Westinghouse Air Brake Technologies(WAB) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sales in the third quarter were $2.9 billion, an increase of 8% compared to the prior year [4] - Adjusted EPS rose by 16%, driven by increased sales and margin expansion [5] - Total cash flow from operations for the quarter was $367 million [5] - The twelve-month backlog was $8.3 billion, representing an increase of 8.4% [5] - GAAP operating income was $491 million, with an adjusted operating margin of 21%, up 1.3 percentage points from the prior year [16][23] Business Line Data and Key Metrics Changes - Equipment sales increased by 32% year-over-year, driven by higher new locomotive deliveries [19] - Services revenue decreased by 11.6% due to planned lower modernization deliveries [18] - Digital Intelligence sales grew by 45.6%, primarily due to the Inspection Technologies acquisition [20] - Transit segment sales were up 8.2%, with adjusted operating income as a percentage of revenue increasing to 15.5% [26] Market Data and Key Metrics Changes - North America traffic was up 1.4%, but active locomotive fleets were slightly down compared to last year [6] - Railcar builds in North America were revised down to approximately 28,000 cars, a 34% reduction from the previous year [7] - Internationally, strong activity was noted in markets such as Asia, India, Brazil, and CIS, with significant investments in infrastructure [7] Company Strategy and Development Direction - The company is focused on enhancing competitiveness and driving innovation through integration initiatives and cost efficiencies [12] - The strategy includes portfolio optimization and accretive bolt-on acquisitions to strengthen the business [13] - The company aims for leadership positions in segments with clear differentiation for long-term success [13] Management's Comments on Operating Environment and Future Outlook - Management expressed caution in navigating a volatile economic landscape while remaining optimistic about the strong pipeline of opportunities [6][31] - The company raised its full-year adjusted EPS guidance to between $8.85 to $9.05, reflecting confidence in future growth [32] - Management highlighted the importance of product innovation and disciplined cost management in driving ongoing success [31] Other Important Information - The company secured a historic $4.2 billion order with Kazakhstan's National Railway, the largest single rail order in history [8] - The integration of Inspection Technologies is progressing positively, with expectations for cross-selling opportunities [94] Q&A Session Summary Question: Concerns about organic growth being in low single digits - Management noted that the twelve-month backlog growth has outpaced last year, indicating a stronger coverage for future growth [37] Question: Expectations for services growth in 2026 - Core services are expected to grow in the 5% to 7% range, driven by fleet age and innovation [41] Question: Thoughts on backlog and upcoming acquisitions - Management indicated stronger coverage for 2026 and expects acquisitions to be accretive to margins and EPS [48] Question: Impact of tariffs on cash flow and P&L - Tariffs are impacting cash flow, with a lag in their effect on the P&L expected to be two to four quarters [57] Question: Update on regulatory environment and advanced technologies - Management sees positive momentum in regulatory support for advanced technologies, which will contribute to digital business growth [92] Question: Details on the Kazakhstan contract - The contract includes 300 locomotives over ten years, along with service agreements for existing locomotives [87]