The paragraph is the opening segment of the Westinghouse Air Brake Technologies Corporation's first quarter 2025 earnings conference call. The operator introduces the call, stating it is in a listen-only mode until the question segment, and informs participants that the event is being recorded. Kyra Yates, Vice President of Investor Relations, welcomes everyone and introduces key company representatives. She notes that the conference includes a slide presentation and financial disclosures available on their website, and mentions that some statements will be forward-looking with accompanying disclosures on risks and assumptions. Non-GAAP financial metrics will also be discussed. Rafael Santana, President and CEO, begins by stating the company had a strong start to the year, exceeding expectations, before John Olin covers the financials.

The paragraph outlines a positive financial quarter for the company with increased sales, adjusted EPS, and cash flow, despite a cautious approach due to economic uncertainties. Sales reached $2.6 billion, up by 4.5%, and adjusted EPS increased by 21%. The backlog grew to $8.2 billion, indicating strong business momentum. The company is optimistic about international market opportunities but remains cautious regarding North American business due to tariff activities. While the North American railcar build forecast for 2025 remains unchanged at 35,000 cars, this represents a 17% decrease from the previous year. The company sees global opportunities for locomotives, modernizations, and digital technologies driven by demand for fuel efficiency and safety improvements.

The paragraph discusses Westinghouse Air Brake Technologies Corporation's strong international activity in core markets like Africa, Asia, and CIS, driven by a robust locomotive backlog and infrastructure investments. In the mining sector, fleet upgrades are ongoing, while ridership and fleet expansion in the transit sector show growth potential. Key business highlights include a $300 million service agreement in Kazakhstan, a $140 million locomotive order in North America, and $130 million in new equipment and service contracts in the APAC region. Additionally, TransitOne secured significant contracts for platform doors in European metros, and a $50 million order for NYC transit service equipment. These achievements underscore the company's market leadership and commitment to delivering impactful results.

The paragraph discusses the positive momentum and growth opportunities in international markets for a company specializing in locomotives and related services. It highlights strong revenue growth and profitability in international regions compared to North America. Key drivers include urbanization and infrastructure funding in Europe, locomotive fleet expansion in the CIS region, new mining projects in Sub-Saharan Africa, and urban infrastructure investments in the APAC region. South America is noted for upgrading fleets, exploring alternative fuels and automation, and implementing digital technologies. Overall, the company leverages its international footprint to sustain growth in services, components, and digital solutions across various regions.

The paragraph discusses Westinghouse Air Brake Technologies Corporation's financial performance in the first quarter. The company experienced better-than-expected results with strong operating margin expansion due to favorable timing of expenses, improved operational execution, and a defensive spending approach amidst economic uncertainty. Sales for the quarter were $2.61 billion, a 4.5% increase from the previous year, driven by the freight and transit segments. Excluding currency impacts, sales grew by 6.2%. The GAAP operating income was $474 million, with improved gross margins and effective cost management driving this increase. The adjusted operating margin was 21.7%, up 1.9 percentage points from last year. The GAAP earnings per diluted share rose 22.9% to $1.88 compared to the year-ago quarter.

In the quarter, Westinghouse Air Brake Technologies Corporation faced $9 million in restructuring charges linked to integration and portfolio optimization efforts aimed at streamlining operations. The company is focusing on integration 3.0 with plans to achieve savings by 2028, and intends to cut $100 million of low-margin revenue. Adjusted earnings per diluted share increased by 20.6% to $2.28 compared to the previous year. Sales realignment within the Freight segment involved moving specific businesses to better align competencies for growth. First-quarter consolidated sales rose by 4.5%, driven by a 16.9% increase in services sales due to the timing of modernizations and overhauls, while equipment sales declined by 9.5% due to capacity shifts towards modifications.

In the second quarter and the latter half of the year, there will be a shift back to new locomotive production, leading to a slight decrease in year-over-year mod production in Q2 and a more significant reduction later. Component sales fell by 0.8% due to portfolio optimization and reduced North American railcar builds, but were partially offset by increased industrial product sales. Digital intelligence sales increased by 2.8%, primarily due to international growth, although this was mitigated by a decline in the North American market. The Transit segment saw a sales rise of 5.3%, driven by product demand, though foreign exchange negatively impacted sales by 2.6 percentage points. Transit momentum remains strong due to the need for sustainable infrastructure investments. GAAP gross margin increased by 1.8 percentage points to 34.5%, attributed to higher sales, favorable expense timing, product mix, and modest contract escalation. Despite foreign currency exchange challenges, favorable mix improved freight segment results. Operational execution and cost control enhanced productivity. GAAP operating margin rose by 1.7 percentage points to 18.2%, and adjusted operating margin increased by 1.9 percentage points to 21.7%. Adjusted SG&A was slightly lower as a percentage of revenues compared to the previous year.

