Wabtec 2Q21: ‘All-Around Beat, Backlog Grows’

“Our team delivered strong execution in the second quarter and strengthened our financial position, despite severe disruption in India stemming from the pandemic, continued challenges in our OE end-markets and inflationary pressures globally,” Wabtec’s President and CEO Rafael Santana said during a second-quarter 2021 earnings report on July 29.

Despite continued market challenges, Wabtec Corp. “strengthened” its financial position in second-quarter 2021, growing its 12-month backlog—“the highest since second-quarter 2019”—and posting a “year-to-date book-to-bill above 1.0,” the company reported.

Wabtec also raised its guidance for the second consecutive quarter.

Second-quarter 2021 earnings per diluted share were $0.66 and adjusted earnings per diluted share were $1.06, compared with the year-earlier period’s $0.46 and $0.87, respectively. Total sales came in at $2.0 billion, and cash from operations was “strong” at $223 million, the company reported.

At June 30, 2021, the 12-month backlog was $5.8 billion—just over the $5.7 billion reported at March 31, 2021, resulting from “increased orders for Freight Equipment, Components and Digital Electronics,” Wabtec reported. The company’s total multi-year backlog at June 30, 2021, was $21.5 billion vs. the $21.7 billion reported at March 31, 2021.

“Our team delivered strong execution in the second quarter and strengthened our financial position, despite severe disruption in India stemming from the pandemic, continued challenges in our OE end-markets and inflationary pressures globally,” Wabtec’s President and CEO Rafael Santana said. “As a result of this performance and the team’s disciplined execution, coupled with our solid balance sheet, strong cash flow, backlog and the outlook for the remainder of the year, we’re raising Wabtec’s full-year revenue and earnings per share guidance, and are confident we will continue to position the company for long-term profitable growth.”

Among Wabtec’s second-quarter 2021 highlights:

2021 Financial Guidance

• Wabtec said it updated its 2021 sales guidance to a range of $7.9 billion to $8.2 billion, GAAP earnings per diluted share guidance to between $2.87 to $3.07, and adjusted earnings per diluted share to between $4.15 to $4.35. It noted that “adjusted guidance excludes estimated expenses for restructuring, transaction and amortization expenses.”
• “With cost actions and synergies stemming from the Wabtec and GE Transportation merger on track, we expect to achieve a run rate savings of $250 million in 2021, as well as margin expansion through continued cost actions,” the company reported. “For full year 2021, Wabtec expects strong cash flow generation with operating cash flow conversion greater than 90%.”

2021 Second Quarter Consolidated Results

• Sales were $2.0 billion compared with $1.7 billion in second-quarter 2020. “Organic sales increased by $153 million, while acquisitions added sales of $38 million and favorable foreign currency exchange rates increased sales by $84 million versus the second quarter a year ago,” Wabtec reported. The organic increase “was primarily driven by higher sales in Transit, Freight Services and Components, offset partially by lower sales in Freight Equipment.”
• Income from operations came in at $203 million (10.1% of sales) and adjusted income from operations was $306 million (15.2% of sales). Adjusted income from operations improved 16.5% from last year “as result of higher sales in Freight and Transit, along with the realization of synergies and cost actions,” Wabtec said. Adjusted income from operations excluded pre-tax expenses of $103 million, of which $73 million is for non-cash amortization expense and $30 million is for restructuring and transaction costs, according to the company.
• Net interest expense fell 13% from last year to $45 million “due to lower debt levels,” Wabtec said. The effective tax rate for the quarter was 25.8%, while the adjusted effective tax rate was 25.3%.
• EBITDA was $338 million, and adjusted EBITDA was $368 million. Adjusted EBITDA excluded pre-tax expenses of $30 million for transaction and restructuring costs.

2021 Second Quarter Freight Segment Results

• Sales of $1.34 billion grew 11% from the year-ago quarter. Wabtec said the increase was “due to higher organic sales of $73 million, $38 million from the acquisition of Nordco, and $21 million from favorable foreign currency exchange rates.” Additionally, organic sales “benefited from higher demand of locomotive and railcar components and services as result of higher modernizations, lower equipment parking and higher utilization,” according to the company. “This growth was offset by on-going disruption due to the COVID-19 pandemic and lower deliveries of locomotives in North America.”
• Income from operations came in at $173 million (13.0% of segment sales), and adjusted income from operations was $247 million (18.5% of segment sales). Adjusted income from operations rose 7.8% from the year-ago quarter “primarily driven by higher segment sales, realization of synergies and lower operating costs offset somewhat by lower absorption of fixed costs due to decreased locomotive deliveries and higher input costs,” Wabtec said.

2021 Second Quarter Transit Segment Results

• Sales of $676 million grew 27% from second-quarter 2020. Organic sales increased by $81 million, while favorable foreign currency exchange rates increased sales by $63 million, according to Wabtec. “Organic transit segment sales increased from higher original equipment (OE) and aftermarket sales driven by recovery from the COVID-19 pandemic and increased global infrastructure investment,” it noted.
• Income from operations was $45 million (6.7% of segment sales), and adjusted income from operations was $73 million (10.8% of segment sales). Adjusted income from operations rose from the prior-year period by 42.7% “primarily driven by lessening disruption caused by the COVID-19 pandemic partially offset by a warranty adjustment in the second quarter 2021 and higher mix of OE sales,” Wabtec reported.

The Wabtec website provides more details.

The Cowen Insight

“WAB [Wabtec] delivered a strong quarter, beating our and consensus estimates top to bottom,” Cowen and Company Transportation Equipment Analyst Matt Elkott reported. “The company raised guidance for the second consecutive quarter. While the total backlog was down very slightly (less than one percentage point), the 12-month backlog grew 2% from March 31.”

Among the key takeaways:

• “EPS of $1.06 was 13% above our estimate of $0.93 and 10% above consensus of $0.96. Operating income came in at $306MM, compared with our and the consensus estimate of $276MM. Revenue was $2.0Bn, compared woth consensus of $1.85Bn and our $1.83Bn forecast.

• “The total backlog of $21.52Bn was down slightly (less than one percentage point) from $21.67Bn at the end of March. But the 12-month backlog increased 2% to $5.82Bn, from $5.70Bn.

• “WAB raised guidance for the second consecutive quarter. The new EPS guidance of $4.15-4.35 compares with the prior guidance $4.05-$4.30. The new guidance midpoint of $4.25 is above consensus of $4.19 but below our estimate of $4.40.

• “Transit sales of $676MM increased by 27% y/y. The company noted that organic sales increased by $81MM, while favorable foreign currency exchange rates increased sales by $63MM. WAB also indicated that organic transit segment sales increased from higher OE and aftermarket sales driven by recovery from the COVID-19 pandemic and increased global infrastructure investment.

• “This once-again solid transit performance comes 14 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 $1.34Bn increased by 11% y/y. The company noted that the increase was due to higher organic sales of $73MM, $38MM from the acquisition of Nordco and $21MM from favorable foreign currency exchange rates. WAB indicated that organic freight segment sales benefited from higher demand of locomotive and railcar components and services as result of higher modernizations, lower equipment parking and higher utilization. This growth was offset by ongoing disruption due to the COVID-19 pandemic and lower deliveries of locomotives in North America.”