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WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORP (WAB)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 delivered broad-based growth and margin expansion: revenue $2.89B (+8.4% YoY), GAAP EPS $1.81 (+11% YoY), and adjusted EPS $2.32 (+16% YoY); adjusted operating margin rose 130 bps to 21.0% .
  • Results modestly exceeded Wall Street consensus on EPS and EBITDA and were roughly in line on revenue; adjusted EPS $2.32 vs $2.28 consensus (+$0.04) and EBITDA ~$647M vs ~$644M consensus; revenue $2.886B vs ~$2.882B consensus (Values retrieved from S&P Global).
  • 2025 guidance was raised and tightened: adjusted EPS to $8.85–$9.05 (from $8.55–$9.15 in Q2); revenue maintained at $10.925–$11.225B; >90% operating cash flow conversion reiterated .
  • Backlog reached a record $25.6B (total) and $8.27B (12‑month), improving visibility into Q4 and 2026; strength includes the $4.2B Kazakhstan orders across locomotives and multi‑year service agreements .

What Went Well and What Went Wrong

  • What Went Well

    • Record multi‑year backlog ($25.6B) and 12‑month backlog up 8.4%, underpinning revenue visibility .
    • Freight and Transit both grew (~8% YoY); Equipment sales +32% on higher locomotive deliveries, Digital Intelligence +45.6% aided by Inspection Technologies; Transit margins expanded meaningfully .
    • CEO tone confident: “continued growth in our backlog, sales, margin, and earnings,” highlighting innovation, disciplined cost management, and customer partnerships .

  • What Went Wrong

    • Operating cash flow fell YoY ($367M vs $542M) as tariffs and working capital increased; tariff impacts are flowing through inventory to P&L with a 2–4 quarter lag .
    • Freight GAAP operating margin down 40 bps YoY (19.8%) due to purchase accounting and mix (lower Services) despite improved gross margins; mix headwinds expected again in Q4 .
    • Services revenue −11.6% YoY on timing of modernization deliveries; management expects Services to be down again in Q4 with offset from strong new locomotive deliveries .

Financial Results

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Billions)$2.610 $2.706 $2.886
GAAP EPS ($)$1.88 $1.96 $1.81
Adjusted EPS ($)$2.28 $2.27 $2.32
GAAP Gross Margin (%)34.5% 34.7% 34.7%
Adjusted Gross Margin (%)34.6% 34.8% 35.6%
GAAP Operating Margin (%)18.2% 17.4% 17.0%
Adjusted Operating Margin (%)21.7% 21.1% 21.0%
Operating Cash Flow ($USD Millions)$191 $209 $367
SegmentQ1 2025 Net Sales ($MM)Q1 2025 Adj. OM (%)Q2 2025 Net Sales ($MM)Q2 2025 Adj. OM (%)Q3 2025 Net Sales ($MM)Q3 2025 Adj. OM (%)
Freight$1,901 25.7% $1,919 25.0% $2,093 24.5%
Transit$709 14.6% $787 15.2% $793 15.5%
Q3 2025 Product Line (Freight)Sales ($MM)YoY Change
Services$744 −11.6%
Equipment$677 +32.0%
Components$375 +1.1%
Digital Intelligence$297 +45.6%
BacklogSep 30, 2024Jun 30, 2025Sep 30, 2025
12‑Month Backlog ($MM)$7,624 $8,210 $8,267
Total Backlog ($MM)$22,234 $21,828 $25,577

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY 2025$8.55–$9.15 (Q2 update) $8.85–$9.05 Raised and tightened
RevenueFY 2025$10.925–$11.225B (Q2 update) $10.925–$11.225B Maintained
Operating Cash Flow ConversionFY 2025>90% >90% Maintained
Tax Rate (Assumption)FY 2025~24.5% (Q3 slide) ~24.5% Maintained
DividendQ4 2025—$0.25 per share payable Nov 26, 2025 Declared

