Wabtec completes GE merger, posts strong financials

Written by Andrew Corselli, Managing Editor
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GE Transportation road unit in Wabtec livery. Wabtec illustration.

Wabtec Corporation has completed its merger with GE Transportation. The combined company, which is expected to boast revenues greater than $8 billion in 2019, has a compelling growth profile—especially as market conditions improve in its industries. Wabtec announced the transaction completion at the same time as its 4Q18 and full-year 2018 financials.

With the transaction, Wabtec said it “has established itself as a Fortune 500 global transportation and logistics leader by combining its broad range of freight, transit and electronics products with the former business unit of GE’s equipment, services and digital solutions in the locomotive, mining, marine, stationary power and drilling industries.” Furthermore, Wabtec will now be included in the S&P 500 Index.

“We are very excited to complete the merger of our two companies,” Raymond T. Betler, Wabtec President and CEO, said in a press release. “This is a once-in-a-lifetime opportunity to bring together nearly four centuries of collective experience to create a technologically advanced leader with a highly complementary set of capabilities to move and improve the world …Today, we are a stronger, more diversified company ready to better serve customers across the globe and capitalize on new growth opportunities at an attractive point in the cycle.”

The combination of portfolios is expected to create a leading equipment, aftermarket services and digital solutions provider across the transportation sector; improve utilization and accelerate path to automation; deliver improved customer outcomes through expanded monitoring and services; and drive increased value for shareholders.

“Our shared focus on innovation, collaboration and continuous improvement will enable us to unlock new value for our shareholders, customers, employees and the industry,” Rafael Santana, who served as President and CEO of GE Transportation and is now President and CEO of Wabtec’s Freight segment, said in a press release. “Together we are well-positioned to take advantage of the opportunities created by industry trends toward efficiency and improved performance and, with the merger complete, we are focused on leveraging our complementary portfolios to spur growth.”

In addition, Wabtec reported results for its 2018 fourth quarter and issued 2019 financial guidelines. In 4Q18, Wabtec had cash operations of $277 million (highest quarter of the year), sales of $1.1 billion (4% increase) and GAAP earnings per diluted share of $0.36. Sans expenses for GE Transportation merger, restructuring actions, litigation and pension settlements, and the effects of the tax law changes in India, its adjusted earnings per diluted share was $0.97.

For the 2018 full year, Wabtec had cash operations of $315 million, sales of $4.4 billion (12% increase year-over-year) and GAAP earnings per diluted share of $3.05. Excluding the aforementioned items and the U.S. tax law changes, its adjusted earnings per diluted share was $3.81.

“We are pleased that we finished the year as we expected and generated very strong cash flow from operations in the fourth quarter,” Betler added. “The rebound in the freight cycle continued to drive revenue growth in our Freight Segment, and we saw strong sales growth in our Transit Segment. Heading into 2019, we expect to see revenue growth in both segments, as we continue to focus on driving margin expansion and cash generation.”

The company’s GAAP financial guidance for 2019 is: sales of about $8.4 billion, income from operations of about $900 million, earnings per diluted share of between $3 and $3.20, and guidance for EBITDA is about $1.3 billion. Its adjusted financial guidance for 2019 is: sales of about $8.4 billion, income from operations of about $1.2 billion, earning per diluted share of between $4 and $4.20, and EBITDA of about $1.6 billion.

The adjusted guidance excludes estimated expenses for the merger for one-time transaction costs, one-time purchase price accounting charges and non-cash accounting policy harmonization. Excluding these expenses, Wabtec’s adjusted operating margin target for the full year is about 14% and its effective tax rate for the full year is expected to be about 24%. Also, the adjusted cash flow from operations is expected to exceed adjusted net income for the year.

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