadence is expected to be similar to the past, and the company expects first-quarter sales and earnings to be lower than subsequent quarters, citing less aftermarket revenue capture. Capital expenditures are expected to be $45 million to $55 million in 2026, including enhancing projects, with management again stating that roughly half of annual CapEx is planned for growth initiatives and the other half for maintenance.
Federal Signal ended the quarter with $501 million of net debt and reported $925 million of credit facility availability after putting a new five-year credit facility in place. Hudson said the company has flexibility to fund organic growth, pursue additional acquisitions, pay down debt, and return cash to shareholders, noting it paid $5 million of dividends in the quarter, reflecting a dividend of $0.14 per share.
About Federal Signal (NYSE:FSS)
Federal Signal Corporation (NYSE: FSS), headquartered in Oak Brook, Illinois, is a diversified industrial company that designs, manufactures and markets a broad range of products and services for municipal, commercial and industrial customers worldwide. Founded in 1901 in Chicago, the company has grown through a combination of organic investment and strategic acquisitions to become a leading provider of environmental management and safety and security solutions.
Federal Signal operates through two primary business segments.
