Westinghouse Air Brake Technologies Corporation (Wabtec) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with the three months ended March 31, 2021 unless otherwise noted. Wabtec supplies equipment, systems and services to global freight rail and passenger transit markets; about 60% of Q1 sales were to customers outside the United States. Figures below are in U.S. dollars, millions, except per-share data.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Net sales | $1,927 | $1,830 |
| Gross profit | $595 | $534 |
| Gross margin | 30.9% | 29.2% |
| Operating income | $239 | $192 |
| Net income attributable to Wabtec shareholders | $149 | $112 |
| Diluted earnings per share | $0.80 | $0.59 |
| Cash provided by operating activities | $161 | $292 |
| Capital expenditures | $20 | $27 |
| Cash and cash equivalents | $488 | $473 at December 31, 2021 |
| Total debt, book value | $4,239 | $4,058 at December 31, 2021 |
| Current assets / current liabilities | $3,911 / $2,880 | $3,832 / $2,910 at December 31, 2021 |
Cost of sales was 69.1% of sales, versus 70.8% a year earlier. Operating expenses were $356 million, up from $342 million. Interest expense, net, declined to $43 million from $48 million; other income, net, fell to $4 million from $14 million. The effective tax rate was 25.1%, compared with 27.5%.
Operating cash flow declined $131 million year over year, largely reflecting inventory build-ups and other working-capital timing, employee-related benefit payments, and customer-deposit timing. Investing activities used $18 million, compared with $422 million in Q1 2021, which included $401 million for acquisitions. Financing activities used $133 million: $296 million of share repurchases and $28 million of dividends were partly offset by debt proceeds net of repayments. Cash included approximately $475 million held outside the United States.
At March 31, 2022, Wabtec had $183 million outstanding under its revolving credit facility and $1,014 million of stated availability. The company reported compliance with its credit-facility covenants. Long-term debt was $4,225 million; $14 million was current.
Material changes and segment performance
- Sales rose 5.3%. The filing attributes $94 million of growth to organic sales and $40 million to acquisitions, offset by $37 million of unfavorable foreign exchange.
- Freight: Sales increased 11.7% to $1,322 million; operating income rose to $189 million from $142 million, and operating margin increased to 14.3% from 12.0%. Services growth, including higher locomotive modernizations and fewer locomotive parkings, was a key contributor. Nordco added $39 million of sales.
- Transit: Sales declined 6.5% to $605 million; operating income decreased to $65 million from $70 million, with margin roughly flat at 10.7% versus 10.8%. Unfavorable currency translation reduced sales by $33 million; organic sales fell $10 million. Higher original-equipment sales were more than offset by lower aftermarket sales.
- Share repurchases totaled $296 million, covering approximately 3.1 million shares. The board increased the repurchase authorization to $750 million in February; $499 million remained available at March 31.
Outlook, management commentary and risks
- The filing provides no specific full-year revenue or earnings guidance. Management said continued cost increases were expected and that the duration and full impact of COVID-19, supply-chain disruptions, and the Russia-Ukraine conflict could not be reasonably predicted.
- Supply and labor constraints, including component, raw-material and chip shortages, affected revenue timing. Inflation in materials, commodities, shipping, logistics and labor pressured costs. Management cited pricing actions and surcharges, productivity and cost measures, sourcing changes, and logistics reviews as mitigations.
- Wabtec announced a three-year “Integration 2.0” review targeting $75–$90 million of incremental annual run-rate synergies by 2025. It estimated future one-time restructuring charges of approximately $135–$165 million; scope and cost estimates may change.
- The company reported approximately $16 million of assets related to Russian operations, primarily cash and inventory, and recorded no impairment because management expected them to be recoverable. Ukrainian inventory was written off, resulting in an insignificant Q1 charge. Management warned that sanctions, conflict developments and related supply and distribution effects could lead to future adverse impacts or impairment charges.
- Other risks include further pandemic effects, customer demand and program delays, supplier and labor availability, input-cost inflation, foreign-exchange exposure, long-term contract estimates, and legal, environmental, warranty and product-liability matters. The filing says the company was not involved in litigation it believed would materially adversely affect its financial condition, results or liquidity; asbestos claims and the unresolved Denver transit-project allegations are described in the filing.
Important facts for investors to verify
- Whether Freight growth and margin improvement continue, and whether Transit aftermarket demand recovers.
- How supply constraints, inflation and pricing actions affect margins, delivery timing and cash conversion.
- Progress toward the $75–$90 million synergy target and the eventual timing and cost of restructuring actions.
- Cash generation, inventory levels, debt and covenant headroom, and the pace of share repurchases.
- Developments in Russia, Ukraine and Kazakhstan, including sanctions, asset recoverability and supply-chain impacts.
- Potential exposure from contingencies, including asbestos-related claims and the Denver transit-project matter.