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    Westinghouse Air Brake Technologies Corp (WAB)

    Board Change

    Business Description

    Wabtec is a global company that operates in the transportation industry, focusing on the manufacturing and servicing of locomotives and transit vehicles. The company is divided into two main business segments: the Freight Segment and the Transit Segment, which together provide a wide range of products and services, including diesel-electric, battery, and liquid natural gas-powered locomotives, engines, and digital intelligence products like Positive Train Control equipment . Wabtec's operations span over 100 countries, with a significant portion of its sales coming from international customers .

    1. Freight Segment - Manufactures new and modernized locomotives, provides aftermarket parts and services, and supplies components for freight cars. Offers rail control and infrastructure products, software-enabled solutions for safety and efficiency, and services such as locomotive overhauls.
      • Locomotives - Produces diesel-electric, battery, and liquid natural gas-powered locomotives.
      • Aftermarket Parts and Services - Supplies parts and services for maintaining and upgrading freight locomotives.
      • Rail Control and Infrastructure - Provides products and solutions for rail safety and efficiency, including software-enabled solutions.
    2. Transit Segment - Manufactures and services components for passenger transit vehicles, including trains and buses, and refurbishes transit vehicles.
      • Passenger Transit Components - Produces and services parts for trains and buses.
      • Vehicle Refurbishment - Offers refurbishment services for transit vehicles.
    3. Digital Intelligence Products - Develops products such as Positive Train Control equipment and railway electronics.
    4. Transport Intelligence and Logistics Solutions - Provides network optimization and logistics solutions for the transportation industry.
    5. Marine and Mining Products - Offers engines and electric motors for marine and mining applications.

    Q3 2024 Summary

    Initial Price$159.26July 1, 2024
    Final Price$181.45October 1, 2024
    Price Change$22.19
    % Change+13.93%

    What went well

    • Strong International Growth and Backlog: Wabtec is experiencing continued international growth with projects in key markets like Africa, Kazakhstan, South America, and Australia, with discussions for locomotive deliveries extending into 2028, indicating sustained demand and a robust pipeline.
    • Expansion of Digital Offerings and Recurring Revenue: The company is expanding its digital portfolio internationally, moving from one-time sales to more recurring revenues in products like PTC, Trip Optimizer, and kinetics solutions, driving efficiency and productivity gains.
    • Strategic Focus on High Recurring Revenue Streams and M&A: Wabtec is focusing on maximizing returns through opportunistic M&A in digital areas and near-in adjacencies like mining, preferring high recurring revenue streams and digital services, supported by a strong pipeline of opportunities.

    What went wrong

    • Softness in the North American market may impact growth prospects, as Wabtec continues to see a softer market domestically, relying more on international momentum to drive growth.
    • Expected double-digit decline in Q4 services revenue due to the timing reversal of modernizations and overhauls, which could negatively affect overall financial performance.
    • Potential plateauing of the North American locomotive replacement cycle, with some customers stretching out or reducing locomotive capital expenditures, indicating that future growth may be more dependent on international markets, which could carry additional risks.

    Q&A Summary

    1. 2025 Growth Outlook
      Q: What's your preliminary guidance for 2025?
      A: It's early to provide guidance, but our fundamentals are strong. We're finishing 2024 with all businesses growing. Year-to-date orders are up double digits, and profitability is up across the board. We expect to continue driving mid-single-digit organic growth and delivering double-digit EPS growth through our planning horizon.

    2. Freight Margins Sustainability
      Q: How sustainable are current Freight margins?
      A: Freight margins were strong at 24%, up 1.8 percentage points, driven by favorable mix and cost improvements. We benefited from higher-margin services and overhauls. While we expect mix pressure in Q4 due to a shift in production, overall margins should remain higher year-over-year but slightly down sequentially. Productivity and cost actions are supporting margins.

    3. Integration 2.0 Savings
      Q: What's the progress on Integration 2.0 savings?
      A: We're ahead of expectations on Integration 2.0 savings. After $22 million in savings last year, we're targeting a midpoint of $82.5 million, leaving a ramp of $60 million over 2024 and 2025. We're getting more savings earlier, contributing to raising our guidance. Most of the spending is behind us, with $140 million spent to date, at the low end of our range.

    4. International Orders and Margins
      Q: How are international orders impacting margins?
      A: International growth is strong, positively impacting revenue and margins. Margins vary by country and contract; some international business has higher margins than North America, some lower. We're seeing growth in markets like Africa, Kazakhstan, South America, and Australia, with deliveries over 2025 and 2026. We're pleased with the profitability from international markets.

