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Why Is Wabtec (WAB) Down 14.7% Since Last Earnings Report?

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A month has gone by since the last earnings report for Westinghouse Air Brake Technologies (WAB - Free Report) . Shares have lost about 14.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Wabtec due for a breakout? 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.

Earnings Beat at Wabtec in Q2

Wabtec reported second-quarter 2019 earnings (excluding 52 cents  from non-recurring items) of $1.06 per share. The bottom line surpassed the Zacks Consensus Estimate of 98 cents and improved 10.4% year over year. Results were aided by a strong operating performance.

Total sales jumped more than 100% year over year to $2,236.3 million but fell short of the Zacks Consensus Estimate of $2,257.1 million. The substantial year over year increase in sales was due to the inclusion of GE Transportation products.

Total operating expenses in the quarter increased in excess of 100% to $414,039 million, primarily due to a 70% rise in selling, general and administrative expenses. Also, the operating ratio (operating expenses as a percentage of revenues) deteriorated to 18.5% from 18% in the prior-year period. Notably, lower the value of the metric the better.

Segmental Highlights

At the Transit segment, net sales climbed 6% to $742.33 million driven by organic sales growth and acquisitions. Segmental operating margin (income from operations as a percentage of sales) increased to 9.6% from 8.3% in the year-ago quarter.

Freight net sales jumped 262% to $1.49 billion despite organic sales decrease and unfavorable foreign currency related movements. Segmental sales were boosted by acquisitions of $1.1 billion. Segmental operating margin declined to 10.2% from 20.5% in the year-ago quarter.

Liquidity

As of Jun 30, 2019, Wabtec had $461.37 million in cash and cash equivalents compared with $580.91 million at the end of 2018. Long-term debt at the quarter-end was $4.53 billion compared with $3.79 billion at 2018 end.

2019 View

Wabtec now anticipates sales of $8.3 billion for the current year (earlier view: $8.4 billion). Adjusted earnings are now expected to be between $4.10 and $4.20 per share (earlier guidance: $4 and $4.20). Adjusted EBITDA and income from operations is estimated at $1.6 billion and $1.2 billion, respectively.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Wabtec has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision 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.


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