- Sales: $2.6 billion, up nearly 10% versus prior year.
- Adjusted EPS: Up 39% from the year-ago quarter.
- Total Cash Flow from Operations: $235 million.
- 12-Month Backlog: $7.3 billion.
- Multiyear Backlog: $22 billion.
- North American Carloads: Up 2.1% in the quarter.
- Sales Growth in Freight Segment: Driven by equipment and components.
- GAAP Operating Income: $430 million.
- Adjusted Operating Margin: 19.3%, up 2.9 percentage points versus prior year.
- GAAP Earnings per Diluted Share: $1.64, up 54.7% versus the second quarter a year ago.
- Adjusted Earnings per Diluted Share: $1.96, up 39% versus prior year.
- Equipment Sales: Up 36.4% from last year's second quarter.
- Component Sales: Up 17.5% versus last year.
- Digital Intelligence Sales: Up 2.1% from last year.
- Services Sales: Up 2.3%.
- Transit Segment Sales: Up 2.0%.
- GAAP Gross Margin: 33.1%, up 2.9 percentage points from last year.
- GAAP Operating Margin: 16.3%, up 3.4 percentage points versus last year.
- Freight Segment Sales: Up 13.1% during the quarter.
- Freight Segment GAAP Operating Income: $391 million, operating margin of 20.4%, up 4.5 percentage points versus last year.
- Freight Segment Adjusted Operating Income: $462 million, up 34.3% versus prior year.
- Freight Segment 12-Month Backlog: $5.50 billion, up 4.0% from the same period a year ago.
- Freight Segment Multiyear Backlog: $17.93 billion, down 2.0% from the prior year.
- Transit Segment GAAP Operating Income: $82 million.
- Transit Segment Adjusted Operating Income: $91 million, adjusted operating income as a percent of revenue was 12.7%, up 1.6 percentage points from last year.
- Transit Segment 12-Month Backlog: $1.83 billion, down 5.0% versus a year ago.
- Liquidity Position: $2.09 billion.
- Net Debt Leverage Ratio: 1.6 times at the end of the second quarter.
- Share Repurchase: $200 million of shares purchased during the quarter.
- Dividends Paid: $35 million during the quarter.
- 2024 Adjusted EPS Guidance: Expected to be in the range of $7.20 to $7.50, up 24.2% at the midpoint.
Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Westinghouse Air Brake Technologies Corp (WAB, Financial) reported a 9.8% increase in sales for Q2 2024, driven by strong performance in the freight segment.
- Adjusted EPS was up 39% from the year-ago quarter, reflecting robust earnings growth.
- The company secured a significant $600 million multiyear order for new Tier 4 locomotives in North America.
- Internationally, WAB won a 10-year agreement in Brazil for servicing Vale's locomotive fleet and a strategic order for 15 modernizations for Pakistan Railway.
- The transit segment announced the commercial readiness of its green friction braking solution, which significantly reduces emissions and improves air quality.
Negative Points
- Despite the overall revenue growth, the North American railcar builds forecast for 2024 was revised down from 45,000 to 38,000 cars.
- The industry's active locomotive fleet in North America was down compared to last year's second quarter.
- Foreign currency exchange was a headwind to revenue, gross profit, and operating margin in the quarter.
- The multiyear backlog for the freight segment was down 2% from the prior year.
- The transit segment's 12-month backlog was down 5% versus a year ago, reflecting a more selective approach to order intake.
Q & A Highlights
Q: Can you provide details on the $600 million Tier 4 locomotive order?
A: The order is included in the Q2 backlog and will be executed between 2025 and 2026. It reflects strong customer demand for productivity, fuel efficiency, and emissions reduction.
Q: What factors are influencing the revenue and margin outlook for the second half of the year?
A: The first half benefited from favorable mix and fixed cost absorption, which will not be as strong in the second half. We expect revenue and earnings to grow year-over-year in each quarter, but at a more tempered pace.
Q: Can you elaborate on the international modernization orders, specifically the 15 orders from Pakistan Railway?
A: We see a strong pipeline of international opportunities, including modernization projects. These projects involve upgrading engines to improve fuel efficiency, reliability, and availability. We have facilities in various countries to support these efforts.
Q: How are North American rail customers operating amid regulatory uncertainty?
A: Customer investment decisions are driven by value and returns from modernizing fleets. We continue to see mixed demand in North America, with some customers investing in new locomotives and others focusing on modernizations.
Q: What is the outlook for the digital segment, particularly in North America versus international markets?
A: North America remains soft due to discretionary OpEx constraints, but international demand is strong, driven by products like PTC and digital mining technologies. We expect continued growth in international markets.
Q: Can you discuss the sustainability of market share gains in the North American railcar market?
A: We gained market share due to availability during supply disruptions and have retained much of that share. Our focus on value and full-service support has helped maintain these gains.
Q: What are the key drivers behind the strong margin performance in the freight segment?
A: Favorable mix in equipment, mining, and components, along with strong operational execution and productivity improvements, contributed to the margin performance. However, these factors will be less favorable in the second half.
Q: How do you view the long-term growth potential for the digital segment?
A: The digital segment represents a multibillion-dollar opportunity, particularly in international markets where penetration is lower. We expect continued growth driven by products like PTC and automation technologies.
Q: What is the outlook for the transit segment, and how are you managing order intake?
A: We expect 3-5% growth in the transit segment, with a focus on selective order intake to improve long-term profitability. This approach may cause variations in backlog numbers, but it supports margin improvement.
Q: How do you plan to allocate capital given the strong cash flow generation?
A: We will continue to favor M&A opportunities and share buybacks. Our robust cash flow allows us to be opportunistic in driving higher ROIC and profitable growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
