Acquisitions and Taxes Impact Westinghouse Air Brake Technologies Corp's Fourth-Quarter Results

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As previously warned, Westinghouse Air Brake Technologies' (NYSE: WAB), or Wabtec, fourth-quarter results came in a bit under expectations due to the impact of the recent changes to the U.S. tax law as well as some added expenses relating to its acquisition of Faively Transportation. That said, those same two items position the company for a stronger showing in 2018.

Wabtec's results: The raw numbers

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What happened with Wabtec this quarter?

Taxes and Faiveley Transport had an impact on the quarter:

  • Sales in Wabtec's transit group surged 70% from the year-ago quarter to $711.9 million. Acquisitions led by Faively Transport added $192 million to the top line, while organic sales grew $88 million. Sales in the freight segment, meanwhile, rose a more modest 7% year over year to $363.6 million. Acquisitions also drove the increase by adding $27 million in revenue during the quarter.
  • Those results pushed Wabtec's revenue to $3.88 billion for the full-year, which was 32% higher than 2016 and ahead of its revised guidance for $3.8 billion in sales. Acquisitions were the sole factor driving revenue higher, adding $1.18 billion to the top line, which more than offset a $227 million decrease in organic sales.
  • While earnings appeared to soar versus the year-ago period, there's a bit more to that story. For starters, profits in the fourth quarter of 2016 had plunged due to several one-time charges relating to the Faiveley Transport deal and would have been $0.39 per share higher without that impact. Meanwhile, this year's fourth quarter also experienced several one-time charges that weighed on results, including $0.18 per share in contract adjustments, $0.13 per share due to restructuring and integration actions, and $0.08 per share as a result of changes to the tax law. These factors reduced earnings by $0.39 per share in the current quarter. If adjusted for those items, full-year earnings would have been $3.43 per share, which came in under the company's $3.45 to $3.50 per share guidance range and even further below its initial forecast.
  • Wabtec generated $162 million in cash flow from operations during the quarter, which was its highest level of the year.
  • The company used its balance sheet strength to make three acquisitions, which currently generate about $85 million in combined annual sales.
  • The company continued booking new orders, which increased its backlog 2% to a record $4.6 billion.

What management had to say

CEO Raymond Belter commented on the company's results, saying:

Last year didn't quite go as Wabtec planned. Revenue and earnings came in well short of its initial guidance due to some unexpected costs and headwinds in the rail sector earlier in the year, which caused organic sales to slip. However, the company believes it can put those problems behind it in 2018 and deliver better financial performance.

Looking forward

That's evident in the company's guidance, with it anticipating that revenue will rise to about $4.1 billion this year, up 6% from 2017. Adjusted earnings, likewise, should also head higher this year. While Wabtec anticipates that profits in the first quarter will be about even with the fourth quarter of 2017, the company expects to pull in $3.80 per share for the full year, which would be 11% higher than last year, thanks in part to the lower tax rate.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Westinghouse Air Brake Technologies. The Motley Fool has a disclosure policy.