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Tariffs & Cash ConversionQ2: Working capital/tariffs pressured cash; OCF $209M Tariffs hit cash immediately, then P&L over 2–4 quarters; mitigation via exemptions, supply chain shifts, customer sharing, cost control Ongoing headwind; mitigation intensifying
Locomotive vs Mod MixQ2: Locomotive deliveries delayed (part issue) shifting to H2; Services +6% Equipment strength offsets lower Services; Services −11.6% on mod timing; similar dynamic expected in Q4 Mix headwind near term; Q4 similar cadence
International Pipeline & KazakhstanQ1: International momentum; installed base expansion Secured ~$4.2B multi‑contract in Kazakhstan: 300 locos over 10 years + extended service (avg 15 years) Strong multi‑year visibility; supports backlog
Transit Margin TrajectoryQ1/Q2: Transit adj. OM mid‑teens; execution on integration 2.0/3.0 Transit adj. OM 15.5%; management confident progressing to high‑teens over planning horizon Structural improvement continuing
Digital/Inspection TechnologiesQ2: M&A accretive margins/EPS; integration progressing Adds higher gross margin to mix; modest pricing and escalation aided margins; integration on track Positive margin mix contribution
Cash/Liquidity & LeverageQ2: Liquidity $4.09B; leverage 1.5–2.5x target Liquidity $2.75B post acquisition; net debt leverage ~2.0x; >90% cash conversion reiterated Prudent balance sheet post M&A

Management Commentary

  • Strategic positioning: “continued growth in our backlog, sales, margin, and earnings…product innovation, disciplined cost management, focused execution and partnership with our customers” .
  • Freight/transit outlook: “strong pipeline of opportunities…encouraged by backlogs providing visibility for profitable growth ahead” .
  • Tariff mitigation: Four‑pronged approach—USMCA exemptions, supply chain relocation, customer cost sharing, enterprise‑wide cost focus .
  • Transit strategy: Growing backlog quality and margins; leadership positions; integration and portfolio optimization driving efficiencies .

Notable quotes:

  • “We delivered a very strong quarter…enhanced visibility for the fourth quarter and into the future” — CEO Rafael Santana .
  • “Adjusted operating margin in Q3 was 21.0%, up 1.3 percentage points versus the prior year…driven by improved gross margins” — CFO John Olin .
  • “We now expect adjusted EPS to be between $8.85 to $9.05, up 18% at the midpoint” — CEO Rafael Santana .

Q&A Highlights

  • Tariffs trajectory: Peak gross and net tariff impacts still ahead in coming quarters; mitigation continues across exemptions, sourcing shifts, and pricing .
  • Mix and margins: Q3 margin favorability came from operational excellence, integration savings, and timing of escalators, offsetting unfavorable mix; Q4 margins seasonally lower on fewer production days, but growth and YoY margin expansion expected .
  • Services vs mods: Services softness purely mod timing; core services expected to grow 5–7% longer term; mods and new locomotives volumes expected to increase in 2026 .
  • Kazakhstan detail: 300 locomotives over 10 years; extended service for existing and new fleets averaging 15 years—multi‑contract structure .
  • Transit margins path: Management aims for high‑teens over planning horizon via portfolio optimization and execution .

Estimates Context

MetricConsensus (Q3 2025)Actual (Q3 2025)Result
Adjusted EPS ($)2.28*2.32 Beat
Revenue ($USD Billions)2.882*2.886 In line/Beat
EBITDA ($USD Millions)644.5*647.0*Beat

Values retrieved from S&P Global.

Implications: modest beats on EPS/EBITDA and slight revenue outperformance suggest consensus models may need minor upward revisions to margins and FY EPS, particularly given raised and tightened FY EPS guidance .

Key Takeaways for Investors

  • Narrative supportive: Record backlog and raised/tightened EPS guidance into Q4 underpin confidence; expect continued equipment strength with Services mod timing headwinds near term .
  • Margins resilient despite mix: Integration savings, escalation recovery, and higher‑margin digital mix (Inspection Technologies) offset mix/tariff headwinds; watch Q4 seasonality but YoY expansion should persist .
  • Tariffs are a cash headwind before P&L; net impact likely to build over next 2–4 quarters—follow mitigation execution and any pricing pass‑through in Q4/Q1 .
  • International growth and multi‑year visibility accelerate: Kazakhstan program and broader CIS/APAC activity drive durable revenue and service streams into late‑decade .
  • Transit structurally improving: Margin trajectory toward high‑teens via portfolio optimization and integration; less typical Q4 seasonal lift expected this year (balanced production), tempering near‑term expectations .
  • Balance sheet post‑M&A remains conservative (~2.0x net leverage) with liquidity $2.75B; continued capital returns (dividend declared) supportive .
  • Trading lens: Modest beat plus guidance tighten typically supportive; watch tariff commentary, Q4 mix/margins cadence, and any updates on closing Delner/Frauscher timing for 2026 accretion .