Release Date: October 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Westinghouse Air Brake Technologies Corp (WAB, Financial) reported a 4.5% increase in sales, reaching $2.7 billion, driven by growth in both freight and transit segments.
- The company achieved an 18% increase in adjusted EPS compared to the previous year, supported by increased sales and margin expansion.
- Cash flow from operations was strong at $542 million, with a 12-month backlog of $7.6 billion, up 7.5%, indicating continued business momentum.
- International markets showed significant growth, with a robust pipeline of opportunities, particularly in locomotive orders.
- The company secured several strategic contracts, including a $405 million locomotive order with Kazakhstan's national railway and a $300 million parts agreement with a North American Class 1 railroad.
Negative Points
- The North American locomotive fleet remained largely flat compared to the previous year, despite carload growth.
- The industry outlook for North American railcar builds in 2024 was revised down to 41,000 cars from 45,000 cars in the previous year.
- Equipment sales were down 17.3% from last year's third quarter due to the timing of new locomotive deliveries.
- The company expects a significant mix headwind in Q4, which will temper adjusted operating margins.
- Foreign currency exchange posed a slight headwind to revenue, gross profit, and operating margin during the quarter.
Q & A Highlights
Q: Can you provide any preliminary thoughts on 2025, considering your growing backlog and recent contract wins?
A: It's too early to provide specific guidance for 2025, but the fundamentals of our business are strong. We are finishing 2024 with growth across all our businesses, and orders are up double digits. We expect to continue driving mid-single-digit organic growth and double-digit EPS growth through our planning horizon. - Rafael Santana, CEO
Q: Could you elaborate on the progress and impact of the Integration 2.0 initiative?
A: Integration 2.0 is progressing well, with savings of $22 million last year and a target of $82 million by mid-2025. We are ahead of expectations, with savings coming in earlier and slightly higher than anticipated. This has contributed to our raised guidance for the year. - Rafael Santana, CEO
Q: What drove the upside surprise in freight margins, and how sustainable are these margins?
A: The margin improvement was driven by favorable mix and strong cost management. We saw higher margins from services and aftermarket sales, along with strong productivity and integration savings. However, we expect a mix headwind in Q4, which will temper margins. - John Olin, CFO
Q: Can you discuss the international market dynamics and the impact on margins as you expand?
A: We are seeing strong growth in international markets, driven by investments in infrastructure and technology. As we add density in these regions, we expect incremental margins to improve due to scale and efficiency. Our international business is contributing positively to both revenue and margins. - Rafael Santana, CEO
Q: How are you approaching M&A, and what areas are you focusing on?
A: Our M&A strategy focuses on digital areas, near-in adjacencies, and bolt-ons to existing businesses. We are particularly interested in opportunities that offer high recurring revenue streams and service-related growth. We have a strong pipeline and will be opportunistic, prioritizing returns. - John Olin, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
