Wabtec Corp. “strengthened” its financial position in third-quarter 2021, growing its multi-year backlog, in spite of growing global supply chain disruptions and rising costs, the company reported on Oct. 27.
“Our team is taking aggressive actions to mitigate these significant challenges, as demonstrated by our ability to deliver $250 million of run-rate synergies a full year earlier than originally forecasted,” Wabtec President and CEO Rafael Santana said during the company’s earnings announcement. “Based on our strong year-to-date results, and in consideration of the volatile cost and supply chain environment, we are narrowing Wabtec’s full-year revenue and earnings per share guidance. We are confident we will continue to position the company for long-term profitable growth.”
Third-quarter 2021 earnings per diluted share were $0.69, up 3.0% compared with the year-earlier period, and adjusted earnings per diluted share were $1.14, up 20.0%.
Total sales came in at $1.91 billion, up 2.13% from third-quarter 2020’s $1.87 billion. The increase was “primarily driven by higher sales in Freight Services and Freight Components, along with the acquisition of Nordco in the second quarter of 2021 and favorable foreign currency exchange,” Wabtec said. During the quarter, the company said it estimates that “sales results were adversely impacted by 2% to 3% due to supply chain disruptions.”
Cash from operations was “strong” at $244 million vs. $230 million in the same period a year ago, Wabtec noted.
Income from operations came in at $217 million, up 5.0% vs. 2020. Adjusted income from operations was $325 million, up 10.6%, as a “result of improved mix and strong productivity, partially offset by $15 million to $20 million in escalating costs associated with metals, transportation and labor.”
At Sept. 30, 2021, the multi-year backlog was $21.84 billion, which was $314 million higher than at June 30, 2021, “due in most part from increased orders in Freight Services,” Wabtec reported. The company’s 12-month backlog was $5.71 billion at Sept. 30, 2021, vs. $5.82 billion at June 30, 2021.
Among Wabtec’s third-quarter 2021 highlights:
2021 Third-Quarter Freight Segment Results
• Sales of $1.30 billion grew 4.7% from the year-ago quarter. Wabtec said sales “benefited from higher demand for Services and increased Components sales, along with the acquisition of Nordco.” The growth, however, “was partially offset by lower deliveries of locomotives in North America and higher supply chain inputs.”
• Income from operations came in at $195 million, up 21.8% versus the prior year quarter. Adjusted income from operations was $266 million, up 13.7%, “primarily driven by favorable mix and operational efficiencies, partially offset by higher costs,” Wabtec reported.
2021 Third Quarter Transit Segment Results
• Sales of $612 million fell by 2.5% from the third-quarter 2020, “due primarily to supply chain issues and COVID-related disruptions,” Wabtec said.
• Income from operations was $44 million, down 31.5% from third-quarter 2020, which Wabtec attributed to “restructuring expenses incurred during the quarter.” Adjusted income from operations was $77 million, up 1.9%, “primarily driven by strong productivity gains, partially offset by higher costs,” the company said.
2021 Financial Guidance
• Wabtec said it “tightened” its 2021 sales guidance to a range of $7.90 billion to $8.05 billion; GAAP earnings per diluted share guidance to between $2.87 to $2.97; and adjusted earnings per diluted share to between $4.20 to $4.30.
• The company said it “expects higher commodity costs and shortages of component, chip and labor to create a more challenging sales and cost environment in the fourth quarter and into 2022.” Wabtec noted it is “working to mitigate these pressures through price escalation, surcharges and accelerated cost actions.”
• For full year 2021, Wabtec said it anticipates “strong cash flow generation with operating cash flow of about $1 billion.”
The Cowen Insight: ‘Results Solid But Affirm Our Near-Term Cautious View’
“Revenue was a slight miss, but operating income and EPS were just ahead of consensus,” Cowen and Company Transportation Equipment Analyst Matt Elkott reported. “The total backlog increased 1.5% from 2Q, while the 12-month backlog decreased 1.9%. Guidance was narrowed, with the midpoint unchanged. WAB [Wabtec] expects a more challenging sales and cost environment in 4Q. We were cautious into the print … and expect some pressure today.”
Among the key Cowen takeaways:
• “EPS of $1.14 compared with our and consensus estimates of $1.10 and $1.12, respectively. Operating income came in at $324.2MM, compared with our and the consensus estimates of $309MM and $324MM, respectively. Revenue was $1.91Bn, compared to our and consensus estimates $1.97Bn and $2.08Bn, respectively.
• “The total backlog was $21.84Bn ($21.52Bn at the end of June). The 12-month backlog was $5.71Bn ($5.82Bn at the end of June).
• “The company narrowed 2021 guidance, raising the low end and lowering the high end. The new guidance is $4.20-$4.30, with a $4.25 midpoint. Prior to this, WAB had raised guidance for two consecutive quarters this year. The July EPS guidance was $4.15-4.35, also with a $4.25 midpoint. WAB expects higher commodity costs and shortages of component, chip and labor to create a more challenging sales and cost environment in the fourth quarter and into 2022. The company noted that it is working to mitigate these pressures through price escalation, surcharges, and accelerated cost actions.
• “As expected in recent months, WAB achieved its $250MM of run-rate synergies one year earlier than its original forecast.
• “Transit segment sales of $612MM decreased by 2.5% year-over-year due primarily to supply chain issues and COVID-related disruptions. Adjusted income from operations was $77MM, up 1.9% year-over-year, primarily driven by strong productivity gains, partially offset by higher costs.
• “This once-again solid transit performance comes 17 months after we published our May 18, 2020 note: In Pandemic Fight, Public Transit Is Part of the Solution, Not the Problem.
• “Freight segment sales of $1.30Bn increased by 4.7% year-over-year. The segment benefited from higher demand for Services and increased Components sales, along with the acquisition of Nordco. This growth was partially offset by lower deliveries of locomotives in North America and higher supply chain inputs. Adjusted income from operations of $266MM, up 13.7% year-ver-year. The increase was primarily driven by favorable mix and operational efficiencies, partially offset by higher costs.”