Westinghouse Air Brake Technologies Corporation Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Quarter Performance: The third quarter showed strong results with sales of $2.9 billion, up 8% year-over-year. Adjusted EPS was up 16%, total cash flow from operations was $367 million, and the twelve-month backlog was $8.3 billion, up 8.4% year-over-year.
• End Markets: Freight had mixed key metrics but a strong pipeline; North America traffic was up 1.4%, with railcar builds reduced to ~28,000 cars. International markets in Asia, India, Brazil, and CIS were strong. Mining benefited from an aging fleet. Transit saw growth in ridership, fleet expansion, and renewals.
• Business Highlights: Secured a $4.2 billion order in Kazakhstan, a $125 million multi-year mining agreement, $140 million transit brake orders, and the first four Simandou locomotives arrived from the Marora India locomotive plant.
• Transit Segment: Sustained orders growth with growing backlog, margin expansion through integration and portfolio optimization efforts, and focus on enhancing competitiveness and innovation.

Segment Performance

• Freight Segment: Third quarter sales were $2.89 billion, up 8.4% year-over-year. GAAP segment operating income was $414 million, with an operating margin of 19.8%. Adjusted operating income was $513 million, up 9.9% year-over-year, and adjusted operating margin was 24.5%, up 0.4 percentage points. The twelve-month backlog was $6.09 billion, up 9.5% in constant currency, and the multi-year backlog reached $20.91 billion, up 18.4% in constant currency.
• Transit Segment: Sales were $793 million, up 8.2% year-over-year. GAAP operating income was $115 million, and adjusted segment operating income was $123 million. Adjusted operating income as a percent of revenue was 15.5%, up 2.7 percentage points. The twelve-month backlog was $2.18 billion, up 3.9% in constant currency, and the multi-year backlog was up 1% in constant currency.

Guidance

• Raised full-year adjusted EPS guidance to $8.85 to $9.05, up 18% at the midpoint. Confident in driving profitable growth into the fourth quarter of 2025 and beyond, supported by strong pipeline and momentum.

Risks

• Volatile and uncertain economic landscape poses challenges. Tariff pressure affects cash flow and the P&L, with ongoing mitigation efforts including seeking exemptions, optimizing the supply chain, sharing costs with customers, and maintaining a cost-focused approach.

Question and Answer

Q: Angel Castillo asked about organic growth and pipeline strength. Rafael Ottoni Santana responded that the twelve-month backlog has outpaced last year's growth, with strong international markets and transit growth, and backlog implies reacceleration in organic growth next year.

A: Rafael mentioned bullishness on international markets, transit growth, and the strong pipeline supporting future orders.

Q: Ken Hoexter inquired about backlog and acquisitions. Rafael and John A. Olin discussed stronger coverage for 2026, acquisitions having minimal impact on backlog, and organic growth expectations moving forward.

A: They noted stronger momentum for 2026, with acquisitions having little impact on total backlog and positive organic growth expectations.

Q: Bascome Majors asked about tariff impact. John A. Olin explained tariff pressure on cash flow, inventory impact, and a four-pronged mitigation approach: seeking exemptions, optimizing the supply chain, sharing costs with customers, and maintaining a cost-focused enterprise.

A: John outlined the steps being taken to mitigate tariff effects, including leveraging USMCA exemptions and supply chain adjustments.

Q: Scott Group asked about transit margins and tariffs. Rafael and John discussed transit margin improvement as a continuous process and ongoing efforts to mitigate tariff impact through various cost and pricing levers.

A: Rafael mentioned transit margins are expected to continue improving, and John highlighted ongoing tariff mitigation efforts.

Q: James inquired about North America and international pipeline. Rafael discussed North America fleet renewal as a key lever for operating ratio improvement and detailed the Kazakhstan contract including locomotives and services.

A: Rafael explained the importance of fleet renewal in North America and the components of the $4.2 billion Kazakhstan order.

Q: Brady Steven Lierz asked about regulatory and Inspection Technologies. Rafael mentioned positive regulatory momentum and positive first quarter results from Inspection Technologies integration, highlighting the alignment of teams and early positive impacts.

A: Rafael noted the positive integration of Inspection Technologies and alignment with company goals.

Q: Ben Moore asked about pricing and EPS guide. John A. Olin discussed pricing as part of margin growth and the raised EPS guide, emphasizing ongoing work on pricing and cost management.

A: John explained that pricing is one of the levers in margin growth and the updated EPS guide reflects confidence in fourth quarter performance.

Q: Tami Zakaria asked about components growth and Kazakhstan deal. Rafael discussed components growth tracking plan and the Kazakhstan contract delivery dynamics, with John clarifying the 300-locomotive contract over ten years.

A: Rafael and John provided details on components growth expectations and the structure of the Kazakhstan locomotive contract.

Q: Steve Barger asked about Kazakhstan digital and acquisitions. Rafael mentioned digital product opportunities in Kazakhstan and seamless integration of Frauzer and Delner acquisitions, highlighting growth potential and integration benefits.

A: Rafael discussed digital product opportunities in Kazakhstan and the positive integration of the acquired companies.