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WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORP (WAB)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered margin-led upside: GAAP operating margin rose to 18.2% and adjusted operating margin to 21.7%, with sales up 4.5% to $2.61B and GAAP EPS of $1.88; adjusted EPS was $2.28 .
  • Against consensus, Wabtec posted a clear EPS beat and a slight revenue beat: Q1 EPS $2.28 vs $2.03* and revenue $2.61B vs $2.61B*, underpinned by favorable mix, timing and proactive cost control .
  • Management increased FY25 adjusted EPS guidance midpoint by $0.10 and widened the range to $8.35–$8.95, while keeping revenue and cash conversion (>90%) guidance unchanged .
  • International momentum and higher profitability vs North America continued; tariff uncertainty is a watchpoint and drove a defensive spending posture that supported margins .

Values retrieved from S&P Global*

What Went Well and What Went Wrong

What Went Well

  • Strong start ahead of expectations with amplified cost controls: “we had a strong start to the year… amplified our cost control levers” (R. Santana) .
  • Margin expansion from mix and execution: adjusted operating margin up 190 bps YoY to 21.7%; gross margin up 170 bps YoY, aided by favorable mix, timing and productivity (J. Olin) .
  • International growth and profitability: international revenue has grown high-single digits over the last couple of years and is more profitable than North America (management commentary and press release) .

What Went Wrong

  • Tariff volatility and uncertainty: guidance incorporates “first round” tariffs (25% Canada/Mexico/steel-aluminum; 20% China) but excludes reciprocal tariffs given a 90-day reprieve and volatility (J. Olin) .
  • FX headwinds and mix cadence: foreign exchange was a headwind to revenue/gross profit/operating margin; Q2 mix favorability expected to moderate vs Q1 (J. Olin) .
  • Operating cash flow down YoY due to securitization accounting change (reclassified to financing), obscuring underlying cash strength (J. Olin) .

Financial Results

MetricQ1 2024Q4 2024Q1 2025
Revenue ($USD Billions)$2.497 $2.583 $2.610
GAAP Operating Margin (%)16.5% 12.9% 18.2%
Adjusted Operating Margin (%)19.8% 16.9% 21.7%
GAAP Diluted EPS ($)$1.53 $1.23 $1.88
Adjusted Diluted EPS ($)$1.89 $1.68 $2.28
Q1 2025 Actual vs StreetQ1 2025 Consensus*Q1 2025 Actual
Revenue ($USD Billions)$2.609$2.610
Primary EPS ($)$2.026$2.28
Primary EPS - # of Estimates9—
Revenue - # of Estimates8—

Values retrieved from S&P Global*

SegmentQ1 2024Q1 2025
Freight Net Sales ($USD Billions)$1.824 $1.901
Freight Operating Margin (%)20.2% 22.1%
Transit Net Sales ($USD Billions)$0.673 $0.709
Transit Operating Margin (%)11.0% 12.7%
KPIsQ1 2024Q4 2024Q1 2025
12-Month Backlog ($USD Billions)$7.71 $7.68 $8.20
Total Backlog ($USD Billions)$22.083 $22.272 $22.302
Cash from Operations ($USD Millions)$334 $723 $191
Liquidity ($USD Billions)—$2.21 $2.54
Net Debt Leverage Ratio (x)—1.5x 1.5x
Share Repurchases ($USD Millions)—$1,097 FY $98 in Q1
Dividends Paid ($USD Millions)—$140 FY $43 in Q1

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Diluted EPS ($)FY 2025$8.35–$8.75 $8.35–$8.95 Raised midpoint by $0.10 and widened range
Revenues ($USD Billions)FY 2025$10.725–$11.025 Unchanged Maintained
Cash Conversion (%)FY 2025>90% >90% Maintained
Tax Rate (%)FY 2025~24.5% Unchanged (assumption) Maintained
Capex (% of Sales)FY 2025~2% Unchanged (assumption) Maintained

Note: Q2 2025 press release later increased FY25 revenue guidance and EPS post-close of the Evident Inspection Technologies acquisition (outside Q1 scope) .

