The Wabtec First Quarter 2024 Earnings Conference Call began with an introduction from the operator and a welcome from Vice President of Investor Relations, Kyra Yates. The President and CEO, Rafael Santana, then gave an update on the business and discussed the strong momentum and growth in sales and adjusted EPS. CFO John Olin covered the financials, including a $334 million total cash flow from operations for the quarter.

The company's 12-month backlog and multi-year backlog have increased, indicating strong momentum and visibility across the business. The company remains confident in its ability to execute and deliver for customers. The North American carload growth was positive, but the industry's active locomotive fleet was down. The company sees significant opportunities in demand for new locomotives, modernizations, and digital technologies globally. The industry outlook for 2024 has been lowered to 36,000 railcar deliveries. Internationally, there is strong activity in the company's core markets, and investments are being made to expand and upgrade infrastructure. In the mining sector, there is a need to refresh and upgrade the truck fleet. In the transit sector, there is a demand for clean, safe, and efficient transportation solutions due to urbanization and decarbonization trends.

In this paragraph, the speaker discusses some recent business highlights, including a large order for locomotives in Africa and a parts agreement in Indonesia. They also mention the launch of a new railcar mover designed to meet customers' needs. The speaker then briefly touches on the company's progress in leading the decarbonization of rail, focusing on enabling customers to transition to near-zero emissions using their current locomotives and infrastructure. Overall, the company is experiencing strong momentum and has a strong pipeline of opportunities for profitable growth.

The company's modernized locomotives can improve fuel efficiency and reduce carbon emissions by up to 18%. They are also working on developing zero-emissions technology, such as battery electric and hydrogen fuel cell-powered locomotives. The company believes they have a competitive advantage due to their fuel efficiency and ability to use alternative fuels. They are also pacing their investments in this technology based on customer readiness. In the first quarter, the company saw positive financial results.

In the first quarter, Wabtec experienced strong momentum and exceeded their expectations for revenue and operating margin growth. Sales increased by 13.8% and operating income was $412 million, driven by higher sales, improved gross margin, and cost management. Adjusted operating margin also increased by 3.4 percentage points. GAAP earnings per diluted share were $1.53, but adjusted earnings per diluted share were $1.89. Wabtec also had pre-tax charges of $10 million for restructuring related to their integration 2.0 and portfolio optimization initiatives. Overall, Wabtec had a solid quarter, showcasing the strength of their business.

Slide 9 provides a detailed breakdown of the company's product lines and sales performance in the first quarter. Equipment sales were up 30.2%, component sales increased by 13.6%, and services sales grew by 17.3%. The transit segment also saw a 5.5% increase in sales. On Slide 10, it is noted that both GAAP and adjusted gross margins increased by 2.4 percentage points, benefiting from higher sales, improved pricing, and favorable mix between segments. The company's team has been successful in mitigating the impact of cost pressures through operational productivity and lean initiatives.

In the first quarter, the company saw a significant improvement in GAAP operating margin, with a 3.9 percentage point increase. This was due to leveraging higher sales and managing costs effectively. The freight segment saw a 17.2% increase in sales, with a 5.7 percentage point increase in operating margin. Adjusted operating income for the segment was up 48.3% and adjusted operating margin was up 5.1 percentage points. This was driven by improved gross margin, favorable mix, and lower SG&A and engineering expenses. The segment also had a strong backlog, demonstrating good visibility for the future. The transit segment also saw a 5.5% increase in sales.

In the first quarter of the year, transit sales increased by 4.9% when adjusted for foreign currency. GAAP operating income was $74 million and adjusted segment operating income was $86 million. The adjusted operating margin was 12.7%, down 0.2 percentage points from the previous year due to unfavorable mix and higher input costs. The transit segment backlog for the quarter was $2.04 billion, up 3.3% from the previous year. The company's financial position remained strong with a cashflow of $334 million and a net debt leverage ratio of 1.7x. The company also repurchased $175 million of its shares and paid $36 million in dividends. The CEO then discussed the company's updated full-year guidance for 2024, stating that the company has a strong start to the year and expects continued profitable growth based on strong customer demand and a strong orders pipeline and backlog.

The company is increasing its previous guidance for 2024 sales and adjusted EPS, and expects cash flow conversion to be greater than 90%. The CEO is confident in the company's ability to drive profitable growth in 2024 and beyond, thanks to its resilient install base, team, technologies, and focus on customers. The company sees opportunities for growth in modernizations, new locomotive sales, digital solutions, and transit systems. With solid demand, backlog visibility, and cost management, the company is well positioned for long-term growth and shareholder returns. The call then moves on to the Q&A portion.

