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, driven by both freight and transit segments [4][11] - Adjusted EPS rose by 16%, attributed to increased sales and margin expansion [4][13] - Total cash flow from operations for the quarter was $367 million, reflecting a decrease year-over-year due to higher tariffs and increased working capital [20][21] - The 12-month backlog reached $8.3 billion, up 8.4%, while the multi-year backlog achieved an all-time high [4][11] Business Line Data and Key Metrics Changes - Equipment sales increased by 32% year-over-year, driven by higher new locomotive deliveries [14][15] - Digital intelligence sales surged by 45.6%, primarily due to the acquisition of Inspection Technologies [15][16] - Services revenue declined by 11.6% from last year's third quarter, a planned decrease due to timing of modernization deliveries [14][15] Market Data and Key Metrics Changes - North American traffic was up 1.4% in the quarter, although Wabtec's active locomotive fleets were slightly down compared to last year's third quarter [6][7] - The forecast for North American railcar builds was reduced to approximately 28,000 cars, representing 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][8] Company Strategy and Development Direction - The company is focused on enhancing competitiveness and driving innovation through integration initiatives and portfolio optimization [10][11] - Wabtec aims to target leadership positions in segments where it offers clear differentiation, positioning itself for long-term success [10][11] - The company is raising its full-year adjusted EPS guidance to between $8.85 to $9.05, reflecting confidence in its growth trajectory [22] Management's Comments on Operating Environment and Future Outlook - Management expressed caution in navigating a volatile economic landscape while remaining optimistic about the underlying momentum in business [5][6] - The pipeline of opportunities remains strong, with expectations for further growth moving into the fourth quarter and beyond [22][29] - Management highlighted the importance of fleet renewal and modernization as key drivers for future growth in North America [68] Other Important Information - The company secured a historic $4.2 billion order with Kazakhstan's National Railway, marking the largest single rail order in history [8][71] - The integration of Inspection Technologies is progressing positively, with early signs of cross-selling momentum [77] Q&A Session Summary Question: Concerns about organic growth being in low single digits - Management noted that the 12-month backlog growth has outpaced last year, indicating stronger coverage for future growth [28] Question: Expectations for services growth in 2026 - Management expects core services to grow in the 5% to 7% range, driven by fleet age and innovation [31] Question: Thoughts on backlog and upcoming acquisitions - Management indicated that the backlog is stronger for 2026 than it was a year ago, with acquisitions expected to provide inorganic growth [36][38] Question: Impact of tariffs on cash flow and inventory - Management explained that tariffs impact cash first and will flow through inventory over the next two to four quarters [47] Question: Trends in pricing and gross margin growth - Management acknowledged that pricing is a factor in gross margin growth, though it is not the core driver [82]