Westinghouse Air Brake Technologies Corporation (WAB) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Quarter Performance: Sales reached $2.6 billion, up nearly 10% from the previous year, with robust sales and earnings per share growth driven by the Freight segment.
• Significant Orders: Secured a multiyear order for greater than $600 million for new Tier 4 locomotives in North America, one of the largest orders ever, demonstrating strong customer demand.
• International Market Strength: Notable international services order in Brazil and a strategic order for 15 modernizations for Pakistan Railway highlight the robust international orders pipeline.
• Innovative Solutions: Announced the commercial operation of the Green Friction braking solution in the Greater Paris metropolitan area, reducing particle emissions from braking by up to 90%.

Pessimistic Highlights

• Mixed Freight Business Metrics: Despite strong overall performance, key metrics across the Freight business remain mixed.
• North American Challenges: Active locomotive fleet in North America was down compared to the previous year's second quarter, indicating challenges in the domestic market.

Company Outlook

• Increased Adjusted EPS Guidance for 2024: Adjusted EPS is now expected to be in the range of $7.20 to $7.50, reflecting a strong second quarter performance and confidence in continued profitable growth.
• Focus on Profitable Growth: Emphasis on driving mid-single-digit organic growth while delivering double-digit earnings per share growth through innovative and scalable technologies.

Q & A Highlights

• Q: Can you provide details on the $600-plus-million Tier 4 locomotive order? (Daniel Imbro, from Stephens)

  A: The order is not included in the previous backlog and will largely be executed between '25 and '26, demonstrating the strength of our pipeline of opportunities internationally. (Rafael Santana)

• Q: How are you thinking about the operating margin outlook for the back half of the year? (Daniel Imbro, from Stephens)

  A: The first half's growth is not expected in the second half due to a shift in production and deliveries, with mix and absorption being key factors. However, revenue and earnings are expected to grow year-over-year in each quarter of the second half. (John Olin)

• Q: Can you discuss the international 15 mod orders from Pakistan Railway and the opportunity for expansion? (Bascome Majors, from Susquehanna)

  A: The international opportunities are strong and not concentrated in one location. We're competitive globally, and the pipeline supports continued growth. (Rafael Santana)

• Q: What's driving the decision for North American customers to order new locomotives versus modernizations? (Unidentified Analyst, from Jefferies)

  A: Decisions are based on value, including improvements in productivity, reliability, and the ability to use alternative fuels. (Rafael Santana)

• Q: Can you comment on the conversations with customers since the Chevron case and any impact on regulatory uncertainty? (Jerry Revich, from Goldman Sachs)

  A: We have robust conversations with customers about their fleet needs, but haven't seen a major shift in behavior due to regulatory processes or mandates. (Rafael Santana)

• Q: How do you define the addressable market size for digital products in North America versus international? (Steve Barger, from KeyBanc Capital Markets)

  A: The international market presents a significant multibillion-dollar opportunity with less penetration compared to North America, where we are more highly penetrated. (Rafael Santana)