Wabtec Corporation (NYSE: WAB) today reported earnings per
diluted share of $0.48 and adjusted earnings per diluted share of
$1.03 in the 2019 third quarter (see reconciliation table). The
company generated GAAP cash from operations of $124 million for the
quarter and affirmed its 2019 GAAP cash from operations guidance of
about $900 million. Wabtec also updated its full-year guidance for
adjusted sales of about $8.2 billion and adjusted earnings per
diluted share to between $4.15 to $4.20.
Rafael Santana, Wabtec’s president and chief executive officer,
said: “We delivered a solid operational performance in the third
quarter and we remain on track to achieve our full year adjusted
earnings and cash flow guidance, despite challenging conditions in
the North American freight market. Growth in our aftermarket and
services revenues demonstrate the importance of our significant
installed base across both freight and transit and the resilience
of our business model.
“In addition, as we focus on controlling what we can, we have
made significant progress in our integration initiatives and
execution of our synergy activities. We have accelerated our cost
and synergy actions, giving us strong confidence that we will
exceed our synergy target of $250 million before 2022.”
2019 Third Quarter Consolidated Results
- GAAP sales were $2.0 billion; adjusted sales were $2.1 billion
including accounting policy harmonization. The increase compared to
the year-ago quarter resulted mainly from sales from GE
Transportation and higher transit sales partially offset by lower
sales in freight components, electronics and unfavorable foreign
exchange rates.
- Income from operations was $169 million (8.4% of GAAP sales)
and adjusted income from operations was $317 million (15.4% of
adjusted sales) which was favorably impacted by original equipment
(OE) mix, timing of policy harmonization and seasonality in the
locomotive services. Adjusted income from operations included $63
million for non-cash, accounting policy harmonization and excluded
pre-tax expenses of $85 million as follows: $69 million for
transaction, restructuring and litigation costs, as well as $16
million for one-time, non-cash purchase price accounting charges
(see reconciliation table).
- The company also had pre-tax expense of $71 million for
non-cash, recurring purchase price accounting charges related to
the GE Transportation merger which is not added back to adjusted
income from operations.
- Net interest expense was $58 million, with adjusted net
interest expense of $54 million.
- Income tax expense was $23 million for an effective tax rate of
20%. Excluding the net tax benefit from restructuring, transaction
costs related to the GE Transportation merger and litigation costs
adjusted income tax expense was $67 million for an adjusted
effective tax rate of about 25%.
- Earnings per diluted share were $0.48 and adjusted earnings per
diluted share were $1.03 (see reconciliation table). Adjusted
earnings per diluted share included $0.25 for after-tax non-cash
policy harmonization and excluded after-tax expenses of $0.30 as
follows: $0.06 for one-time, non-cash purchase price accounting
charges; $0.28 for transaction, restructuring and litigation costs,
offset by $0.04 from increased tax expense for non-deductible
transaction costs (see reconciliation table).
- In addition to the expenses noted above, the company also had
after-tax expense of $0.28 per diluted share for non-cash,
recurring purchase price accounting charges which is not added back
to adjusted earnings per diluted share.
- EBITDA, which Wabtec defines as income from operations plus
depreciation and amortization, was $292 million and adjusted EBITDA
was $440 million. Adjusted EBITDA included $63 million for policy
harmonization and excluded pre-tax expenses of $85 million as
follows: $16 million for one-time, non-cash purchase price
accounting charges and $69 million for transaction, restructuring
and litigation costs (see reconciliation table).
2019 Third Quarter Segment Results
- Freight segment sales of $1.3 billion increased by 231% from
the year-ago quarter or $904 million; the increase resulted from
acquisitions of $954 million which was partially offset by an
organic decrease of $45 million and unfavorable changes in foreign
currency exchange rates of $5 million. Freight segment organic
sales were negatively impacted by lower sales in freight car
components and electronics.
- Freight segment income from operations of $148 million (or
11.4% of segment sales) increased from the year-ago quarter by $69
million mainly as a result of acquisitions. Freight segment income
from operations was reduced by $108 million due to the policy
harmonization, merger-related and restructuring expenses noted.
Excluding those items, Freight segment income from operations as a
percent of adjusted sales was 19.0%. Adjusted Freight segment
income from operations benefited from seasonality of services and
lower mix of OE locomotives due to timing of deliveries.
- Transit segment sales of $706 million increased by 3% from the
year-ago quarter or $20 million. The increase resulted from organic
sales growth of $44 million and acquisitions of $2 million, which
was partially offset by unfavorable changes in foreign currency
exchange rates of $26 million. Transit segment sales were
positively impacted by growth in both OE and aftermarket
components.
