Wabtec 2Q19: Lower Sales Guidance, Higher GAAP Cash

Written by Andrew Corselli
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In reporting its 2Q19 financials, Wabtec Corp. lowered its sales guidance but raised its 2019 GAAP cash from operations guidance to about $900 million.

Wabtec expects full-year guidance for sales of about $8.3 billion—compared to an $8.4 billion estimate made in 1Q19—and an adjusted earnings per diluted share between $4.10 and $4.20. It reported earnings per diluted share of $0.54 and adjusted earnings per diluted share of $1.06 in 2Q19. The company generated GAAP cash from operations of $413 million for the quarter.

2Q19 Consolidated Results
Wabtec noted its GAAP sales were $2.24 billion; adjusted sales were $2.25 billion including accounting policy harmonization. The yearly increase resulted mainly from sales from GE. Its income from operations was $201 million and adjusted income from operations was $320 million (14.2% of adjusted sales). Adjusted income from operations excluded pre-tax expenses of $119 million related to the GE Transportation merger.

Net interest expense was $59 million, with adjusted net interest expense of $55 million. And income tax expense was $41 million for an effective tax rate of 28.7%. Excluding the net tax benefit from transaction costs related to the GE merger, adjusted income tax expense was $65 million for an adjusted effective tax rate of about 24.5%.

Earnings per diluted share were $0.54 and adjusted earnings per diluted share were $1.06. Adjusted earnings per diluted share excluded after-tax expenses of $0.52 per diluted share related to the GE merger.

“Our second quarter results demonstrate a solid operating performance, with strong cash from operations and margin improvement, enabling significant debt reduction,” Rafael Santana, Wabtec President and CEO, said. “In light of conditions in the North American freight market, we have accelerated our cost reductions and synergy initiatives. We are already beginning to reap strategic benefits from the merger of Wabtec and GE Transportation, completed just a few months ago.

“We are confident the company’s diverse business model, focus on aftermarket and services, technology capabilities and global presence will generate long-term growth. We believe our efforts to improve costs, including a synergy target of $250 million by year four following the merger, will drive significant, long-term value for our customers and shareholders.”

Cash Flow Summary
Wabtec said it generated cash from operations of $413 million for 2Q19 compared to cash from operations of $44 million year-over-year, with the increase resulting from improved working capital performance and increased customer deposits. In 2Q19, cash from operations was reduced by about $20 million as a result of costs related to the GE merger.

At June 30, Wabtec had cash and cash equivalents of $461 million and debt of $4.63 billion. The total debt was about $330 million lower than at March 31 due to repayment of debt during the quarter.

Update on GE Stock Ownership
Wabtec said it issued 47.8 million shares to GE in the GE Transportation merger, 25.3 million of which GE sold in the market in 2Q19. GE has informed Wabtec that it is considering liquidating the balance of its stock holdings in the current quarter, subject to market conditions. While there can be no assurance that this will happen or the timing, Wabtec believes it would be beneficial to the company.

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