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Westinghouse Air Brake (WAB) Tops Q2 Earnings, Ups '18 View

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Westinghouse Air Brake Technologies Corporation (WAB - Free Report) (operating as Wabtec Corporation) reported better-than-expected earnings and revenues in the second quarter of 2018. The company’s earnings (excluding 9 cents from non-recurring items) of 96 cents per share beat the Zacks Consensus Estimate of 94 cents. Moreover, the bottom line improved 20% year over year.

Total sales increased 19.3% year over year to $1.11 billion, surpassing the consensus mark of $1.03 billion.

The earnings and revenue beat as well the massive year-over-year improvements pleased investors. Consequently, the stock gained 1.7% at the close of business on Jul 24.

Total operating expenses in the reported quarter increased 24.8% to $200.44 million, primarily due to a 33.8% rise in selling, general and administrative expenses. Also, operating ratio (operating expenses as a percentage of revenues) deteriorated to 18% from 17.2% in the prior-year period.

 
Segmental Performance

Net sales in the Transit segment increased 19% to $699.42 million, driven by favorable foreign currency fluctuations, organic sales growth and acquisitions. However, income from operations in the segment was $57.98 million, down 2% due to lower-margin contracts in the United Kingdom. Consequently, the segmental operating margin (income from operations as a percentage of sales) declined to 8.3% compared with 10.1% in the year-ago quarter.
 
Freight net sales rose 20% to $412.26 million, backed by favorable foreign currency exchange rates, organic sales growth and buyouts. Meanwhile, income from operations was $84.35 million, up 34%. Also, the operating margin improved to 20.5% from 18.3% a year ago.

Liquidity

As of Jun 30, the company had $245.57 million compared with $233.4 million at the end of 2017. Long-term debt at the quarter-end was $1.86 billion compared with $1.82 billion at 2017 end.

Bullish 2018 Outlook

Hopeful about its first-half results, Wabtec has raised guidance for full-year earnings and revenues. It now anticipates earnings per share (excluding estimated costs of the proposed merger with GE Transportation and certain other items) of $3.85, higher than $3.80 expected earlier. Additionally, revenues are estimated to be approximately $4.2 billion, above its previous expectation of $4.1 billion. The Zacks Consensus Estimate for 2018 earnings per share stands at $3.87 on revenues of $4.19 billion.

The company continues to expect operating margin of 13.5% in the year while effective tax rate (excluding second-quarter tax benefit) is projected to be 24%. Previously, it estimated an effective tax rate of 23.5%.

Zacks Rank & Other Key Picks

Wabtec carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the broader Transportation sector include CSX Corporation (CSX - Free Report) , GATX Corporation (GATX - Free Report) and Expeditors International of Washington, Inc. (EXPD - Free Report) . While CSX sports a Zacks Rank #1 (Strong Buy), GATX and Expeditors hold a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Each of the companies flaunts an impressive earnings history, having surpassed the Zacks Consensus Estimate in three of the past four quarters.

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