Westinghouse Air Brake Technologies(WAB) - 2024 Q2 - Quarterly Results

Executive Summary & Q2 2024 Highlights Wabtec delivered strong Q2 2024 results with robust sales and EPS growth, significant shareholder returns, and increased full-year guidance Q2 2024 Performance Overview Wabtec reported strong second quarter 2024 results, demonstrating robust growth in sales and earnings per share, both on a GAAP and adjusted basis. The company also returned a significant amount to shareholders and raised its full-year adjusted EPS guidance | Metric | 2Q'24 | First Half '24 | | :--- | :--- | :--- | | Sales | $2.64 billion (+9.8% YOY) | $5.14 billion (+11.7% YOY) | | GAAP Diluted EPS | $1.64 (+54.7% YOY) | $3.17 (+58.5% YOY) | | Adjusted Diluted EPS | $1.96 (+39.0% YOY) | $3.85 (+43.1% YOY) | - GAAP Operating Margin at 16.3%; Adjusted Operating Margin Up 2.9 pts to 19.3%[5] - Returned $235 million to Shareholders via Share Repurchases and Dividends[5][13] - Raised and tightened 2024 Adjusted Diluted EPS guidance to be in the range of $7.20 to $7.50; up 24.2% from 2023 at the midpoint[5][16] CEO Commentary CEO Rafael Santana highlighted the strong Q2 performance driven by robust sales and EPS growth. He expressed confidence in executing second-half deliverables, capitalizing on strong end-market demand, and achieving profitable growth consistent with long-term guidance - The Wabtec team delivered another strong quarter, evidenced by robust sales and earnings per share growth[3] - Focused on executing against second half deliverables, with strong demand in end markets and significant opportunities for further growth[3] - Confident in the ability to drive profitable growth ahead, consistent with long term guidance[4] Q2 2024 Financial Performance This section details consolidated, segment-specific financial results, backlog status, and cash flow performance for Q2 2024 Consolidated Financial Results Consolidated net sales increased by 9.8% year-over-year, driven by both Freight and Transit segments. Both GAAP and Adjusted Gross and Operating Margins saw significant improvements, contributing to higher GAAP and Adjusted EPS | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales (in millions) | $2,644 | $2,407 | 9.8 % | | GAAP Gross Margin | 33.0 % | 30.1 % | 2.9 pts | | Adjusted Gross Margin | 33.3 % | 30.4 % | 2.9 pts | | GAAP Operating Margin | 16.3 % | 12.9 % | 3.4 pts | | Adjusted Operating Margin | 19.3 % | 16.4 % | 2.9 pts | | GAAP Diluted EPS | $1.64 | $1.06 | 54.7 % | | Adjusted Diluted EPS | $1.96 | $1.41 | 39.0 % | | Cash Flow from Operations (in millions) | $235 | $115 | $120 | | Operating Cash Flow Conversion | 57 % | 36 % | | - Sales increased 9.8% compared to the year-ago quarter driven by higher sales in both the Freight and Transit segments[6] - GAAP EPS and adjusted EPS increased primarily due to higher sales, margin expansion and a lower tax rate[8] Freight Segment Results The Freight segment reported a robust 13.1% increase in net sales, primarily fueled by strong growth in Equipment and Components. This sales growth, combined with improved gross margins and slower operating expense growth, led to significant expansion in both GAAP and Adjusted Operating Margins | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales (in millions) | $1,920 | $1,697 | 13.1 % | | GAAP Gross Margin | 34.8 % | 31.8 % | 3.0 pts | | Adjusted Gross Margin | 35.1 % | 32.0 % | 3.1 pts | | GAAP Operating Margin | 20.4 % | 15.9 % | 4.5 pts | | Adjusted Operating Margin | 24.1 % | 20.3 % | 3.8 pts | - Freight segment sales were up across business groups, driven primarily by Equipment (+36.4%) and Components (+17.5%)[7] - GAAP and adjusted operating margins benefited from higher sales, improved gross margin, and operating expenses which grew at a slower rate than revenue[7] Transit Segment Results The Transit segment experienced a modest 2.0% increase in net sales, primarily due to higher aftermarket sales. Both GAAP and Adjusted Operating Margins