Westinghouse Air Brake Technologies Corporation Q4 FY2025 earnings call

• 2025 was an outstanding year with top-line growth of 7.5% and adjusted EPS growth of nearly 19%, strong orders backlog and pipeline momentum. • Advanced strategic priorities through acquisitions and integration initiatives, with businesses acquired in 2025 performing well. • Fourth quarter sales were $3 billion, up 15%, adjusted EPS up 25% from year-ago quarter. • Key end market updates: mixed freight markets but international markets strong, North America railcar build demand down, transit sector showing growth indicators. • Business highlights: converted over $2 billion of pipeline into new locomotive and modernization orders, secured $75 million in orders for PTC and Kinetics, delivered first battery-electric heavy haul locomotives to BHP, completed acquisitions of Frauzer Sensor Technologies and Downer Couplers. • Positioned to deliver strong and sustainable results with 12-month backlog of $8.2 billion, consistent growth over past five years, ability to expand operating margins, and strong cash flow generation. • Highlighted significant fleet renewal opportunity in North America and launched first-ever EVO modernization program in 2026. • Integration portfolio optimization initiatives: Integration two point zero achieved $103 million of run rate savings, Integration three point zero generating $49 million of run rate savings in first year with raised guidance, portfolio optimization continuing to exit non-strategic product lines.

Fourth quarter consolidated sales were up 14.8%. Equipment sales were up 33.5% from last year's fourth quarter. Services sales were down 5% as expected. Component sales were up 11.1% versus last year. Digital intelligence sales were up 74.4% from last year. Freight segment sales were up 18.3%, GAAP segment operating income was $318 million with an operating margin of 15%. Transit segment sales were up 6.7% at $842 million, GAAP operating income was $108 million. Fourth quarter cash flow generation was very strong at $992 million, liquidity position ended the quarter at $3.21 billion, net debt leverage ratio ended the fourth quarter at 1.9 times.

Expect 2026 sales of between $12.2 billion to $12.5 billion, up 10.5% at the midpoint, and adjusted EPS to be between $10.05 and $10.45, representing 14% growth at the midpoint. This guidance incorporates the expected impact from the Delner acquisition. Beginning 2026, no longer providing annual cash conversion guidance.

• Tariff impacts: financial impact of tariffs is growing, with peak expected in first half of 2026, requiring mitigation efforts including sourcing, sharing costs with customers, and proactive cost management. • Market and operational uncertainties: including geopolitical uncertainty, hyperinflation, and other significant disruptions that could impact business performance.

Q: Asked about recent orders and pipeline of opportunities, A: Pipeline remains strong, especially internationally, with strong customer commitment driving opportunities.

Q: Asked about components business and offsets to railcar delivery decline, A: Components business teams adjusting cost structure, with investments in industrial and heat transfer businesses offsetting decline.

Q: Asked about cash conversion and guidance change, A: Strong cash conversion, with comp plans tied to cash, and pulling 90% cash conversion guidance.

Q: Asked about shift from mods to new locomotives and impact on margins, A: Combination of new units and mods growing globally, but North America seeing shift with mods, and investment in modernization solutions like Evo Advantage.

Q: Asked about backlog and EPS upside/downside, A: Recent orders in backlog, and guidance considering tariffs and other headwinds.

Q: Asked about EVO mod commercial phase and lead times, A: EVO mod entering commercial phase, with first programs starting in 2026 and discussions for new programs towards 2027 and beyond.

Q: Asked about M&A performance and integration opportunities, A: Acquisitions ahead of pro forma great IRRs, with new product introductions and strong demand for integrated assets.

Q: Asked about orders and backlog impact on visibility, A: Near-term visibility consistent, with stronger visibility for 2027 and beyond due to strong pipeline.

Q: Asked about inflection in freight and impact on business, A: Strong international demand, but North America seeing lower dynamics in modernizations, with core service business remaining strong.

Q: Asked about EVO mod opportunity size and recent mod orders, A: Significant opportunity with aging fleet, and new EVO modernization product starting to be included in orders.

Q: Asked about SG&A increase, A: Driven by acquisitions and higher comp accrual due to strong cash performance.

Q: Asked about North America capacity investment and visibility, A: Capacity in North America being improved, with CapEx down in North America but significant opportunity for modernization.

Q: Asked about tariff impact realization and guidance, A: Tariff impact growing, with peak expected in first half of 2026, and mitigation efforts in place.

Q: Asked about service cadence and freight operating cadence, A: Service and equipment cadence flipping, with earnings growth driven by inorganic growth and portfolio optimization, and margin cadence with first half affected by comps and tariffs, second half by cost management.

Q: Asked about freight backlog outlook, A: Strong pipeline and portfolio, with acquisitions and cost management driving progress.

Q: Asked about Transit segment seasonality and margin, A: Transit segment seasonality with volume growth and margin balance expected in 2026, and Integration initiatives affecting margins.

Q: Asked about savings from Integration three point zero split between segments, A: Split mostly 50-50 between Freight and Transit segments