- Transit segment income from operations of $56 million (or 7.9%
of segment sales) decreased from the year-ago quarter by $5 million
as a result of higher restructuring expenses, offset somewhat by
higher volume. Excluding restructuring charges of $11 million,
Transit segment income from operations as a percent of sales was
9.4%. Adjusted segment income from operations benefited from
leverage of higher volume.
Cash Flow Summary
- The company generated cash from operations of $124 million for
the third quarter compared to cash used for operations of $30
million in the year-ago quarter, with the increase resulting from
higher financial results (net income plus net add-back for non-cash
transactions in earnings) and improved working capital performance.
In the 2019 third quarter, cash from operations was reduced by
about $40 million as a result of costs related to the GE
Transportation merger.
- At September 30, the company had cash and cash equivalents of
$587 million and debt of $4.7 billion.
Backlog
- At September 30, Wabtec’s total, multi-year backlog was $21.9
billion, and its 12-month backlog was $5.7 billion, slightly lower
than at June 30 as increased aftermarket orders were more than
offset by the timing of OEM orders and changes in foreign currency
exchange rates.
2019 Financial Guidance
- Wabtec updated 2019 GAAP sales guidance of about $8.1 billion,
GAAP income from operations guidance of about $725 million and GAAP
earnings per diluted share guidance to between $2.05 to $2.10 due
to refined estimates for purchase price accounting charges and
transaction and restructuring costs. Wabtec updated guidance for
EBITDA, which Wabtec defines as income from operations plus
depreciation and amortization, of about $1.2 billion.
- Wabtec updated 2019 adjusted sales guidance of about $8.2
billion and affirmed guidance for adjusted EBITDA of about $1.6
billion, and adjusted income from operations of about $1.2 billion.
Wabtec also updated its guidance for adjusted earnings per diluted
share to between $4.15 to $4.20. The adjusted guidance excludes
estimated expenses for the GE Transportation merger for transaction
and restructuring costs, one-time purchase price accounting
charges, and non-cash accounting policy harmonization. Excluding
these expenses, the company’s adjusted operating margin target for
the full year is about 14% and its adjusted effective tax rate for
the full year is expected to be about 24%. This guidance also
includes a net synergy benefit of about $20 million for 2019.
- In addition to the expenses noted above, the company also
expects after-tax expense of about $0.88 per diluted share for
non-cash, recurring purchase price accounting charges which are not
added back to adjusted earnings per share.
- For the year, Wabtec expects GAAP cash flow from operations to
be about $900 million including expenses of about $100 million
related to the GE Transportation merger.
Conference Call Information
Wabtec will host a call with analysts and investors at 10 a.m.,
ET, today. To listen via webcast, go to Wabtec’s new website at
www.WabtecCorp.com and click on “Events & Presentations” in the
“Investor Relations” section. Also, an audio replay of the call
will be available by calling 412-317-0088 (passcode: 466#).
About Wabtec Corporation
Wabtec Corporation is a leading global provider of equipment,
systems, digital solutions and value-added services for freight and
transit rail. Drawing on nearly four centuries of collective
experience across Wabtec, GE Transportation and Faiveley Transport,
the company has unmatched digital expertise, technological
innovation, and world-class manufacturing and services, enabling
the digital-rail-and-transit ecosystems. Wabtec is focused on
performance that drives progress, creating transportation solutions
that move and improve the world. The freight portfolio features a
comprehensive line of locomotives, software applications and a
broad selection of mission-critical controls systems, including
Positive Train Control (PTC). The transit portfolio provides highly
engineered systems and services to virtually every major rail
transit system around the world, supplying an integrated series of
components for buses and all train-related market segments that
deliver safety, efficiency and passenger comfort. Along with its
industry-leading portfolio of products and solutions for the rail
and transit industries, Wabtec is a leader in mining, marine, and
industrial solutions. Based in Pittsburgh, PA, Wabtec has
approximately 27,000 employees in facilities throughout the world.
Visit: www.WabtecCorp.com
Information about non-GAAP 2019 Financial Information and
Forward-Looking Statements
Wabtec’s earnings release and 2019 financial guidance mention
certain non-GAAP financial performance measures, including adjusted
sales, adjusted operating margin, EBITDA, adjusted EBITDA, adjusted
income from operations and adjusted earnings per diluted share.
