Westinghouse Air Brake Technologies(WAB) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2025, the company reported sales of $3 billion, a 15% increase year-over-year, and adjusted EPS rose by 25% compared to the previous year [7][19] - For the full year 2025, the company achieved a top-line growth of 7.5% and adjusted EPS growth of nearly 19% [4][29] - The 12-month backlog reached $8.2 billion, up 7% from the prior year, while the multi-year backlog surpassed $27 billion, up 23% [8][29] Business Line Data and Key Metrics Changes - Equipment sales in Q4 were up 33.5% year-over-year, while services sales decreased by 5% due to timing of modernization deliveries [19][20] - Digital intelligence sales surged by 74.4% from last year, driven by acquisitions, although excluding acquisitions, digital sales were down 1% [21] - The freight segment saw sales increase by 18.3%, with adjusted operating income up 35.1% year-over-year [24] Market Data and Key Metrics Changes - In North America, carload traffic was flat, leading to fewer active locomotives, but those in service operated at higher intensity [8] - Internationally, carloads grew robustly in markets like Latin America, Africa, India, and Asia, supported by infrastructure investments [9] - The North American railcar build demand was down to approximately 31,000 cars for 2025, with an expected decline to 24,000 cars in 2026 [9] Company Strategy and Development Direction - The company is focused on driving operational efficiencies through acquisitions and integration initiatives, aiming for mid- to high-teens adjusted EPS growth in 2026 [5][30] - The company plans to launch the EVO Modernization program in 2026, targeting the aging fleet in North America [15][16] - The company is committed to maximizing shareholder value through disciplined capital allocation, including a 24% increase in dividends and a $1.2 billion share buyback authorization [6][26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strong backlog and pipeline, indicating visibility for profitable growth in 2026 [30][31] - The company anticipates continued strong cash conversion performance, averaging over 110% in the past two years [31] - Management acknowledged challenges from tariffs but emphasized proactive measures to mitigate their impact [89] Other Important Information - The company achieved a cash flow from operations of $992 million in Q4, resulting in a total of $1.76 billion for the year [25][26] - The company has made significant progress in integration initiatives, achieving $103 million in run rate savings from Integration 2.0 [27][28] Q&A Session Summary Question: Recent orders and pipeline opportunities - Management confirmed a strong pipeline of opportunities, particularly in international markets, and emphasized customer commitment to fleet modernization [37][39] Question: Components business and offsets for railcar delivery declines - Management noted that all businesses are expected to drive profitable growth, with specific investments in the heat exchanger business providing offsets [40][42] Question: Cash conversion and guidance rationale - Management highlighted strong cash conversion performance and the importance of cash in their operations, with a focus on maintaining above 90% long-term guidance [44][46] Question: Impact of backlog on visibility - Management indicated that the 12-month backlog provides consistent coverage for 2026, with stronger visibility for 2027 and beyond [69][70] Question: Tariff impacts and mitigation strategies - Management discussed the growing financial impact of tariffs and outlined a four-pronged approach to mitigate costs [89][90]