    5. Capital Allocation and M&A
      Q: What's your approach to M&A and capital allocation?
      A: Our capital allocation strategy focuses on profitable organic growth and M&A. We have the strongest M&A pipeline we've had, targeting opportunities with high recurring revenue, bolt-ons, digital, and service-related businesses. If returns are strong, we'll act quickly; if not, we'll continue returning value to shareholders through share repurchases, as we did with $600 million repurchased this quarter.

    6. Transit Backlog and Margins
      Q: What's the outlook for Transit backlog and margins?
      A: We're pleased with progress in Transit. Backlog grew despite focusing on higher-margin projects. We're driving simplification and improving margins, now in the mid-teens and expected to continue expanding. While quarterly variations may occur due to mix and project timing, we expect profit growth and sustained margin improvement. The profitability of the backlog has increased.

    7. Locomotive CapEx Reductions
      Q: Are North American customers reducing locomotive CapEx?
      A: We're seeing mixed dynamics in North America, with continued demand for new locomotives and modernizations. While some customers may adjust CapEx plans, railroads are investing in reliability, efficiency, and cost improvements, not necessarily for carload growth. We're positive about innovation opportunities to help customers improve operating ratios and service levels.

    8. Working Capital Management
      Q: What's driving improvements in receivables and cash flow?
      A: Cash flow is strong, with $1.1 billion year-to-date, up over 100% versus last year. Receivables are up 6.5%, while revenue is up 9.1%, reflecting good working capital management. We utilized $95 million in securitizations this quarter, benefiting cash flow. We're effectively managing receivables to match company growth.

    9. Regulatory Outlook (EPA Regulations)
      Q: How are EPA regulations impacting your strategy?
      A: EPA definitions validate our strategy of making engines fuel-agnostic, capable of running on alternative fuels like hydrogen and biofuels. Liquid hydrogen internal combustion engines are classified as near-zero or zero emissions. This supports our commitment to providing best-in-class products to help customers achieve decarbonization goals across regions.

    10. Digital Business Performance
      Q: What's the outlook for the Digital business internationally?
      A: We're seeing growth in our Digital business, especially internationally, with products like PTC and KinetiX gaining momentum. We're transforming the business toward more recurring revenues rather than one-time sales. While North America remains softer, international markets are adopting our digital solutions faster, driven by regulations and efficiency needs.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Freight Segment1,5801,7241,8901,8287,0221,8241,9321,930
    - Services70781049912,017829497917
    - Equipment393415---526570513
    - Components279288---293322296
    - Digital Intelligence187195---176199204
    - Digital Electronics--------
    Transit Segment6397106607472,756673734733
    - OEM282325302--310310349
    - Aftermarket346374358--363414384
    Corporate Activities and Elimination--------
    Specialty Products & Electronics--------
    Transit Products--------
    Brake Products--------
    Remanufacturing, Overhaul & Build--------
    Other--------
    Total Revenue2,1942,4072,5502,5269,6772,4972,6442,663
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    North America--------
    - United States----4,553---
    - Canada----531---
    - Mexico----347---
    - North America Total----5,431---
    South America----346---
    Europe--------
    - Germany----347---
    - France----346---
    - United Kingdom----248---
    - Italy----183---
    - Other Europe----520---
    - Europe Total----1,644---
    Asia Pacific--------
    - India----593---
    - Australia / New Zealand----451---
    - China----286---
    - Kazakhstan / Russia / CIS----457---
    - Other Asia / Middle East----240---
    Africa--------
    - Egypt----120---
    - Other Africa----109---
    Other International--------
    Total Revenue2,1942,4072,5502,5269,677---

