Freight Margin Outlook
Q: Will freight margins remain high rest of the year?
A: Management expects freight margins to be up but not to the same extent as in Q1. " Factors boosting Q1 margins—like operational execution leading to increased productivity " , favorable mix that will turn unfavorable in the back half " , and absorption from 17.2% revenue growth in the Freight segment " —won't repeat later in the year. Additionally, lapping a one-time investment added about one-third of the margin benefit. " Overall, margins are building from prior guidance, but some aspects will bring them down in the back half. "

Impact of New Regulations
Q: How will proposed locomotive regulations affect business?
A: The outcome of the California Air Resources Board's proposed regulations remains fluid. " Wabtec is well-positioned to support customers under all outcomes with best-in-class products offering lowest emissions and fuel consumption. " The EPA's recent standards classify liquid hydrogen for internal combustion engines as zero emissions, allowing their installed base to use hydrogen and aiding in transitioning to near-zero emissions with reversible solutions. "

Revenue and Margin Growth Expectations
Q: How do you view margin growth in the second half?
A: The significant majority of revenue and profit growth will be in the first half due to locomotive and modernization deliveries being up about 30%. " In the back half, deliveries will be down slightly, shifting revenue into the first half. " While margins will be favorable in the first half, they will be less so in the back half due to mix and absorption factors. " Overall, management expects revenue and margin growth for the year, but at a more tempered level in the second half. "

Capital Allocation Plans
Q: Will you increase share buybacks or dividends?
A: With a strong balance sheet and expected free cash flow, Wabtec will prioritize M&A if they find accretive strategic opportunities. " If not, they will return excess cash to shareholders through share repurchases. " They feel good about the start of the year with $175 million repurchased and are looking to return all excess cash to shareholders throughout the year. "

Alternative Fuels and Decarbonization
Q: How are alternative fuels impacting demand?
A: Customers value transitioning to products that significantly reduce carbon emissions. " Wabtec's engines are prepared to use renewable diesel and biofuels, and they're progressing on incorporating hydrogen. " They're delivering hybrid units and the first heavy haul battery-electric locomotive. " The company is well-positioned to support customers' transitions, positively impacting order patterns and expectations. "

Long-term Margin Targets
Q: Are you revising long-term margin expansion targets?
A: Despite strong margin performance in Q1, management maintains their long-term targets of mid-single-digit revenue growth and double-digit EPS growth. " They continue to see opportunities to drive profitable growth through lean initiatives, integration progress, and portfolio optimization. "

Cost Savings Update
Q: What's the progress on cost savings targets?
A: Wabtec has realized $120–$125 million of the expected $135–$165 million in cost reductions, with $22 million in run-rate savings as of 2023. " They are ramping up to $75–$90 million in run-rate savings by 2025, with most projects approved and in execution. " Savings are expected to escalate over the next two years. "

Transit Segment Growth
Q: Is operational improvement in transit complete?
A: There is continued opportunity to drive profitable growth in transit. " While pleased with overall progress, significant work continues to simplify the footprint and improve margins. " Management is committed to expanding margins and being selective in opportunities. " Long-term, they expect sustainable sales growth in the range of 3% to 5%. "

Pricing Trends
Q: How are pricing trends affecting margins?
A: Pricing was up slightly in the quarter, and costs were slightly favorable, which helped provide a little margin improvement. "

Hydrogen Adoption Timeline
Q: Will hydrogen locomotives be operational in 5 years?
A: Wabtec expects hydrogen to be tested, and with government support, there could be corridors introducing hydrogen as an alternative fuel into internal combustion engines. " Full utilization of hydrogen, such as with fuel cells, is further out and not expected in the near or midterm. "

Impact of Regulatory Changes on Backlog
Q: Will new regulations affect modernization orders?
A: Customer-specific choices may arise, but management does not expect cancellations. " There may be more consideration towards newer technology that can utilize alternative fuels, providing customers with flexibility to transition over time. "

Locomotive Market Share
Q: Why is Wabtec's fleet up when industry is down?
A: Wabtec's investments have positioned their fleets to offer the most fuel-efficient engines, reliable performance, and digital solutions like Trip Optimizer. " This leads to customers increasingly choosing Wabtec locomotives, validating their strategy and product differentiation. "

Revenue Discontinuation to Optimize Margins
Q: What's the status of exiting low-margin revenue?
A: Wabtec is moving forward with exiting approximately $110 million of low-margin revenue. " The majority will be removed this year, with some shifting into next year. " This action makes the midpoint of their new guidance effectively higher. "

Alternative Fuel Economics
Q: What are the economics of using alternative fuels?
A: Uptake varies globally based on availability and subsidies. " Wabtec's strategy is to offer engines agnostic to fuel types, providing flexibility to customers. " They support customers in transitioning with reversible technology and are developing zero-emission technologies, though widespread adoption and economics are still maturing. "

Second Quarter Margin Expectations
Q: Will freight margin expansion continue in Q2?
A: Management expects the second quarter to be strong, but not at the same level of revenue or margin growth as Q1. " Growth will be present but at a tempered level, with first-half performance being stronger due to production shifts and favorable mix. " Back-half growth will be more moderate. "