Earnings Call Themes & Trends

TopicQ-2 (Q3 2024)Q-1 (Q4 2024)Current (Q1 2025)Trend
Tariffs/MacroLimited tariff specifics; focus on backlog and pipeline 2025 outlook acknowledges macro; assumptions outlined First-round tariffs embedded; reciprocal tariffs excluded due to uncertainty Heightened caution
Mix cadence (Services vs Equipment)Services strength; equipment down on timing; Q4 expected reverse Q4 showed equipment up, services down as planned Q2 to see less mix favorability vs Q1; timing items won’t repeat Normalization
International momentum/profitabilityStrong wins (Kazakhstan, Africa); building multi-year visibility International strong; backlog visibility; digital wins International revenue more profitable than North America; pipeline strong Positive sustained
Digital IntelligenceInternational-led growth; push to recurring Softer NA; strong international; recurring focus Ongoing international growth; NA softness persists Mixed by region
Integration & Cost ActionsIntegration 2.0 ramping savings Integration 3.0 introduced; 5-year margin plan Defensive spend posture; productivity and lean drive margins Acceleration
Backlog/Visibility12-month backlog up; multi-year robust 12-month backlog $7.68B; multi-year $22.3B 12-month backlog $8.20B; multi-year $22.30B Strengthening

Management Commentary

  • “We had a strong start to the year, delivering results ahead of our expectations… amplified our cost control levers” (Rafael Santana) .
  • “Adjusted operating margin in Q1 was 21.7%, up 1.9 percentage points versus the prior year… driven by improved gross margins and proactive cost controls” (John Olin) .
  • “International revenue has grown… at a high single-digit rate… while delivering a higher level of profitability than our North America region” (Press release; CEO) .
  • “We are increasing our previous adjusted EPS midpoint guidance… to $8.35 to $8.95” (Rafael Santana) .
  • “We expect to come out of this [tariffs] whole and margins intact… and deliver on the guidance we’ve signed up for” (John Olin) .

Q&A Highlights

  • Tariffs: First-round tariffs quantified in guidance; reciprocal tariffs (125% China, 10% others) excluded pending policy clarity and on-water exemption timing (end-May) .
  • Mix/Quarter Cadence: Q2 margins to be solid but below Q1 due to less mix favorability and timing items not repeating .
  • International Installed Base/Aftermarket: Core services (excluding mods) modeled to grow ~6–7% as fleets run “hard,” supporting aftermarket growth (R. Santana) .
  • Cash Flow: Q1 OCF down YoY due to securitization reclassification; underlying cash strong, with future securitization changes flowing through financing (J. Olin) .
  • Strategy/Costs: Integration 3.0 cost take-out and portfolio optimization continue; pricing actions and USMCA mitigations used to offset tariff impacts .

Estimates Context

  • Q1 2025 EPS: $2.28 vs $2.03 consensus* — bold beat on margins and cost discipline .
  • Q1 2025 Revenue: $2.61B vs $2.61B consensus* — essentially in line/slight beat .
  • Given the raised FY EPS guidance midpoint and margin strength, models likely adjust upward on FY EPS and margin trajectory, while revenue stays within prior range .

Values retrieved from S&P Global*

Key Takeaways for Investors

  • Margin story intact and improving: mix, productivity and proactive cost control drove a material EPS beat; Q2 mix normalization is a near-term watchpoint .
  • International growth is the profit engine: higher-margin international exposure continues to offset North America softness; pipeline supports multi-year visibility .
  • Guidance de-risked on tariffs: first-round tariffs embedded; reciprocal tariffs excluded pending clarity, with pricing and supply-chain levers to protect margins .
  • Cash conversion discipline remains core: headline Q1 cash flow distortion from securitization change; full-year conversion still guided >90% .
  • Portfolio optimization and Integration 3.0 underpin multi-year margin expansion (100–125M run-rate savings targeted by 2028), supporting double-digit EPS CAGR long term .
  • Short-term trading: EPS beat and guidance raise are catalysts; tariff headlines and Q2 mix commentary may introduce volatility—watch reciprocal tariff outcomes .
  • Medium-term thesis: International backlog, services aftermarket growth, digital scaling and operational excellence support sustained margin expansion and cash generation .

Citations:

  • Press release and exhibits (Q1 2025):
  • Earnings call transcript (Q1 2025):
  • Prior quarter materials: Q4 2024 call/slides ; Q3 2024 call
  • M&A (Evident Inspection Technologies, Jan 2025):
  • Values retrieved from S&P Global*