    Executive Team

    NamePositionStart DateShort Bio
    Rafael SantanaPresident and Chief Executive OfficerJuly 1, 2019Rafael Santana has been serving as the President and Chief Executive Officer of Wabtec since July 1, 2019. Before this role, he was the President and CEO of GE Transportation from November 2017 to February 2019. He joined GE in 2000 and held various global leadership roles .
    David L. DeNinnoExecutive Vice President, General Counsel and SecretaryDecember 2016David L. DeNinno was named Executive Vice President, General Counsel and Secretary of Wabtec effective December 2016. Prior to this role, he served as Senior Vice President, General Counsel and Secretary since February 2012 .
    John A. OlinExecutive Vice President and Chief Financial OfficerOctober 1, 2021John A. Olin was named Executive Vice President and Chief Financial Officer of Wabtec effective October 1, 2021. Before joining Wabtec, he served as Senior Vice President and CFO of Harley-Davidson .
    Nicole TheophilusExecutive Vice President and Chief Human Resources OfficerOctober 2020Nicole Theophilus was named Executive Vice President and Chief Human Resources Officer at Wabtec in October 2020. Prior to joining Wabtec, she served as Chief Human Resource Officer of West Corporation from March 2016 through February 2018 .
    Eric GebhardtExecutive Vice President and Chief Technology OfficerOctober 2020Eric Gebhardt was named Executive Vice President and Chief Technology Officer at Wabtec in October 2020. Before joining Wabtec, he served as Managing Director of KCK-US from May 2019 through September 2020 .
    Gina TrombleyExecutive Vice President, Sales & Marketing & Chief Commercial Officer - AmericasSeptember 8, 2020Gina Trombley was named Executive Vice President, Sales & Marketing & Chief Commercial Officer - Americas at Wabtec, effective September 8, 2020. Prior to joining Wabtec, she served in various executive roles at Bombardier Transportation .
    Greg SbroccoExecutive Vice President, Global OperationsFebruary 2019Greg Sbrocco was named Executive Vice President, Global Operations in February 2019. Prior to this, he served as Global Supply Chain Leader for GE Transportation since September 2014 .
    Michael E. FetskoPresident, Freight and Industrial ComponentsJanuary 2017Michael E. Fetsko was named President, Freight and Industrial Components at Wabtec effective January 2017. Prior to this role, he served as Vice President and Group Executive from January 2014 .
    Alicia HammersmithPresident, Freight ServicesApril 2023Alicia Hammersmith was named President, Freight Services in April 2023. Prior to this role, she served as Group Vice President, Transit Operations from 2020 to 2023 .
    Rogerio MendoncaPresident, Freight EquipmentFebruary 2021Rogerio Mendonca was named President, Freight Equipment at Wabtec in February 2021. Prior to this role, he served as Vice President for Baker Hughes starting in July 2017 .
    Nalin JainPresident, Digital IntelligenceDecember 2020Nalin Jain was named President of the Digital Intelligence business at Wabtec effective December 2020. Prior to this role, he served as President, Global Equipment since May 2019 .
    Pascal SchweitzerPresident, TransitApril 2023Pascal Schweitzer was named President, Transit in April 2023. Prior to this role, he served as President, Freight Services from February 2019 to April 2023 .
    Lillian LerouxChief Strategy and Sustainability OfficerApril 2023Lillian Leroux was named Chief Strategy and Sustainability Officer in April 2023. Prior to this role, he served as President, Transit from March 2019 to April 2023 .
    John A. MastalerzSenior Vice President of Finance and Chief Accounting OfficerFebruary 2020John A. Mastalerz was named Senior Vice President of Finance and Chief Accounting Officer at Wabtec in February 2020. Prior to this role, he served as Senior Vice President, Corporate Controller and Principal Accounting Officer from July 2017 to February 2020 .
    Kristine KubackiVice President, Investor RelationsApril 2019Kristine Kubacki was named Vice President of Investor Relations at Wabtec in April 2019. Before joining Wabtec, she worked on Wall Street as a sell-side equity analyst covering industrials from January 2004 to April 2019 .

    Questions to Ask Management

    1. "Given that North American carloads continued to be up but Wabtec's active locomotive fleet was largely flat compared to last year's third quarter, how do you anticipate driving growth in the North American market, and what strategies are you implementing to capitalize on this discrepancy? "

    2. "With the international locomotive orders pipeline being the strongest in the last five years, and significant contracts like the $2 billion MOU with KTZ in Kazakhstan, how are you managing potential risks associated with geopolitical uncertainties in these markets? "

    3. "Can you elaborate on the margin dynamics between your international and North American operations, given that margins vary by country and contract, and how does this variability impact your overall profitability? "

    4. "As you focus on digital acquisitions and expanding your digital portfolio, particularly in international markets where you see gaining momentum, how do you plan to address the softer North American market for digital products and transition to more recurring revenue streams? "

    5. "Despite adjusted gross margin being down modestly due to unfavorable mix, you mentioned that service revenue is expected to shift due to production planning; what steps are you taking to improve margins and stabilize service revenue amidst these fluctuations? "

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateFebruary 9, 2024
    End Date/DurationNo time limit
    Total additional amount$1 billion
    Remaining authorization amount$123 million (as of September 30, 2024)
    DetailsThe program allows the company to repurchase shares at any time based on market conditions, capital needs, and other factors. Purchases can be made through open market or privately negotiated transactions and may be conducted pursuant to a Rule 10b5-1 plan. The program conforms to the requirements under the 2022 Credit Agreement, the 2024 Credit Agreement, and the indentures for the Senior Notes currently outstanding.