The speaker is discussing the surprising improvement in freight margins during the quarter and asks if there were any unique factors driving it. The other speaker responds that while they do not expect the margins to continue at the same rate, they are still confident in the overall progress of the year. He attributes the improvement to operational execution, favorable mix, and absorption, but notes that these factors may not continue in the back half of the year. He also mentions that lapping a one-time investment from the previous year contributed to the margin benefit.

The speaker discusses the freight group's performance and predicts that margins will be up in the second half of the year, but not to the same extent as in the first quarter. They also mention the proposed locomotive regulations from CARB and state that they are well-positioned to support customers regardless of the outcome. They also highlight the EPA's recent standards for reducing greenhouse gas emissions and mention their plans to help railroads transition to near zero emissions.

The operator introduces a question from Bascome Majors about the favorability of mix and its impact on gross profit expansion in the long term. Rafael Santana responds by highlighting the company's strong performance and commitment to innovation and proactive steps. John Olin adds that locos and mods are expected to provide a headwind on overall mix in the long term.

The company's mix of assets is expected to bring in profits for years to come. In the first quarter and first half of the year, there was mix favorability due to low margin international orders from the previous year. However, this is expected to reverse in the second half of the year. The majority of revenue and profit growth is expected in the first half of the year due to increased production of locos and mods. This will lead to a favorable mix in the first half and a slightly unfavorable mix in the second half.

The speaker discusses the expected favorable performance in the back half of the year, with an improvement in revenue and profit margin growth. They mention the success of their decarbonization efforts and the positive impact it has had on customer discussions and orders. The company sees continued opportunities for growth and reduction in carbon emissions with their tier four and mod products, both in North America and internationally.

GE is well-prepared to handle the transition to renewable and biofuels, as well as zero emissions technologies. They are also focused on capital allocation, with a strong balance sheet and potential for buybacks and dividends. Their main priority for free cash is M&A.

The company plans to return excess cash to shareholders through share repurchases and reports a positive start to the year with 175 million shares purchased. The pricing trends were slightly favorable and the company's costs were down. The industry locomotive fleet in North America was down, but Wabtec's fleet was up, possibly due to the company's investment in lifecycle costs and efficient engines. The company also provides strong service and support for their fleets.

The company's customers benefit from not only fuel efficiency, but also reliability and availability due to investments in engineering and service networks. The company continues to make investments in digital technology to improve safety and other aspects. The company is also working to discontinue low-margin revenue, and the transit segment has seen steady margin improvement but there is still room for operational improvement.

The speaker believes there is potential for profitable growth in the business and comments on the recent quarter's results. They mention higher input costs and integration savings, but stress the team's commitment to improving margins and pursuing selective opportunities. When asked about sales growth in the transit sector, the speaker estimates a range of 3% to 5% and emphasizes the importance of being selective. The next question is about alternative fuels and the speaker discusses the role of reducing CO2 emissions and fuel costs in the use of alternative fuels like biodiesel and renewables.

Rafael Santana, CEO of Wabtec, discusses the company's strategy of flexibility to support customers across the globe, where availability and subsidies for renewable diesel and other technologies vary. The company is focused on transitioning customers to zero emission technologies, such as battery electric and hydrogen, but acknowledges that these technologies are still in their early stages and may take time to mature. In terms of margins, the company is aiming for mid-single digit revenue growth and double digit EPS growth in the long-term.

The company's performance has not changed in relation to their long-term view of the industry and their performance within it. They continue to see opportunities for profitable growth, driven by strong momentum in both the North American and international markets. The company also highlights the ongoing lean initiatives, integration 2.0 progress, and portfolio optimization efforts as factors that will contribute to margin and revenue expansion. In terms of cost savings, the company has realized $125 million out of the expected $135 million to $165 million, and expects to reach a run rate savings of $75 million to $90 million by 2025. The majority of cost-saving projects have been approved and are in various stages of execution.

The speaker, John Olin, expects the company's margin growth to be higher in the first half of the year due to favorable revenue and mix, but will still see growth in the second half. The second quarter is expected to be strong, but not at the same level as the first quarter. If there is an acceleration in the domestic locomotive cycle due to regulatory changes, it is uncertain whether there will be any change orders or cancellations for modifications, or if it will simply add to the company's backlog.

Rafael Santana discusses the potential for hydrogen technology in the rail industry, stating that it is a customer-specific choice and there may not be a complete reversal of current technology. He does not expect cancellations, but there will be more consideration towards newer technology that can incorporate alternative fuels. He also mentions the possibility of government intervention to create corridors for hydrogen adoption, but full adoption is not expected in the near or mid-term. The current technology allows for up to 78% LNG usage.

The speaker discusses the possibility of using alternate engines in case of issues or fuel shortages during a mission. They mention the potential for experimentation and niche applications in this area. The speaker concludes by thanking the participants and ending the conference.

This summary was generated with AI and may contain some inaccuracies.