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Wabtec (WAB) Up Despite Q4 Earnings Miss, '19 View Solid

Zacks Equity Research

Westinghouse Air Brake Technologies Corporation, which operates as Wabtec Corporation WAB, reported fourth-quarter 2018 adjusted earnings of 97 cents per share. The bottom line missed the Zacks Consensus Estimate of $1.02 but improved 7.8% year over year. Total sales increased 4% year over year to $1.12 billion and outpaced the Zacks Consensus Estimate of $1.1 billion. Results were partly affected by foreign currency fluctuations.

Despite the earnings miss, shares of Wabtec have gained more than 6% at the close of business on Feb 25. The prime reason for this can be attributed to the company’s long-awaited merger completion with GE Transportation. Subsequently, the company has issued an upbeat outlook for 2019.

Including GE Transportation’s full-year results the company anticipates sales of $9.2 billion, adjusted EBITDA of $1.7 billion and adjusted income from operations of $1.4 billion for 2019. The figures exclude one-time transaction costs for the GE Transportation merger.

Total operating expenses in the reported quarter increased 15.1% to $203.57 million, primarily due to a 16.9% rise in selling, general and administrative expenses. Also, the operating ratio (operating expenses as a percentage of revenues) deteriorated to 18.2% from 16.4% in the prior-year period.

Segmental Performance

At the Transit segment, net sales climbed 4% to $736.97 million driven by organic sales growth and sales from acquisitions. Moreover, income from operations at the segment totaled $41.14 million, up 25%. As a result, the segmental operating margin (income from operations as a percentage of sales) expanded to 5.6% from 4.6% in the year-ago quarter.

Freight net sales rose 5% to $380.91 million backed by organic sales growth and sales from acquisitions. Meanwhile, income from operations amounted to $71.44 million, up 4%. However, operating margin remained flat year over year at 18.8%.

Liquidity

As of Dec 31, Wabtec had $580.91 million in cash and cash equivalents compared with $233.4 million at the end of 2017. Long-term debt at the quarter-end was $3.79 billion compared with $1.82 billion at 2017 end.

2019 Outlook

Wabtec anticipates sales of $8.4 billion for the current year. Adjusted EBITDA and income from operations is estimated at $1.6 billion and $1.2 billion, respectively. Additionally, adjusted earnings are expected to be $4.00-$4.20 per share. The Zacks Consensus Estimate for the same stands at $4.49.

Further, the company predicts adjusted operating margin to be 14% in 2019. Also, effective tax rate for the year is estimated at 24%. Moreover, adjusted cash flow from operations is forecast to exceed adjusted net income.

Zacks Rank & Stocks to Consider

Wabtec carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the same space are Trinity Industries TRN, Herc Holdings HRI and Air Lease Corporation AL. While Trinity sports a Zacks Rank #1 (Strong Buy), Herc and Air Lease carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While Trinity and Herc surpassed estimates in three of the trailing four quarters, Air Lease exceeded the same in each of the preceding four quarters.

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