Wabtec defines EBITDA as income from operations plus depreciation
and amortization. While Wabtec believes these are useful
supplemental measures for investors, they are not presented in
accordance with GAAP. Investors should not consider non-GAAP
measures in isolation or as a substitute for net income, cash flows
from operations, or any other items calculated in accordance with
GAAP. In addition, the non-GAAP financial measures included in this
presentation have inherent material limitations as performance
measures because they add back certain expenses incurred by the
company to GAAP financial measures, resulting in those expenses not
being taken into account in the applicable non-GAAP financial
measure. Because not all companies use identical calculations,
Wabtec’s presentation of non-GAAP financial measures may not be
comparable to other similarly titled measures of other companies.
Included in this release are reconciliation tables that provide
details about how adjusted results relate to GAAP results.
This communication contains “forward-looking” statements as that
term is defined in Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended by the Private Securities Litigation Reform Act of 1995,
including statements regarding the acquisition by Wabtec of GE
Transportation (the “GE Transportation merger”) and statements
regarding Wabtec’s expectations about future sales and earnings.
All statements, other than historical facts, including statements
regarding the expected benefits of the transaction, including
future financial and operating results, the tax consequences of the
GE Transportation merger, and Wabtec’s plans, objectives,
expectations and intentions; legal, economic and regulatory
conditions; and any assumptions underlying any of the foregoing,
are forward-looking statements. Forward-looking statements concern
future circumstances and results and other statements that are not
historical facts and are sometimes identified by the words “may,”
“will,” “should,” “potential,” “intend,” “expect,” “endeavor,”
“seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,”
“believe,” “could,” “project,” “predict,” “continue,” “target” or
other similar words or expressions. Forward-looking statements are
based upon current plans, estimates and expectations that are
subject to risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
from those indicated or anticipated by such forward-looking
statements. The inclusion of such statements should not be regarded
as a representation that such plans, estimates or expectations will
be achieved. Important factors that could cause actual results to
differ materially from such plans, estimates or expectations
include, among others, (1) unexpected costs, charges or expenses
resulting from GE Transportation merger; (2) uncertainty of
Wabtec’s expected financial performance; (3) failure to realize the
anticipated benefits of the GE Transportation merger, including as
a result of integrating GE Transportation into Wabtec; (4) Wabtec’s
ability to implement its business strategy; (5) difficulties and
delays in achieving revenue and cost synergies; (6) inability to
retain and hire key personnel; (7) evolving legal, regulatory and
tax regimes; (8) changes in general economic and/or industry
specific conditions, including the impacts of tax and tariff
programs, industry consolidation and changes in the financial
condition or operating strategies of our customers; (9) changes in
the expected timing of projects; (10) a decrease in freight or
passenger rail traffic; (11) an increase in manufacturing costs;
(12) actions by third parties, including government agencies; and
(13) other risk factors as detailed from time to time in Wabtec’s
reports filed with the SEC, including Wabtec’s annual report on
Form 10-K, periodic quarterly reports on Form 10-Q, periodic
current reports on Form 8-K and other documents filed with the SEC.
The foregoing list of important factors is not exclusive. Any
forward-looking statements speak only as of the date of this
communication. Wabtec does not undertake any obligation to update
any forward-looking statements, whether as a result of new
information or development, future events or otherwise, except as
