• Revenue: $2.6 billion for Q4, up over 2% year-over-year.
• Adjusted EPS: Increased by 9% from the previous year.
• Cash Flow from Operations: $722 million for Q4, with a cash conversion of 212%.
• 12-Month Backlog: $7.7 billion, indicating strong momentum.
• Operating Margin Expansion: 190 basis points for the year.
• Adjusted Operating Margin for Q4: 16.9%, largely flat year-over-year.
• Freight Segment Operating Margin: 15.2%, up 1.6 percentage points from last year.
• Transit Segment Sales: $789 million, up 7.1% year-over-year.
• GAAP Gross Margin: 30.9% for Q4, up 0.6 percentage points from last year.
• Dividend Increase: 25% increase approved by the Board of Directors.
• Share Repurchase Authorization: Increased by $1 billion.
• 2025 Sales Guidance: $10.7 billion to $11 billion, up 5% at the midpoint.
• 2025 Adjusted EPS Guidance: $8.35 to $8.75, up 13% at the midpoint.

• Warning! GuruFocus has detected 6 Warning Sign with WAB.

Release Date: February 12, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Westinghouse Air Brake Technologies Corp (NYSE:WAB) reported a strong fourth quarter with sales of $2.6 billion, up over 2%, and adjusted EPS up 9% from the previous year.
• The company achieved a cash conversion rate of 117% for the year and 212% for the fourth quarter, indicating strong cash flow management.
• WAB's 12-month backlog reached $7.7 billion, providing visibility and momentum for future growth.
• The company announced a 25% increase in its dividend and authorized an additional $1 billion for share repurchases, reflecting confidence in future performance.
• WAB's international markets, particularly in regions like Africa, Latin America, and Asia, showed strong growth, with significant orders for locomotives and modernization projects.

Negative Points

• North American railcar builds demand decreased in 2024 and is expected to decline by nearly 17% in 2025, posing a challenge for the domestic market.
• The freight segment sales were largely flat during the quarter, impacted by a shift in locomotive and mod production.
• Digital Intelligence sales were down 1.4% from the previous year, driven by softness in North America.
• The company incurred net pretax charges of $32 million for restructuring related to Integration 2.0 and portfolio optimization initiatives.
• Despite strong international growth, the North American market remains mixed, with flat locomotive fleet activity compared to the previous year.

Q & A Highlights

Q: Can you clarify the margin improvement targets in your long-term framework and how pricing power is factored into this? A: Rafael Santana, CEO, explained that the fundamentals of the business are strong, with profitable growth across all segments. The company has a robust backlog and sees opportunities for simplification and cost reduction. John Olin, CFO, added that the company aims for over 350 basis points of margin expansion over the next five years, with 2/3 driven by cost management and 1/3 by innovation and pricing for value.

Q: What are the key drivers for margin expansion, and how do you plan to achieve them? A: John Olin, CFO, stated that margin expansion will be driven by cost management, including Integration 3.0 and continuous improvement initiatives. The company also expects to benefit from innovation and pricing for value, with a focus on delivering products that provide a return on investment for customers.

Q: How do you view the demand for locomotives and modernization in North America, and what is the outlook for 2025? A: Rafael Santana, CEO, noted that demand for locomotives and modernization remains strong, with high single-digit growth expected in 2025. The company is seeing investments in both new locomotives and modernization, driven by the need for improved cost efficiency and reliability.

Q: Can you discuss the digital intelligence business and its growth prospects, particularly in international markets? A: Rafael Santana, CEO, highlighted that the digital intelligence business closed the year with $1 billion in orders, driven by strong international demand. The company sees significant opportunities in international markets for onboard locomotive products and digital mining technologies, despite softer demand in North America.

Q: What is the impact of the Evident Inspection Technologies acquisition on your 2025 outlook? A: John Olin, CFO, clarified that the Evident acquisition is not included in the 2025 guidance. The company plans to update its guidance after the transaction closes, expected in the latter part of the second quarter. The acquisition is anticipated to be accretive to EPS in the first year.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.