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      • Adjusted EPS: Expected to be in the range of $7.45 to $7.65, representing a midpoint increase of 27.5% .
      • Revenue and Cash Flow Conversion: Greater than 90% cash conversion for the full year .
      • Organic Growth and EPS Growth: Mid-single-digit organic growth and double-digit EPS growth .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      • Adjusted EPS: Expected to be in the range of $7.20 to $7.50, up 24.2% at the midpoint .
      • Revenue and Cash Flow Conversion: Greater than 90% cash conversion for the full year .
      • Organic Growth: Mid-single-digit organic growth and double-digit EPS growth .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      • Sales: Expected to be $10.4 billion at the midpoint, a 7.5% increase from the previous year .
      • Adjusted EPS: Expected to be between $7.00 and $7.40 per share, an increase of about 21.5% at the midpoint .
      • Cash Flow Conversion: Greater than 90% for the full year .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      • Sales: Expected to be $10.2 billion at the midpoint, over 5% growth compared to the previous year .
      • Adjusted EPS: Midpoint of $6.70 per share, up about 13% from the previous year .
      • Cash Flow Conversion: Greater than 90% .
      • Revenue Growth: Higher in the first half of the year compared to the second half .
      • Operating Margins: Expected to be up versus 2023, with modestly higher margin growth in the first half .
      • Integration 2.0 Savings: Expected to ramp significantly, from $22 million at the end of 2023 to $75 million to $90 million by the end of 2025 .
      • Portfolio Optimization: Exit of nonstrategic product lines, improving focus and profitability .

    Latest news

    Recent developments and announcements about WAB.

    Financial Reporting

      Earnings Report

      ·
      18 hours ago

      Wabtec Corporation (NYSE: WAB) has announced its earnings results and strategic acquisition of Evident's Inspection Technologies division. Here are the key highlights:

      Earnings and Financial Performance

      • Evident's Inspection Technologies division is projected to achieve $433 million in revenue for 2024, with an EBITDA of $112 million, reflecting a 25.9% margin.
      • The acquisition is expected to be immediately accretive to Wabtec's adjusted EPS and EBIT margins in the first year of ownership.
      • The purchase price of $1.78 billion (~$1.68 billion after tax benefits) represents a 12.0x multiple of projected 2025 EBITDA, adjusted for transaction and separation costs, tax benefits, and cost synergies.

      Strategic Acquisition Details

      • The acquisition will double Wabtec's Digital Intelligence total addressable market (TAM) from $8 billion to $16 billion.
      • It strengthens Wabtec's portfolio in rail, mining, and industrial sectors, while expanding into high-growth, high-margin complementary sectors.
      • The transaction is expected to close by the end of the first half of 2025, subject to regulatory approvals and customary closing conditions.

      Significant Trends and Impacts

      • The acquisition aligns with Wabtec's strategy to accelerate innovation in scalable technologies and expand its recurring revenue streams.
      • Evident's Inspection Technologies division brings advanced capabilities in Non-Destructive Testing (NDT), Remote Visual Inspection (RVI), and Analytical Instruments (ANI), which are critical for ensuring the safety and reliability of mission-critical assets.
      • The integration is expected to generate $25 million in run-rate cost synergies by the end of year three, with additional revenue synergies anticipated.

      Conference Call Information

      • Wabtec hosted a call with analysts and investors at 8:30 a.m. Eastern Time on January 14, 2025, to discuss the acquisition. A replay is available via Wabtec's website or by calling the provided numbers.

      This acquisition positions Wabtec for accelerated growth in its Digital Intelligence business, enhancing its ability to deliver innovative solutions globally while driving shareholder value.

    Corporate Leadership

      Board Change

      ·
      Dec 4, 2024, 7:54 PM

      Juan Perez has been elected to the Board of Directors of Westinghouse Air Brake Technologies Corporation, effective January 29, 2025. He will join the class of directors whose term expires in 2025 and will be part of the Audit Committee, the Governance and Sustainability Committee, and the Environmental, Social and Governance Subcommittee .