required by law. Readers are cautioned not to place undue reliance
on any of these forward-looking statements.
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2019 AND 2018 (AMOUNTS IN
MILLIONS EXCEPT PER SHARE DATA) (UNAUDITED)
Third
Third
For the
For the
Quarter
Quarter
Nine Months
Nine Months
2019
2018
2019
2018
Net sales
$
2,001.7
$
1,077.8
$
5,831.6
$
3,245.7
Cost of sales
(1,402.3
)
(775.8
)
(4,228.5
)
(2,308.8
)
Gross profit
599.4
302.0
1,603.1
936.9
Gross profit as a % of Net Sales
29.9
%
28.0
%
27.5
%
28.9
%
Selling, general and administrative expenses
(292.2
)
(146.8
)
(842.9
)
(465.2
)
Engineering expenses
(58.6
)
(20.1
)
(150.3
)
(61.6
)
Amortization expense
(79.5
)
(9.9
)
(172.9
)
(30.1
)
Total operating expenses
(430.3
)
(176.8
)
(1,166.1
)
(556.9
)
Operating expenses as a % of Net Sales
21.5
%
16.4
%
20.0
%
17.2
%
Income from operations
169.1
125.2
437.0
380.0
Income from operations as a % of Net Sales
8.4
%
11.6
%
7.5
%
11.7
%
Interest expense, net
(57.7
)
(23.7
)
(160.8
)
(75.9
)
Other income (expense), net
1.9
1.2
(4.1
)
6.0
Income from operations before income taxes
113.3
102.7
272.1
310.1
Income tax expense
(22.7
)
(16.6
)
(82.6
)
(53.2
)
Effective tax rate
20.0
%
16.2
%
30.4
%
17.2
%
Net income
90.6
86.1
189.5
256.9
Less: Net loss attributable to noncontrolling interest
0.5
1.6
1.5
3.7
Net income attributable to Wabtec shareholders
$
91.1
$
87.7
$
191.0
$
260.6
Earnings Per Common Share Basic Net income
attributable to Wabtec shareholders
$
0.48
$
0.91
$
1.17
$
2.71
Diluted Net income attributable to Wabtec
shareholders
$
0.48
$
0.91
$
1.11
$
2.70
Basic
189.6
96.2
163.2
95.9
Diluted
191.5
96.6
172.2
96.4
Segment Information Freight Net Sales
$
1,295.7
$
391.6
$
3,666.1
$
1,183.4
Freight Income from Operations
$
148.1
$
79.4
$
375.3
$
233.4
Freight Operating Margin
11.4
%
20.3
%
10.2
%
19.7
%
Transit Net Sales
$
706.0
$
686.2
$
2,165.5
$
2,062.3
Transit Income from Operations
$
55.8
$
60.7
$
185.9
$
186.8
Transit Operating Margin
7.9
%
8.8
%
8.6
%
9.1
%
Backlog Information (Note: 12-month is a sub-set of
total) September 30, 2019
June 30, 2019 Freight Total
$
18,257.6
$
18,765.5
Transit Total
3,672.9
3,847.8
Wabtec Total
$
21,930.5
$
22,613.3
Freight 12-Month
$
3,914.2
$
3,793.9
Transit 12-Month
1,813.1
2,058.9
Wabtec 12-Month
$
5,727.3
$
5,852.8
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION CONDENSED
CONSOLIDATED BALANCE SHEETS Unaudited
September 30, 2019
December 31, 2018
In millions Cash and cash
equivalents
$
587.4
$
580.9
Restricted cash
-
1,761.4
Receivables, net
1,673.3
1,146.8
Inventories
1,957.3
844.9
Current assets - other
192.4
115.6
Total current assets
4,410.4
4,449.6
Property, plant and equipment, net
1,622.7
563.8
Goodwill
8,103.2
2,396.5
Other intangibles, net
4,207.0
1,129.9
Other long term assets
557.6
109.4
Total assets
$
18,900.9
$
8,649.2
Current liabilities
$
3,198.9
$
1,646.6
Long-term debt
4,633.5
3,792.8
Long-term liabilities - other
1,339.1
340.7
Total liabilities
9,171.5
5,780.1
Shareholders' equity
9,696.4
2,865.2
Non-controlling interest
33.0
3.9
Total shareholders' equity
9,729.4
2,869.1
Total Liabilities and Shareholders' Equity
$
18,900.9
$
8,649.2
WESTINGHOUSE AIR BRAKE TECHNOLOGIES CORPORATION CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
Nine Months Ended September
30,
2019
2018
In millions Net cash provided
by operating activities
$
567.7
$
38.0
Net cash used for investing activities
(3,109.8
)
(104.2
)
Net cash provided by financing activities
817.1
1,995.3
Effect of changes in currency exchange rates
(29.9
)
(27.1
)
(Decrease) increase in cash
(1,754.9
)
1,902.0
Cash, cash equivalents, and restricted cash, beginning of period
2,342.3
233.4
Cash, cash equivalents, and restricted cash, end of period
$
587.4
$
2,135.4
Set forth below is the calculation of the non-GAAP performance
measures included in this press release. We believe that these
measures provide useful supplemental information to assess our
operating performance and to evaluate period-to-period comparisons.
Non-GAAP financial measures should be viewed in addition to, and
not as an alternative for, Wabtec's reported results prepared in
accordance with GAAP.
