Wabtec Corp. delivered “strong” second-quarter 2022 financial results, with year-over-year growth in total sales (up 1.8%, carried by the Freight segment) and backlog (up 7.9%), despite “rising costs, continued supply chain challenges and significant unfavorable foreign currency exchange,” the company reported Aug. 5.
For the three months ended June 30, 2022, Wabtec GAAP earnings per diluted share of $0.91 rose 37.9% from the prior-year period’s $0.66; adjusted, they were $1.23, up 16.0% from $1.06. This was “primarily due to higher sales and increased operating margins,” Wabtec said. “GAAP EPS further benefited from lower restructuring and transaction costs.”
Sales came in at $2.05 billion, growing 1.8% from the $2.01 billion posted during the same quarter last year. The company attributed this to “higher Freight segment sales, partially offset by lower Transit segment sales. On a constant currency basis, sales were up 5.6%.”
GAAP operating margin was 12.9%; adjusted, it was 16.7%, up 1.5 points. Both increased from last year “as a result of higher sales, increased pricing, improved mix and strong productivity, partially offset by escalating costs associated with metals, transportation and labor.” Wabtec reported.
At June 30, 2022, the multi-year backlog of $23.23 billion was up 7.9% (or $1.70 billion) from June 30, 2021, Wabtec said, “due primarily to increased orders for the Freight segment. Unfavorable foreign exchange adversely impacted the total backlog by $568 million.”
Freight Segment sales for second-quarter 2022 came in at $1.49 billion, up 11.5% from the prior-year period. Wabtec said this was driven by equipment, up 16.2% due to “increased international locomotives deliveries and growth from hirer mining sales”; components, up 4.5% due to “improving OE railcar build, railcars coming out of storage and growth in industrial end-markets”; digital electronics, up 1.2% due to “higher demand for on-board locomotive products and acquisitions, offset partially from ongoing chip shortage”; and services, up 14.3% due to “higher modernization sales and continued unparking of locomotives.”
Additionally, the company reported that both “GAAP and adjusted operating margin benefited from higher sales, favorable mix/price and operational efficiencies, partially offset by higher costs. GAAP operating margin also improved year-over-year as a result of lower restructuring and transaction costs.”
Transit segment sales for second-quarter 2022 came in at $558 million, down 17.5% from the prior-year period. The company said this was “primarily due to unfavorable foreign currency exchange and supply chain disruptions.” It added that “GAAP operating margin was up significantly as a result of lower restructuring and transaction costs, while adjusted operating margin was down modestly as a result of increased input costs and lower fixed cost absorption.”
Wabtec updated its 2022 financial guidance with sales to be in a range of $8.30 billion to $8.60 billion, and adjusted earnings per diluted share to be in a range of $4.70 to $5.00, vs. previous guidance of $4.65 to $5.05.
For full year 2022, Wabtec said it expects “strong cash flow generation with operating cash flow conversion of greater than 90%.”
“Looking forward, the Wabtec team is focused on delivering for our customers, executing against our value creation framework and is well-positioned to drive profitable growth,” summed up Wabtec President and CEO Rafael Santana. “The breadth and unique capability of the Wabtec products and technologies, combined with our installed base and multi-year backlog, provides us with increasing momentum in 2022 and beyond.”
The The Wabtec website provides more earnings details.
The Cowen Insight
“The [Wabtec] backlog saw strong year-over-year growth (up $1.7 billion, $2.27 billion on a constant currency basis),” Cowen and Company Transportation Equipment Analyst Matt Elkott reported. “The sequential quarter-over-quarter increase was $468 million and possibly does not reflect the recent Union Pacific modernization order, which is worth north of $1 billion, announced on July 27. Second quarter was a beat, and guidance was narrowed, with the mid-point unchanged.”
Key Cowen Takeaways:
• “Second-quarter 2022 adjusted EPS of $1.23 beat our and consensus estimates of $1.20 and $1.22, respectively. Adjusted operating income of $342 million beat our and consensus estimates of $327 million and $337 million, respectively.
• “Low-end and high-end of 2022 EPS guidance was updated with a new range of $4.70-$5.00 vs. prior guidance of $4.65-$5.05. Mid-point of $4.85 remains unchanged. Revenue guidance remains unchanged.
• “The company noted that sales increased compared to the year-ago quarter driven by higher Freight segment sales, partially offset by lower Transit segment sales due to currency headwinds and supply chain disruptions.
• “The backlog saw strong year-over-year growth (up $1.7 billion, $2.27 billion on a constant currency basis). The sequential quarter-over-quarter increase was $468 million and possibly does not reflect the recent Union Pacific modernization order, which is worth north of $1 billion, announced on July 27 (but if it does, the rest of the backlog would have declined sequentially ). Union Pacific announced its deal with Wabtec for 600 locomotive modernizations on July 27.”
In related developments, Wabtec this week celebrated 60 years of locomotive production in Brazil.