For Wabtec, “a year of transition”

Written by William C. Vantuono, Editor-in-Chief
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Wabtec Corp. President and CEO Ray Betler. Wabtec photo.

Wabtec Corp., in reporting results for its 2017 fourth quarter and full year, and issuing 2018 financial guidance, referred to 2017 as “a year of transition” in which the company “made excellent progress on the Faiveley Transport integration and continued to invest in worldwide growth opportunities,” according to President and CEO Ray Betler.

“We are confident the company is positioned for improved performance in 2018,” Betler said “We have a record backlog; we’re seeing improvements in the freight aftermarket; and our Wabtec Excellence Program provides the fuel to increase margins over time. We are committed to achieving our 2018 plan and excited about Wabtec’s long-term growth prospects.”

In the fourth quarter of 2017, Wabtec had sales of $1.08 billion and GAAP earnings per diluted share of 51 cents. Excluding certain items related to the integration of Faiveley Transport, the company had adjusted earnings per diluted share of 90 cents.

For the full year of 2017, Wabtec had sales of $3.88 billion and GAAP earnings per diluted share of $2.72. Excluding certain items related to the integration of Faiveley Transport, the company had adjusted earnings per diluted share of $3.43.

In 2018, Wabtec expects sales to be about $4.1 billion and adjusted earnings per diluted share to be about $3.80, excluding expected restructuring and integration charges. The company’s operating margin target for the full year is about 13.5%, and its effective tax rate for the full year is expected to be about 23.5%. For the year, Wabtec expects cash flow from operations to exceed net income, and adjusted earnings per diluted share in the first quarter of 2018 to be similar to its adjusted earnings per diluted share in the fourth quarter of 2017.

2017 Fourth Quarter Consolidated Results

Sales were $1.08 billion, a 42% increase compared to the year-ago quarter. The increase was driven by sales from acquisitions of $219 million, organic sales growth of $80 million and a benefit from changes in foreign currency exchange rates of $17 million. Income from operations was $91 million, including expenses of $24 million for contract adjustments to reflect higher-than-expected costs to complete certain contracts and $18 million for restructuring and integration actions. Excluding these expenses, the company’s operating margin was 12.4%, lower than expected mainly due to a negative product mix and higher project costs in the U.K.

Net interest expense was $18 million, and other income was $1.2 million mainly due to net, non-cash foreign currency exchange rate gains. Income tax expense was $25 million for an effective tax rate of 33.5%.

In the quarter, Wabtec recorded the following impact from the U.S. tax reform bill that was enacted in December 2017: a $55 million expense for the repatriation tax, and a $47 million benefit from a reduction in deferred tax liabilities; this resulted in a net expense from U.S. tax reform in the fourth quarter of $8 million. Excluding the impact of U.S. tax reform, the company’s effective tax rate in the fourth quarter was 22.9 %.

Earnings per diluted share were 51 cents including the following: Expenses of 18 cents per diluted share for contract adjustments, expenses of 13 cents per diluted share for restructuring and integration actions, and expenses of 8 cents per diluted share for the impact of U.S. tax reform.

Excluding these items, adjusted earnings per diluted share were 90 cents.

2017 Fourth Quarter Segment Results

In the Transit segment, sales increased 70% and income from operations increased 41% compared to the year-ago fourth quarter. The sales increase was driven by sales from acquisitions of $192 million, organic sales growth of $88 million and a benefit from changes in foreign currency exchange rates of $13 million. Income from operations included expenses for contract adjustments and restructuring and integration of $35 million. Excluding these expenses, adjusted income from operations increased 191%, and the segment’s adjusted operating margin was 9.5%.

In the Freight segment, sales increased 7%, and income from operations increased 1.0% percent. The sales increase was driven by sales from acquisitions of $27 million and a benefit from changes in foreign currency exchange rates of $4 million, which more than offset an organic sales decrease of $9 million. Income from operations included expenses for contract adjustments and restructuring and integration of $6 million. Excluding these expenses, adjusted income from operations increased 11%,and the segment’s adjusted operating margin was 20.5%.

2017 Fourth Quarter Cash From Operations, Backlog and Other Information

Cash from operations was $162 million for the fourth quarter, the highest quarter of the year, due in part to a reduction in working capital. At Dec. 31, Wabtec had cash of $233 million and debt of $1.87 billion. During the quarter, the company’s total, multi-year backlog increased 2%, compared to the third quarter, to a record $4.6 billion. The company’s 12-month backlog, a subset of the total, increased 3% compared to the third quarter, to a record $2.31 billion. New orders included train control contracts worth about $140 million to provide equipment, project management and aftermarket services for various customers.

In the fourth quarter, Wabtec acquired Melett, a manufacturer of turbochargers; AM General, a manufacturer of fire protection and extinguishing systems; and Axiom Rail Components, a supplier of bogies and adaptable suspension systems. Combined, the companies have annual sales of about $85 million.

2017 Full Year Consolidated Results

Sales were $3.88 billion, a 32% increase compared to 2016. The sales increase was driven by sales from acquisitions of $1.18 billion, which more than offset a decrease in organic sales of $227 million and a decrease of $5 million from changes in foreign currency exchange rates. Income from operations was $422 million, including expenses of $44 million for contract adjustments and $41 million for restructuring and integration actions. Excluding these expenses, the company’s operating margin was 13.1%.

Net interest expense was $69 million, and other expense was $1 million, mainly due to net, non-cash foreign currency exchange rate losses. Income tax expense was $90 million, for an effective tax rate of 25.5%. Excluding the impact of U.S. tax reform, the company’s effective tax rate was 23.3%.

Earnings per diluted share were $2.72, including the following: Expenses of 32 cents per diluted share for contract adjustments, expenses of 30 cents per diluted share for restructuring and integration actions, and expenses of 9 cents per diluted share mainly for the impact of various tax items, including U.S. tax reform. Excluding these items, adjusted earnings per diluted share were $3.43.

2017 Full Year Segment Results

In the Transit segment, sales increased 79% and income from operations increased 10%, compared to the prior year. The sales increase was driven by sales from acquisitions of $1.04 billion and organic sales growth of $68 million, which more than offset a decrease of $6 million from changes in foreign currency exchange rates. Income from operations included expenses for contract adjustments and restructuring and integration of $65 million. Excluding these expenses, adjusted income from operations increased 48%, and the segment’s adjusted operating margin was 10.1%.

In the Freight segment, sales decreased 9% and income from operations decreased 23%. The sales decrease was driven by an organic sales decrease of $295 million, which more than offset sales from acquisitions of $148 million and a benefit from changes in foreign currency exchange rates of $1 million. Income from operations included expenses for contract adjustments and restructuring and integration of $15 million. Excluding these expenses, adjusted income from operations decreased 19%, and the segment’s adjusted operating margin was 20%.

Categories: C&S, Commuter/Regional, Freight Cars, Light Rail, Locomotives, Mechanical, News, Passenger, PTC, Rapid Transit Tags: ,