Safety and security company Federal Signal (NYSE: FSS) reported revenue ahead of Wall Street’s expectations in Q4 CY2025, with sales up 26.5% year on year to $597.1 million. The company’s full-year revenue guidance of $2.6 billion at the midpoint came in 5.3% above analysts’ estimates. Its non-GAAP profit of $1.16 per share was 7.4% above analysts’ consensus estimates.

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"Our record-setting fourth-quarter performance represented a strong finish to a year in which we delivered the highest net sales and adjusted EPS in our history," 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.

Revenue Growth

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Federal Signal grew its sales at an exceptional 14% 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 12.5% over the last two years is below its five-year trend, but we still think the results suggest healthy demand. Federal Signal’s recent performance shows it’s one of the better Heavy Transportation Equipment businesses as many of its peers faced declining sales because of cyclical headwinds.

Federal Signal also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Federal Signal’s backlog reached $1.04 billion in the latest quarter and was flat 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 robust year-on-year revenue growth of 26.5%, and its $597.1 million of revenue topped Wall Street estimates by 9.5%.

Looking ahead, sell-side analysts expect revenue to grow 12.3% over the next 12 months, similar to its two-year rate. This projection is commendable and implies the market sees success for its products and services.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

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 13.5%. 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.

Looking at the trend in its profitability, Federal Signal’s operating margin rose by 4.9 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Federal Signal generated an operating margin profit margin of 14%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

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 an astounding 20.4% compounded annual growth rate over the last five years, higher than its 14% 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 quality to better understand the drivers of its performance. As we mentioned earlier, Federal Signal’s operating margin was flat this quarter but expanded by 4.9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Federal Signal, its two-year annual EPS growth of 28% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q4, Federal Signal reported adjusted EPS of $1.16, up from $0.87 in the same quarter last year. This print beat analysts’ estimates by 7.4%. Over the next 12 months, Wall Street expects Federal Signal’s full-year EPS of $4.23 to grow 9.9%.

Key Takeaways from Federal Signal’s Q4 Results

We were impressed by how significantly Federal Signal blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 8.2% to $126.57 immediately after reporting.

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. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here (it’s free).