The paragraph discusses the financial performance of two business segments—Freight and Transit. The Freight segment reported a 4.2% increase in sales and a GAAP operating income of $420 million, with an operating margin of 22.1%. Adjusted operating income was $488 million, with a 25.7% margin, driven by a favorable business mix and improved productivity. The twelve-month backlog increased to $6.07 billion, up 9.1%. The Transit segment saw a 5.3% increase in sales, or 7.9% when adjusted for currency, with a GAAP operating income of $90 million. Adjusted operating income was $103 million, with a 14.6% margin, attributed to favorable mix and operational execution. The Transit segment's twelve-month backlog was $2.13 billion, up 2.2%. Both segments faced restructuring costs due to integration and portfolio optimization initiatives.

The paragraph discusses the company's financial performance and expectations. It reports a 5.1% increase in the multiyear backlog on a constant currency basis and a first-quarter cash flow of $191 million. The company maintains a strong financial position with $2.54 billion in liquidity and a net debt leverage ratio of 1.5 times, which is expected to rise to 2.3 times after acquiring Evidence and Inspection Technologies. The company is disciplined in capital allocation, repurchasing $98 million in shares. The adjusted EPS guidance for 2025 has been increased to a range of $8.35 to $8.95, reflecting a 14% rise at the midpoint. Revenue and cash flow conversion guidance remain unchanged, with a cautious but focused approach to achieving commitments despite economic uncertainties.

In the paragraph, the speaker highlights their company's strong performance, attributing it to a resilient installed base, innovative technologies, and customer focus. Despite economic uncertainty, they plan to achieve mid-single-digit organic growth and double-digit EPS growth by emphasizing cost management and improvement efforts. The speaker then hands the discussion over to Kyra for the Q&A session, who asks participants to limit their questions to one with a follow-up and join the queue for additional inquiries. The first question in the session, from Rob Wertheimer, seeks clarification on comments related to North America's business pipeline and market dynamics.

The paragraph discusses how Rafael Santana observes a lag in North America's business performance compared to international markets, where there is strong momentum and profitability. Despite some fluctuations in order delivery, the fundamentals remain robust, with high-quality backlogs offering better visibility and margins. Santana emphasizes cautious optimism, focusing on what can be controlled to achieve the 2025 guidance and ensure profitable growth into 2026 and beyond. Rob Wertheimer seeks clarification, to which Santana responds that investment in new fleets, like tier four locomotives, is increasing in North America, despite variations across customers.

The paragraph discusses a conversation about the company's global business strategy, focusing on North America and the dynamics of managing global volumes. The speaker emphasizes the importance of taking actions to achieve the 2025 guidance and drive profitable growth beyond 2026. Adam Roszkowski asks about the company's assumptions regarding tariffs in the 2025 guidance. Rafael Santana responds that their forecast includes the first round of tariffs imposed by Canada, Mexico, the U.S. (on steel and aluminum), and China. However, they have not included the reciprocal higher tariffs due to the volatility and uncertainty around whether those tariffs will be implemented, given the current ninety-day pause on raising them further.

In the article's paragraph, tariffs are discussed, noting that their financial impact will not be felt until the end of May due to an on-water exemption. Adam Roszkowski and Rafael Santana then discuss anticipated revenue growth, particularly the expectation for heavier weighting on the EPS side in the latter half of the year. Santana highlights the uncertainty and volatility in the market, suggesting a focus on the upcoming second quarter. He anticipates a strong second quarter but notes that the revenue mix, which favored services over equipment in the first quarter, is likely to change. The equipment group is expected to improve, while the services group's growth is expected to moderate, potentially impacting the revenue mix. Additionally, some favorable timing items from the first quarter are not expected to recur in the second quarter. The operator then introduces Jerry Revich from Goldman Sachs for the next question.

The paragraph discusses the company's response to customer feedback regarding tariffs and fleet management. Rafael Santana emphasizes their efforts to work constructively with customers and suppliers to manage supply chain disruptions, ensuring fleet reliability and availability. They are considering various strategies, such as evaluating labor, sourcing alternatives, and inventory positioning, to minimize disruption and support demand. Despite pressures, they have implemented pricing actions and remain committed to their integration 3.0 strategy without any pivot. Their strategy aims to reduce costs by $100 to $125 million.

The paragraph discusses the expected growth in the international aftermarket service for locomotives. Jerry Revich asks about the anticipated growth rate given the aging fleet, and Rafael Santana responds, mentioning an expected growth rate of 6% to 7% for mature service businesses, excluding modernization. Santana highlights the increased workload of their fleets, with over 18,000 units being monitored and an increase in megawatt hours, indicating more activity. Additionally, Daniel Imbro inquires about the impact of tariffs, referencing a significant gross margin headwind back in 2018, seeking clarification on current tariff impacts.

