Westinghouse Air Brake Technologies (NYSE: WAB), or Wabtec, continues to feel the impact of its recent acquisition of Faiveley Transport, which is providing a revenue boost while dragging down earnings due to additional costs. However, those costs weren't the only items affecting the quarter, as a slower-than-expected ramp-up of some of its projects along with a similarly slow rebound in market conditions also weighed on results. Those factors led the company to revise its full-year guidance.
Wabtec's results: The raw numbers
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What happened with Wabtec this quarter?
The Faiveley Transport transaction continues to have a significant impact:
- Sales in the company's transit group soared 80% to $587.4 million thanks primarily to the acquisition of Faiveley Transport. That deal more than offset a 13% decline in sales in its freight group, which fell to $344.8 million due to lower revenue from freight car and locomotive components as well as the slower ramp-up of certain projects. In addition to that, foreign currency headwinds lopped another $15 million off the top line compared to the year-ago quarter.
- The weaker sales in the freight group along with $9 million, or $0.05 per share, in additional restructuring and transaction expenses relating to the Faiveley deal impacted earnings. In addition to that, interest expenses rose to $15.4 million in the quarter, up from $5 million in the year-ago quarter due to the incremental debt the company took on to close the transaction.
- Wabtec closed two additional deals during the quarter, buying Thermal Transfer and Semvac, which had annual sales of $25 million and $15 million, respectively
- The company booked several new orders during the quarter, boosting its multiyear backlog to $4.5 billion, which is up 10% from the first quarter. These new orders included more than $350 million of transit projects in Europe and Australia and $60 million in train control and signaling projects in the U.S.
What management had to say
CEO Raymond Belter commented on the company's results in the second quarter:
Rail market conditions haven't improved as quickly as Wabtec expected this year. While there are some positive signs in the market, the industry as a whole remains cautious. That uncertainty was evident in rail car maker The Greenbrier Companies' (NYSE: GBX) recently reported fiscal third-quarter results. On the positive side, Greenbrier noted that it received 11,000 rail car orders during the quarter, which boosted its backlog to 31,000. However, CEO William Furman stated, "While we see emerging improvements in North American and European rail markets, we still expect a challenging commercial environment into calendar 2018."
Given those challenges, as well as the revised timing of sales and projects already in the backlog, Wabtec is adjusting its full-year guidance. The company now anticipates that revenue will be about $3.85 billion and earnings will be $3.55 to $3.70 per share. That forecast is a bit lower than the one it provided last quarter, when it expected full-year revenue of around $4.1 billion and earnings between $3.95 and $4.15 per share.
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