Wabtec Q1 2021 Form 10-Q Summary
Business context and reporting period
Westinghouse Air Brake Technologies Corporation (Wabtec) supplies equipment, systems and services to freight rail and passenger transit markets globally. This unaudited report covers the three months ended March 31, 2021, compared with Q1 2020. Approximately 64% of quarterly revenue came from customers outside the United States.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Net sales | $1,830.2 million | $1,929.9 million |
| Gross profit / margin | $534.2 million / 29.2% | $578.7 million / 30.0% |
| Operating income / margin | $191.6 million / 10.5% | $217.3 million / 11.3% |
| Net income attributable to Wabtec shareholders | $112.4 million | $111.6 million |
| Diluted EPS | $0.59 | $0.58 |
| Operating cash flow | $292.2 million | $(81.9) million |
| Capital expenditures | $26.5 million | $33.3 million |
At March 31, cash and cash equivalents were $483.5 million, total debt was $4.277 billion, and net debt was approximately $3.794 billion. Current assets were $3.779 billion and current liabilities were $3.169 billion. The company reported $1.045 billion of availability under its main revolving facility and $144 million under its 364-day revolver. The 364-day facility, including $305.9 million outstanding on its term loan, was scheduled to mature July 9, 2021. Wabtec said it was in compliance with its credit-facility covenants.
Changes versus prior comparable period
- Sales declined $99.7 million, or 5.2%. Organic sales fell $145.8 million, partly offset by a $45.6 million favorable foreign-exchange impact and $0.5 million from acquisitions.
- Freight sales decreased 9.0% to $1.183 billion, mainly reflecting lower locomotive equipment sales, particularly in North America. Freight operating margin declined to 12.0% from 12.4%.
- Transit sales increased 2.9% to $646.9 million, but organic sales fell $30.6 million; favorable foreign exchange added $48.6 million. Transit operating margin was 10.8%, versus 10.9%.
- Gross and operating margins contracted. Management cited lower overhead absorption from reduced volumes, sales mix and COVID-related operating disruption, partly offset by GE Transportation synergies and cost actions.
- Net income attributable to Wabtec shareholders edged up $0.8 million despite lower operating income. Lower net interest expense and a swing to $14.2 million of other income from $14.8 million of other expense contributed; foreign-exchange gains were a principal factor in the other-income change.
- Operating cash flow improved by $374.1 million year over year. Management attributed key differences to payment timing with suppliers, $92.9 million of net cash proceeds from the receivables program, and prior-year GE Transportation acquisition and litigation payments that did not recur.
Acquisition, outlook, risks and contingencies
- On March 31, 2021, Wabtec acquired Nordco for approximately $407 million. Preliminary purchase accounting included $214.5 million of goodwill and $163.5 million of other intangible assets; valuations remain subject to adjustment. Nordco results will be reported in Freight. The filing says the pro forma effect was not significant.
- Remaining performance obligations were $21.0 billion at quarter-end; approximately 25% was expected to be recognized over the next 12 months. The filing does not provide specific company-wide earnings or revenue guidance.
- COVID-19 continued to adversely affect sales channels, supply chains, manufacturing, workforce, transit ridership and customer demand. Management said the duration and severity of effects could not be predicted, and results could be affected by customer delays, supply shortages and broader economic conditions.
- Q1 restructuring costs included $4 million in cost of sales and $11 million in SG&A and transaction costs. Wabtec cited continuing GE Transportation integration, footprint rationalization and COVID-response actions.
- The company renewed its stock-repurchase authorization to $500 million; approximately $499.4 million remained available at March 31. Q1 repurchases totaled $1.2 million, and the quarterly dividend was $0.12 per share.
- Wabtec disclosed asbestos-related claims and ordinary-course litigation, with no material changes from its prior annual report. A subsidiary faces allegations related to the Denver Eagle P3 project; the filing says no formal claim had been filed against it. Management stated it was not involved in litigation it believed would materially adversely affect financial condition, results or liquidity.
- Other notable exposures include foreign-exchange movements, long-term contract estimates, warranty obligations and contingent consideration related to the GE Transportation acquisition. Management reported no material change in risk factors from the 2020 Form 10-K.
Important facts for investors to verify
- Whether freight locomotive demand and transit production and ridership recover, and how COVID-related disruptions affect organic sales and margins.
- The timing and cash-flow implications of the July 2021 maturity of the 364-day facility and the company’s refinancing or repayment plans.
- Nordco’s final purchase-price allocation, integration progress and contribution to results.
- The sustainability of operating cash flow, including reliance on supplier-payment timing and the receivables program, whose transfer capacity was increased to $200 million.
- Developments in the Denver Eagle P3 dispute and other litigation, as well as changes in contract-loss provisions and warranty reserves.