The paragraph is a conversation between Daniel Imbro and John Olin discussing the impact of tariffs on the business and the company's ability to manage these. John Olin states that they won't disclose specific tariff impacts due to ongoing volatility and uncertainty. The company is working with stakeholders and employing various strategies to minimize tariff impacts while adjusting prices accordingly, except for reciprocal tariffs. Daniel also inquires about a decrease in free cash flow during the first quarter, questioning if it was due to timing issues or market volatility affecting receivable securitization. John acknowledges the question and cites the impact of a securitization financing event from the previous year.

The paragraph is a portion of a conference call or earnings discussion. It starts with a company representative explaining changes in their financial reporting, specifically regarding securitization. They mention ending the previous year with $230 million in outstanding securitization but having zero in the first quarter of the current year, which affected the cash flow by $143 million. The representative states that moving forward, changes in securitization will appear in the financing section of the cash flow statement instead of operating cash, affecting how cash flow is reported. Then, a Morgan Stanley representative, initially mislabeled as Vincent Andrews but later identified as Angel Castillo, asks a question about the company's margin backdrop, particularly relating to the second quarter dynamics and any surprises from the first quarter. John Olin acknowledges the question.

The paragraph discusses the factors affecting the company's first-quarter margins and their expectations for the future. The first-quarter margin exceeded expectations primarily due to mix, but this is considered a timing element and may not continue into the second quarter. However, strong productivity from integration 2.0 and portfolio optimization, along with proactive cost management, are expected to positively impact full-year performance. The company is also focused on managing costs in response to tariffs, with efforts to ensure commitments to shareholders are met. Angel Castillo asks about the company's ability to quickly adapt to potential changes in tariff levels expected around May 1st and whether there could be a delay in implementing these changes or if they can be incorporated immediately.

In this paragraph, Rafael Santana discusses the challenges of managing various business variables, emphasizing the importance of ensuring profitable growth through to 2026. He mentions actions taken, such as cost and pricing adjustments, to offset pressures. John Olin and Angel Castillo talk about reciprocal tariffs, noting that the financial impact wouldn't be felt until the end of May. Finally, Bascome Majors asks about the supply chain, specifically regarding international locomotive assembly, and seeks information on components sourced from the U.S.

The paragraph discusses the company's strategy of balancing local and international supply chains in North America and other global markets. Rafael Santana emphasizes the importance of leveraging local competitive advantages while also utilizing global scale for critical components. He uses the example of Kazakhstan to illustrate how the company manages to produce certain parts locally while importing specific components that require a larger scale. The focus is on maintaining a balance between local and global elements for efficiency and competitiveness.

The paragraph discusses the difference in profit margins between the company's international and North American operations. John Olin explains that international margins have been consistently higher than North American margins, though this information hasn't been disclosed before. The difference isn't due to recent changes; rather, it results from efforts over several years to improve productivity and standardize processes in international markets. These efforts have led to a more favorable margin structure internationally, a trend expected to continue.

The paragraph discusses a conversation between James and John Olin about amplified cost control measures in a company, emphasizing structural efforts like integration and portfolio optimization. Olin assures James that these measures are precautionary and won't impact the business's future. Steve Barger from KeyBanc Capital Markets then asks about the consistency of international margin differences across regions and product lines, to which Rafael Santana responds that while growth is consistent internationally, variations occur based on product maturity and mix in different countries.

The paragraph discusses the consistent improvement in company margins due to integration and productivity efforts. The company is well-positioned to compete for opportunities, having adapted existing platforms for competitive advantage, resulting in positive equipment margins. Despite uncertainties in the global environment, tariffs, and international trade policies, the company’s long-term projects, like those in Guinea, remain unaffected. The conversation highlights the volatility in currency and international markets but emphasizes the company's focus on controlling what they can and maintaining proactive supply chain management to support customer needs.

In the paragraph, Rafael Santana addresses a question from Oliver Holmes regarding how customers are reacting to passing through or repricing tariffs. Santana emphasizes the importance of managing supply chain shifts fairly to minimize disruptions and maintain fleet reliability and availability. He mentions that they are adopting multiple strategies, such as working with USMCA, improving inventory positioning, and taking cost and pricing actions. This approach allows for constructive dialogue with both customers and suppliers. Oliver Holmes acknowledges the response, and the operator moves on to the next question from Ivan Yi, representing Scott Group, who asks about tariffs.

In the conversation, Rafael Santana addresses a question about their ability to manage tariff impacts through methods like USMCA exemptions and supply chain adjustments. He emphasizes their aim to maintain margins despite these challenges. When asked about a new Class one local order, Santana refrains from providing specifics, citing customer-specific details and project variability. Tami Zakaria asks about their ability to reprice the backlog amidst rising tariffs. Santana responds, indicating a broad approach to business with various multiyear agreements and no specific repricing strategy mentioned.

The paragraph discusses the company's strategy for managing transactional customers and ensuring a balanced approach to business operations. The focus is on achieving profitable growth through 2026, despite potential quarterly impacts. The discussion also touches on the reversal of the U.S. Dollar's strength and its minimal effect on revenue guidance for the year. The session concludes with acknowledgments and a closing statement from the conference operator.

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