It has been about a month since the last earnings report for Westinghouse Air Brake Technologies (
WAB Quick Quote WAB - Free Report) . Shares have added about 5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Wabtec due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Wabtec’s Q4 Earnings Miss Estimates
Westinghouse Air Brake Technologies Corporation, which operates as Wabtec Corporation, reported fourth-quarter 2020 earnings (excluding 16 cents from non-recurring items) of 98 cents per share. The bottom line fell short of the Zacks Consensus Estimate of $1.06. Moreover, the same declined 5.8% year over year due to lower revenues.
Total sales fell 14.5% year over year to $2,023.7 million and also missed the Zacks Consensus Estimate of $2,106.5 million. This year-over-year downside was caused by weak revenues from freight equipment, components, digital electronics and transit aftermarket sales. Total operating expenses in the reported quarter dropped 23.3% to $344.4 million with 27.3% reduction in selling, general and administrative expenses. Also, operating ratio (operating expenses as a percentage of revenues) improved to 17% from 18.9% in the prior-year quarter owing to lower costs. Notably, lower the value of the metric, the better. Segmental Highlights
Freight net sales fell 19.7% to $1,339.3 million. Results were hurt by organic sales decline and forex woes. The coronavirus-induced disruptions hurt segmental numbers. Consequently, services were affected, resulting in lower deliveries of locomotives, reduced demand for new freight car components and soft Digital Electronics sales. Segmental operating margin (income from operations as a percentage of sales) deteriorated to 9% from 14.3% in the year-ago quarter.
At the transit segment, net sales declined 2.4% to $684.4 million due to lower organic sales. Transit segment sales were hurt by coronavirus-led lower after-market sales, resulting from the coronavirus pandemic. Segmental operating margin improved to 8.3% from 5.6% in the year-ago quarter. Balance Sheet Data
As of Dec 31, 2020, Wabtec had $598.7 million worth of cash and cash equivalents compared with $604.2 million at the end of 2019. The company generated cash from operations of $326 million in the December quarter. Long-term debt at the end of the quarter was $3,792.2 million compared with $4,333.6 million at 2019 end.
Wabtec anticipates sales to be in the range of $7.6 billion-$7.9 billion in 2021. Additionally, adjusted earnings per share are estimated in the band of $3.90-$4.30.
The company expects to achieve run rate savings of $250 million in the current year owing to cost management and synergies from the Wabtec and GE Transportation merger, which in turn should lead to improved margins. Further, it expects to generate strong cash flow in 2021 with operating cash flow conversion of greater than 90%. How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -19.05% due to these changes.
At this time, Wabtec has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Wabtec has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.