Wabtec Reports Operating Results (10-Q)
Wabtec Corporation is one of North America\'s largest providers of value-added technology-based products and services for the rail industry. Through its subsidiaries the company manufactures a full range of products for locomotives freight cars and passenger transit vehicles. The company also builds new locomotives up to 4000 horsepower and providesaftermarket services including locomotive and freight car fleet maintenance. (PRESS RELEASE) Wabtec has a market cap of $1.65 billion; its shares were traded at around $34.46 with a P/E ratio of 13.5 and P/S ratio of 1. The dividend yield of Wabtec stocks is 0.1%. Wabtec had an annual average earning growth of 33.8% over the past 5 years. Highlight of Business Operations: Since 2006, Wabtec has downsized its Canadian operations by moving certain products to lower-cost facilities and outsourcing. In the Freight segment, Wabtec recorded no charges for the three and six months ended June 30, 2009. Wabtec recorded charges of $3.1 million for the three and six months ended June 30, 2008. Total expenses for restructuring and other expenses recorded since 2006 have been $16.5 million, comprised of the $5.6 million for employee severance costs for approximately 400 salaried and hourly employees; $5.5 million of pension and postretirement benefit curtailment for those employees; $4.8 million related to asset impairments for structures, machinery, and equipment; and $0.6 million for goodwill impairment. The goodwill impairment was recorded as amortization expense and most of the other charges were recorded in cost of sales. Severance costs are contractual liabilities and payment is dependent on the waiver by or expiration of certain seniority rights of those employees. As of June 30, 2009, $4.0 million of this amount had been paid.
Freight Group sales decreased by $63.5 million or 31.8% primarily due to lower sales of $39.1 million for electronics and specialty products, $30.7 million for brake products, $10.0 million for remanufacturing, overhaul and manufacturing of locomotives and $6.2 million for other products. Offsetting those reductions was an increase in sales of $25.8 million from acquisitions. For the Freight Group, net sales were reduced by $3.3 million due to unfavorable effects of foreign exchange on sales mentioned above.
Freight Group sales decreased by $75.4 million or 19.3% primarily due to lower sales of $60.0 million for electronics and specialty products, $54.4 million for brake products and $10.1 million for remanufacturing, overhaul and manufacturing of locomotives. Offsetting those reductions was an increase in sales of $60.0 million from acquisitions. For the Freight Group, net sales were reduced by $8.6 million due to unfavorable effects of foreign exchange on sales mentioned above.
Operating activities Cash provided by operations in the first six months of 2009 was $38.0 million as compared to $30.2 million for the same period of 2008. This $7.8 million increase in cash provided by operations primarily resulted from a decrease in working capital. The accounts receivable decrease resulted in an $86.1 million improvement, which was due to decreased sales. The inventory decrease resulted in a $37.3 million improvement, which was due to a reduction of inventory on hand. Accounts payables used cash of $53.1 million due to a reduction in purchasing. Accrued liabilities and customer deposits used cash of $54.5 million primarily due to a reduction in customer deposits. Other assets and liabilities, including accrued income taxes, used cash of $2.6 million.
Investing activities Cash used for investing activities in the first six months of 2009 was $9.8 million as compared to $7.8 million for the same period of 2008. Capital expenditures were $8.7 million and $8.3 million in the first six months of 2009 and 2008, respectively. During the first six months of 2009 the Company paid $4.7 million as part of the working capital settlement for the Poli acquisition. During the first six months of 2009 the Company sold a facility for net cash proceeds of $3.6 million to an unrelated third party. While certain portions of the building are being leased back, this transaction resulted in a gain of $2.1 million and deferred gain of $0.6 million. The deferred gain will be recognized over five years.
Financing activities In the first six months of 2009, cash used by financing activities was $56.0 million, which included $92.0 million of debt repayments and $72.0 million in proceeds from debt on the revolving credit facility, $17.7 million of debt repayments on the term loan and other debt, $1.0 million of dividend payments and $19.7 million for the repurchase of 669,700 shares of stock. In the first six months of 2008, cash used for financing activities was $22.8 million, which included $2.9 million of proceeds from the exercise of stock options and other benefit plans, offset by $1.0 million of dividend payments and $24.7 million for the repurchase of 718,100 shares of stock.
Read the The complete ReportWAB is in the portfolios of John Keeley of Keeley Fund Management, Ron Baron of Baron Funds.