Wabtec (WAB) Reports In-Line Q1 EPS, Revenues Miss; Withdraws FY20 Financial Guidance

Wabtec (NYSE: WAB) reported Q1 EPS of $0.97, in-line with the analyst estimate of $0.97. Revenue for the quarter came in at $1.93 billion versus the consensus estimate of $2.03 billion.

• First Quarter Reported GAAP Earnings Per Share of $0.58; Adjusted EPS of $0.97
• First Quarter Reported GAAP Income From Operations of $217 Million (11.3% Margin); Adjusted Income From Operations of $303 Million (15.7% Margin)
• Strong Financial Position with Available Liquidity of About $1.2 Billion at Quarter Close; Additional Actions Post Quarter Further Enhanced Liquidity by $600 Million
• Multi-Year Backlog of $22 Billion Provides Forward Visibility

2020 First Quarter Consolidated Results

• Sales were $1.9 billion versus $1.6 billion in the same period a year ago. The increase compared to the year-ago quarter are primarily due to sales from acquisitions, mainly of GE Transportation, partially offset by lower sales in Freight Components and Equipment, and Transit and unfavorable foreign exchange rates.
• Income from operations was $217 million (11.3% of sales) and adjusted income from operations was $303 million (15.7% of sales), which were favorably impacted by improvement in Transit operations, offset somewhat by disruption due to the COVID-19 pandemic. Adjusted income from operations excluded pre-tax expenses of $86 million, of which $69 million is for non-cash amortization expense and $17 million is for restructuring and transaction costs (see reconciliation table).
• Net interest expense was $53 million and other income (expense) was $15M of expense, primarily related to foreign currency exchange losses.
• The reported and adjusted effective tax rate for the quarter was 25.5%.
• Earnings per diluted share were $0.58 and adjusted earnings per diluted share were $0.97 (see reconciliation table). Adjusted earnings per diluted share excluded after-tax expenses of $0.39 as follows: $0.27 for non-cash amortization expense; $0.07 for transaction and restructuring; and $0.05 for foreign exchange loss (see reconciliation table).
• EBITDA, which Wabtec defines as earnings before interest, taxes, depreciation and amortization, was $317 million and adjusted EBITDA was $334 million. Adjusted EBITDA excluded pre-tax expenses of $17 million for transaction and restructuring costs (see reconciliation table).

2020 First Quarter Segment Results

• Freight segment sales of $1.3 billion increased by 42% from the year-ago quarter or
• $386 million. The increase was due to sales from acquisitions of $506 million, which was partially offset by an organic decrease of $108 million and unfavorable changes in foreign currency exchange rates of $13 million. Freight segment organic sales were negatively impacted by lower sales in Equipment and Components, offset somewhat by growth in Digital Electronics and Services.
• Freight segment income from operations of $162 million (or 12.4% of segment sales) increased from the year-ago quarter by $81 million mainly as a result of acquisitions. Freight segment income from operations was reduced by $14 million due to restructuring and transaction expenses noted. Excluding restructuring, transaction and non-cash amortization expense, Freight segment adjusted income from operations as a percent of sales was 18.5%.
• Transit segment sales of $629 million decreased by 7% from the year-ago quarter or
• $49 million. Acquisitions of $3 million were more than offset by an organic sales decline of $34 million and unfavorable changes in foreign currency exchange rates of $18 million. Transit segment sales were negatively impacted by COVID-19 disruption on operations and supply chain.
• Transit segment income from operations of $69 million (or 10.9% of segment sales) increased from the year-ago quarter by $9 million as a result of improved mix and operational efficiencies, offset somewhat by lower volume. Excluding restructuring and non-cash amortization expense of $6 million, Transit segment adjusted income from operations as a percent of sales was 11.9%.

Rafael Santana, Wabtec’s president and chief executive officer, said: “Wabtec delivered a solid first quarter despite increased headwinds from the COVID-19 pandemic that included operational and supply chain disruptions primarily in India, China and Europe. This is a testament to the perseverance and experience of our employees. Despite the weaker environment in the quarter, we continued to reduce cost, improve operational performance and deliver on our synergy targets. As we continue to navigate today’s rapidly changing environment, we remain committed to improving segment margins, controlling what we can and protecting the health and safety of our workforce, while maintaining our operational capabilities and delivering for customers.

“We are taking swift and prudent actions to reduce cost, manage cash and maintain our strong liquidity position. Even with the uncertain environment, we are committed to delivering on our synergy plans and aligning production capacity to prevailing demand conditions. Additionally, we are taking actions to reduce working capital and to cut non-essential capital spending.

“Through these efforts and other actions, and by leveraging the strength, scale and diversity of our business, we will continue to position Wabtec as an even stronger and more resilient company.”

2020 Guidance Update

Wabtec previously issued 2020 financial guidance, which did not include the impacts of the coronavirus, on February 18, 2020. The situation created by the COVID-19 pandemic is rapidly evolving and there remains a high degree of uncertainty regarding the duration and severity of the pandemic, government actions to contain it and the potential impact on global economic activity, global supply chain operations, and our customers. As a result of this uncertainty, Wabtec is withdrawing its 2020 financial guidance at this time.

Wabtec remains confident in the long-term fundamentals of the company and its ability to navigate the challenging environment ahead. Our strong backlog, recurring service revenues, aftermarket reach, significant installed base, technology differentiation, international footprint and globally diverse business model have positioned the Company to successfully manage market headwinds over the long-term.

Our team is focused on taking the necessary steps in response to the pandemic. We are reducing our controllable costs by delivering on our original synergy targets, continuing to consolidate our operational footprint by an additional 9% in 2020, and lowering fixed costs by driving down SG&A expense. These cost actions, along with working capital management and a more than 40% reduction in capital expenditures this year will improve our liquidity and further strengthen Wabtec’s financial position.

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