improved, driven by higher gross margins, despite operating expenses growing at a higher rate than revenue | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales (in millions) | $724 | $710 | 2.0 % | | GAAP Gross Margin | 28.3 % | 26.0 % | 2.3 pts | | Adjusted Gross Margin | 28.6 % | 26.5 % | 2.1 pts | | GAAP Operating Margin | 11.3 % | 9.6 % | 1.7 pts | | Adjusted Operating Margin | 12.7 % | 11.1 % | 1.6 pts | - Transit segment sales for the second quarter were up 2.0% due to higher aftermarket sales[12] - GAAP and adjusted operating margins were up driven by higher gross margin, partially offset by operating expenses which grew at a higher rate than revenue[12] Backlog Information Wabtec's 12-month backlog increased by 1.6% year-over-year, providing strong near-term visibility. However, the total multi-year backlog saw a slight decrease of 1.6%, or 0.6% excluding foreign currency exchange impacts | Backlog Type | June 30, 2024 (in millions) | June 30, 2023 (in millions) | Change | | :--- | :--- | :--- | :--- | | 12-Month Backlog | $7,334 | $7,220 | 1.6 % | | Total Backlog | $22,075 | $22,431 | (1.6)% | - The Company's multi-year backlog continues to provide strong visibility[10] - At June 30, 2024, multi-year backlog was $356 million lower than the prior year period, and excluding foreign currency exchange, decreased $140 million, down 0.6%[10] Cash Flow and Liquidity Cash provided by operations significantly increased in Q2 2024, driven by higher net income and improved working capital. The company maintains strong liquidity and returned $235 million to shareholders through repurchases and dividends - Cash provided by operations was $235 million versus $115 million in the year-ago period, primarily due to higher net income and improved working capital[13] - At quarter-end, the Company had cash, cash equivalents and restricted cash of $595 million and total debt of $4.00 billion[13] - Total available liquidity was $2.09 billion, including cash and cash equivalents plus $1.50 billion available under current credit facilities[13] - During the quarter, the Company repurchased $200 million of Wabtec shares and paid $35 million in dividends[13] Outlook & Corporate Information This section outlines Wabtec's 2024 financial guidance, provides an overview of the corporation, and includes important non-GAAP and forward-looking statement disclosures 2024 Financial Guidance Wabtec raised and tightened its 2024 adjusted EPS guidance, reflecting confidence in future performance, while maintaining its revenue guidance. The company also expects strong operating cash flow conversion for the full year - Wabtec raised and tightened its 2024 adjusted EPS guidance to be in the range of $7.20 to $7.50, up 24.2% from 2023 at the midpoint[16] - Wabtec's revenue guidance range remains unchanged at $10.25 billion to $10.55 billion[16] - For full year 2024, Wabtec expects operating cash flow conversion of greater than 90 percent[16] About Wabtec Corporation Wabtec Corporation is a global leader in providing equipment, systems, digital solutions, and services for the freight and transit rail industries, with a vision for a zero-emission rail system - Wabtec Corporation is revolutionizing the way the world moves for future generations[15] - The company is a leading global provider of equipment, systems, digital solutions and value-added services for the freight and transit rail industries, as well as the mining, marine and industrial markets[15] - Wabtec has a vision to achieve a zero-emission rail system in the U.S. and worldwide[15] Non-GAAP Financial Information & Forward-Looking Statements The report includes non-GAAP financial measures, which are presented as supplemental information and should not replace GAAP results. It also contains forward-looking statements subject to various risks and uncertainties that could cause actual results to differ materially - Non-GAAP financial performance measures are useful supplemental measures for investors but are not