Westinghouse Air Brake Technologies Corporation Q2 FY2025 earnings call

• Strong first half with better-than-expected margin expansion and double-digit adjusted EPS growth during a volatile economic environment. - Continued demand for core products/services, strong momentum in end markets and pipeline. - Closing of Inspection Technologies acquisition on July 1; other acquisitions (DeLiner Couplers, Frauscher Sensor Technology) in progress. - Second quarter sales $2.7 billion (up 2%), adjusted EPS up 16%, cash flow from operations $209 million, 12-month backlog $8.2 billion (up 11.9%). - Q2 revenues adversely impacted by supply part issue delaying locomotive shipments, but operating margin expanded better than expected. - Transit segment sales growth driven by products/services; Freight segment affected by supply issue but margin improved. - M&A activity with attractive financial metrics and strategic fit aligning with value creation framework.

Freight Segment

• Sales were largely flat to last year's second quarter. GAAP segment operating income was $415 million, driving an operating margin of 21.6%, up 1.2 percentage points versus last year. Adjusted operating income for the Freight segment was $480 million, up 3.9% versus the prior year. Adjusted operating margin in the Freight segment was 25.0%, up 0.9 percentage points from the prior year. The 12-month segment backlog was $6.02 billion, up 10.7% on a constant currency basis, while the multiyear backlog of $17.14 billion was down 4.0% on a constant currency basis.

Transit Segment

• Transit Segment sales were up 8.7%, at $787 million. When adjusting for foreign currency, Transit sales were up 5.7%. GAAP operating income was $109 million, with restructuring costs related to integration and portfolio optimization being $5 million in Q2. Adjusted segment operating income was $120 million, adjusted operating income as a percent of revenue was 15.2%, up 2.5 percentage points. The Transit segment 12-month backlog for the quarter was $2.19 billion, which was up 10.5% on a constant currency basis. The multiyear backlog was up 6.5% on a constant currency basis.

• 2025 sales outlook increased to approximately $11.1 billion at midpoint, up 6.5% from last year. - Adjusted EPS expected between $8.55 to $9.15, up 17% at midpoint. - Second half revenue expected to grow faster than first half due to revenue shift from Q2 ($60 million) and acquisition of Inspection Technologies. - Third and fourth quarter revenue expected to be largely the same; fourth quarter adjusted operating margin directionally higher than third quarter.

• Volatile global economic and geopolitical environment impacting business. - Supply part issues causing delay in locomotive shipments and revenue impact. - Uncertainty around tariffs and their potential impact on costs and revenues.

Q: Question on rail industry dynamics and potential mergers.

A: Rafael talks about opportunity for rail to win share and growing volumes.

Q: On international markets and backlog.

A: Rafael discusses strong pipeline, 12-month backlog over $8 billion, and conversion of pipeline.

Q: On capital allocation and M&A.

A: John talks about continuing focus on M&A, near-term plan to reduce net debt leverage.

Q: On backlog, pipeline, and margin.

A: Rafael discusses revenue shift, margin cadence, and pipeline conversion.

Q: On international demand, geopolitics, and backlog.

A: Rafael talks about strong pipeline in international and domestic markets.

Q: On tariffs and their impact.

A: Rafael and John discuss managing tariffs through cost and pricing actions, baked into guidance.

Q: On M&A, transit business growth, and margin.

A: Rafael talks about transit business growth, margin expansion, and selective growth.

Q: On digital TAM, acquisitions, and organic growth.

A: Rafael discusses expanding digital TAM through acquisitions and organic growth in railcar telematics.

Q: On tax bill, bonus depreciation, and regulatory front.

A: John talks about tax benefits and impact on customers; Rafael talks about regulatory focus on rail safety and innovation.