Wabtec Corporation Reconciliation of Reported
Results to Adjusted Results (in millions) Third
Quarter 2019 Actual Results
Gross
Operating
Income from
Interest &
Minority
Wabtec
Net
Sales
Profit
Expenses
Operations
Other
Exp
Tax
Net
Income
Interest
Net
Income
EPS
Reported Results
$
2,001.7
$
599.4
$
(430.3
)
$
169.1
$
(55.8
)
$
(22.7
)
$
90.6
$
0.5
$
91.1
$
0.48
Restructuring, Transaction, & Litigation costs
-
28.4
40.1
68.5
3.6
(17.4
)
54.7
-
54.7
$
0.28
One-time PPA
-
16.0
-
16.0
-
(3.9
)
12.1
-
12.1
$
0.06
Policy Harmonization
51.0
55.0
8.0
63.0
-
(15.2
)
47.8
-
47.8
$
0.25
Tax on Transaction Costs
-
-
-
-
-
(7.7
)
(7.7
)
-
(7.7
)
$
(0.04
)
Adjusted Results
$
2,052.7
$
698.8
$
(382.2
)
$
316.6
$
(52.2
)
$
(67.0
)
$
197.4
$
0.5
$
197.9
$
1.03
Fully Diluted Shares Outstanding
191.5
Wabtec Corporation Reconciliation of
Reported Results to Adjusted Results (in millions)
Year-to-Date 2019 Actual Results
Gross
Operating
Income from
Interest &
Minority
Wabtec
Net
Sales
Profit
Expenses
Operations
Other
Exp
Tax
Net
Income
Interest
Net
Income
EPS
Reported Results
$
5,831.6
$
1,603.1
$
(1,166.1
)
$
437.0
$
(164.9
)
$
(82.6
)
$
189.5
$
1.5
$
191.0
$
1.11
Restructuring, Transaction, & Litigation costs
-
28.4
130.4
158.8
21.5
(43.6
)
136.7
-
136.7
$
0.79
One-time PPA
-
185.0
-
185.0
-
(44.8
)
140.2
-
140.2
$
0.81
Policy Harmonization
115.0
59.0
17.0
76.0
-
(18.4
)
57.6
-
57.6
$
0.33
Tax on Transaction Costs
-
-
-
-
-
16.0
16.0
-
16.0
$
0.09
Adjusted Results
$
5,946.6
$
1,875.5
$
(1,018.7
)
$
856.8
$
(143.4
)
$
(173.4
)
$
540.0
$
1.5
$
541.5
$
3.14
Fully Diluted Shares Outstanding
172.2
Set forth below is the calculation of the non-GAAP performance
measures included in this press release. We believe that these
measures provide useful supplemental information to assess our
operating performance and to evaluate period-to-period comparisons.
Non-GAAP financial measures should be viewed in addition to, and
not as an alternative for, Wabtec's reported results prepared in
accordance with GAAP.
Wabtec Corporation 2019 Q3 EBITDA
Reconciliation (in millions)
EBITDA (Income from
Income from
Operations plus
Depreciation
Operations
Depreciation
Amortization
&
Amortization)
Consolidated Q3 Actual As Reported
$
169.1
$
43.4
$
79.5
$
292.0
Restructuring, Transaction, & Litigation costs
68.5
-
-
68.5
One-time PPA Charges
16.0
-
-
16.0
Policy Harmonization
63.0
-
-
63.0
Adjusted Results
$
316.6
$
43.4
$
79.5
$
439.5
Set forth below is a reconciliation of the 2019 guidance to the
adjusted guidance included in this press release. We believe that
the adjusted guidance provides useful supplemental information to
assess our forecasted results. Non-GAAP financial measures should
be viewed in addition to, and not as an alternative for, Wabtec's
guidance presented in accordance with GAAP.
Wabtec Corporation Reconciliation of
Guidance to Adjusted Guidance * (in
billions) EBITDA (Income from Income from
Depreciation Operations plus Depreciation
Revenue Operations & Amortization &
Amortization) 2019 Guidance
$
8.1
$
0.7
$
0.4
$
1.2
Restructuring, Transaction, & Litigation costs
-
0.2
-
0.2
One-time PPA Charges
-
0.2
-
0.2
Policy Harmonization
0.1
0.1
-
0.1
2019 Adjusted Guidance
$
8.2
$
1.2
$
0.4
$
1.6
* Net Income and Earnings Per Diluted Share ("EPS") will be
impacted by a variety of uncertainties including revisions to
purchase price accounting, final transaction costs, and mix of
operations affecting accounting harmonization. The Company does not
further reconcile Income from Operations to Net Income due to the
inherent difficulty, without unreasonable efforts, in forecasting
and quantifying with reasonable accuracy the foregoing significant
items required for the reconciliation. On a GAAP basis, Net Income
is estimated to range from $362 million to $372 million, with an
EPS range of $2.05 to $2.10. On an adjusted basis, Net Income is
estimated to range from $735 million to $745 million, and EPS of
$4.15 to $4.20.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191031005133/en/
Wabtec Investor Contact Kristine Kubacki, CFA /
Kristine.Kubacki@wabtec.com / 412-450-2033
Wabtec Media Contact Deia Campanelli /
Deia.Campanelli@wabtec.com / 773-297-0482
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