presented in accordance with GAAP and should not be considered in isolation or as a substitute for GAAP measures[19] - Forward-looking statements concern future circumstances and results, based upon current plans, estimates and expectations that are subject to risks, uncertainties and assumptions[20] - Important factors that could cause actual results to differ materially include changes in general economic conditions, customer financial condition, acquisition costs, regulatory changes, and global market instability[20][21] Appendices - Financial Statements & Reconciliations This section provides detailed GAAP financial statements and reconciliations to adjusted non-GAAP measures for comprehensive financial analysis Condensed Consolidated Statements of Income (GAAP) This section provides the unaudited condensed consolidated statements of income for the three and six months ended June 30, 2024 and 2023, presented in accordance with GAAP | Metric | 3 Months Ended June 30, 2024 (in millions) | 3 Months Ended June 30, 2023 (in millions) | 6 Months Ended June 30, 2024 (in millions) | 6 Months Ended June 30, 2023 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $2,644 | $2,407 | $5,141 | $4,601 | | Gross profit | $874 | $723 | $1,689 | $1,388 | | Income from operations | $430 | $312 | $842 | $588 | | Net income attributable to Wabtec shareholders | $289 | $191 | $561 | $360 | | Diluted EPS | $1.64 | $1.06 | $3.17 | $2.00 | Condensed Consolidated Balance Sheets This section presents the unaudited condensed consolidated balance sheets as of June 30, 2024, and December 31, 2023 | Metric | June 30, 2024 (in millions) | December 31, 2023 (in millions) | | :--- | :--- | :--- | | Cash, cash equivalents and restricted cash | $595 | $620 | | Total current assets | $5,027 | $4,855 | | Total Assets | $18,876 | $18,988 | | Total Liabilities | $8,356 | $8,464 | | Total Equity | $10,520 | $10,524 | Condensed Consolidated Statements of Cash Flows This section provides the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2024, and 2023 | Metric | 6 Months Ended June 30, 2024 (in millions) | 6 Months Ended June 30, 2023 (in millions) | | :--- | :--- | :--- | | Net income | $568 | $366 | | Net cash provided by operating activities | $569 | $90 | | Net cash used for investing activities | $(57) | $(293) | | Net cash (used for) provided by financing activities | $(523) | $30 | | Cash, cash equivalents and restricted cash, end of period | $595 | $371 | Reconciliation of Reported to Adjusted Results (Consolidated) This appendix provides detailed reconciliations of GAAP reported results to non-GAAP adjusted results for consolidated financial performance, including adjustments for restructuring costs and non-cash amortization expense, for various periods | Metric | Reported Results (2Q 2024, in millions) | Adjusted Results (2Q 2024, in millions) | Reported Results (YTD 2024, in millions) | Adjusted Results (YTD 2024, in millions) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,644 | $2,644 | $5,141 | $5,141 | | Gross Profit | $874 | $880 | $1,689 | $1,701 | | Income from Operations | $430 | $510 | $842 | $1,005 | | Wabtec Net Income | $289 | $346 | $561 | $682 | | EPS | $1.64 | $1.96 | $3.17 | $3.85 | | Metric | Reported Results (2Q 2023, in millions) | Adjusted Results (2Q 2023, in millions) | Reported Results (YTD 2023, in millions) | Adjusted Results (YTD 2023, in millions) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $2,407 | $2,407 | $4,601 | $4,601 | | Gross Profit | $723 | $731 | $1,388 | $1,400 | | Income from Operations | $312 | $395 | $588 | $755 | | Wabtec Net Income | $191 | $254 | $360 | $485 | | EPS | $1.06 | $1.41 | $2.00 | $2.69 | | Metric | Reported Results (FY 2023, in millions) | Adjusted Results (FY 2023, in millions) | Reported Results (FY 2022, in millions) | Adjusted Results (FY 2022, in millions) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $9,677 | $9,677 | $8,362 | $8,362 | | Gross Profit | $2,944 | $2,982 | $2,540 | $2,583 | | Income from Operations | $1,266 | $1,643 | $1,011 | $1,354 | | Wabtec Net Income | $815 | $1,066 | $633 | $890 | | EPS | $4.53 | $5.92 | $3.46 | $4.86 | EBITDA Reconciliation This appendix provides reconciliations of reported income from operations to EBITDA and Adjusted EBITDA for consolidated results for Q2 2024, YTD 2024, Q2 2023, and YTD 2023 | Metric | 2Q 2024 (in millions) | YTD 2024 (in millions) | 2Q 2023 (in millions) | YTD 2023 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Reported Income from Operations | $430 | $842 | $312 | $588 | | EBITDA | $550 | $1,082 | $436 | $838 | | Adjusted EBITDA | $555 | $1,095 | $444 | $852 | Sales by Product Line This appendix details net sales breakdown by product line for both the Freight and Transit segments for the three and six months ended June 30, 2024, and 2023 | Segment/Product Line | 3 Months Ended June 30, 2024 (in millions) | 3 Months Ended June 30, 2023 (in millions) | 6 Months Ended June 30, 2024 (in millions) | 6 Months Ended June 30, 2023 (in millions) | | :--- | :--- | :--- | :--- | :--- | | Freight Segment | | | | | | Services | $829 | $810 | $1,658 | $1,517 | | Equipment | $570 | $418 | $1,096 | $822 | | Components | $322 | $274 | $615 | $532 | | Digital Intelligence | $199 | $195 | $375 | $382 | | Total Freight Segment | $1,920 | $1,697 | $3,744 | $3,253 | | Transit Segment | | | | | | Original Equipment Manufacturer | $310 | $334 | $620 | $623 | | Aftermarket | $414 | $376 | $777 | $725 | | Total Transit Segment | $724 | $710 | $1,397 | $1,348 | Reconciliation of Reported to Adjusted Results (By Segment) This appendix provides segment-level reconciliations of reported gross profit and income from operations to adjusted gross profit and adjusted income from operations for the Freight and Transit segments for the three and six months ended June 30, 2024, and 2023 | Segment/Metric | Reported (2Q 2024, in millions) | Adjusted (2Q 2024, in millions) | Reported (2Q 2023, in millions) | Adjusted (2Q 2023, in millions) | | :--- | :--- | :--- | :--- | :--- | | Freight Segment | | | | | | Gross Profit | $669 | $674 | $538 | $543 | | Income from Operations | $391 | $462 | $269 | $344 | | Operating Margin | 20.4% | 24.1% | 15.9% | 20.3% | | Transit Segment | | | | | | Gross Profit | $205 | $206 | $185 | $188 | | Income from Operations | $82 | $91 | $68 | $78 | | Operating Margin | 11.3% | 12.7% | 9.6% | 11.1% | Reconciliation of Changes in Net Sales (By Segment) This appendix reconciles the changes in net sales for the Freight and Transit segments, as well as consolidated, for the three and six months ended June 30, 2024, detailing contributions from acquisitions, foreign exchange, and organic growth | Factor | Freight (3 Months, in millions) | Transit (3 Months, in millions) | Consolidated (3 Months, in millions) | Freight (6 Months, in millions) | Transit (6 Months, in millions) | Consolidated (6 Months, in millions) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | 2023 Net Sales | $1,697 | $710 | $2,407 | $3,253 | $1,348 | $4,601 | | Acquisitions | $34 | — | $34 | $70 | — | $70 | | Foreign Exchange | $(8) | $(10) | $(18) | $(7) | $(6) | $(13) | | Organic | $197 | $24 | $221 | $428 | $55 | $483 | | 2024 Net Sales | $1,920 | $724 | $2,644 | $3,744 | $1,397 | $5,141 | | Change ($) | $223 | $14 | $237 | $491 | $49 | $540 | | Change (%) | 13.1% | 2.0% | 9.8% | 15.1% | 3.6% | 11.7% | Cash Conversion Calculation This appendix provides the calculation of operating cash flow conversion for Q2 2024, YTD 2024, Q2 2023, and YTD 2023, demonstrating how reported cash from operations relates to net income plus depreciation and amortization | Period | Reported Cash from Operations (in millions) | Net Income (in millions) | Depreciation & Amortization (in millions) | Cash Conversion | | :--- | :--- | :--- | :--- | :--- | | 2Q 2024 | $235 | $291 | $118 | 57% | | YTD 2024 | $569 | $568 | $241 | 70% | | 2Q 2023 | $115 | $193 | $123 | 36% | | YTD 2023 | $90 | $366 | $246 | 15% |