Rail equipment specialist Westinghouse Air Brake Technologies (WAB -1.61%), widely recognized by its brand name Wabtec, reported third-quarter earnings on Wednesday, Oct. 23, that showed sales of $2.66 billion, up by 4.4% year over year. GAAP earnings per share (EPS) of $1.63 rose nearly 23% from $1.33 last year. Adjusted EPS also showed a robust growth of 17.6% reaching $2.00.
Overall, Wabtec's third quarter was positive, reflecting strong growth across key segments, though economic conditions introduced some challenges.
| Metric | Q3 2024 | Q3 2023 | Change (YOY) |
|---|---|---|---|
| Net sales | $2.66 billion | $2.55 billion | 4.4% |
| Cash from operations | $542 million | $425 million | 27.5% |
| GAAP gross margin | 33% | 31% | 2 pps |
| GAAP operating margin | 16.3% | 14.5% | 1.8 pps |
| GAAP diluted EPS | $1.63 | $1.33 | 22.6% |
| Adjusted EPS | $2.00 | $1.70 | 17.6% |
Source: Westinghouse Air Brake Technologies. YOY = Year over year. GAAP = Generally accepted accounting principles.
Business Overview
Wabtec serves the global freight and transit rail industries, having a major influence through its extensive locomotive base (exceeding 24,000 units). Core to Wabtec's strategy are innovations and sustainable practices in transportation solutions, echoed in its battery-electric and hydrogen-powered locomotives. Approximately 72% of Wabtec's sales come from its freight segment, with a significant portion in aftermarket services, ensuring steady revenue streams.
In recent times, Wabtec has focused heavily on sustainability, leading in technological innovation, and making strategic acquisitions to strengthen its offerings. These areas serve as critical success factors in maintaining its market leadership.
Quarterly Highlights
Wabtec's 4.4% sales increase was primarily driven by a 2.6% growth in the freight segment. Operating margins also improved, with the GAAP operating margin rising to 16.3% from 14.5% the previous year. In the freight segment, growth was spurred by a 16.5% rise in services and a 12.7% increase in digital intelligence products, highlighting Wabtec's emphasis on its aftermarket and technological advancements.
The company's strong performance was also marked by notable strategic initiatives, such as securing a $500 million green bond to finance eco-friendly projects. Wabtec also noted a $7.62 billion backlog of projects (cumulative over the past 12 months). The backlog is up 7.5% sequentially.
Economic factors and competitive pressures from the rail industry present ongoing challenges. Foreign exchange rate fluctuations and mixed rail demand forecasts in North America remain points of concern. Also, North American railcar build forecasts have not met previous expectations, potentially affecting future opportunities and necessitating adaptable strategies.
Wabtec returned $634 million to shareholders through share repurchases and dividends during the quarter.
Looking Ahead
For future performance, Wabtec's management has raised its adjusted EPS guidance for 2024 to between $7.45 and $7.65, indicating confidence in continued growth. If it hits the midpoint of guidance, that would be a 27.5% increase from 2023. Management attributes its optimistic outlook to ongoing demand, technological innovations, and improved margins. The company anticipates an operating cash flow conversion rate exceeding 90%, reflecting operational efficiency.
Investors should watch macroeconomic conditions like currency trends and government infrastructure investments, which significantly impact rail industry dynamics. Wabtec's focus on sustainability and technological innovation remains key, as it stands positioned to leverage global decarbonization trends for growth.
