Rail equipment company Westinghouse Air Brake Technologies (NYSE:WAB) fell short of the market’s revenue expectations in Q4 CY2024 as sales rose 2.3% year on year to $2.58 billion. The company’s full-year revenue guidance of $10.88 billion at the midpoint came in 1.5% below analysts’ estimates. Its non-GAAP profit of $1.68 per share was 3% below analysts’ consensus estimates.
Is now the time to buy Wabtec? Find out in our full research report.
Revenue: $2.58 billion vs analyst estimates of $2.60 billion (2.3% year-on-year growth, 0.6% miss)
Adjusted EPS: $1.68 vs analyst expectations of $1.73 (3% miss)
Adjusted EBITDA: $486 million vs analyst estimates of $513.8 million (18.8% margin, 5.4% miss)
Management’s revenue guidance for the upcoming financial year 2025 is $10.88 billion at the midpoint, missing analyst estimates by 1.5% and implying 4.7% growth (vs 7.6% in FY2024)
Adjusted EPS guidance for the upcoming financial year 2025 is $8.55 at the midpoint, missing analyst estimates by 1.1%
Operating Margin: 12.9%, in line with the same quarter last year
Organic Revenue rose 2.3% year on year (6.7% in the same quarter last year)
Market Capitalization: $35.77 billion
“The Wabtec team delivered a strong 2024 as evidenced by higher orders, sales, margin expansion, increased earnings and robust cash flow,” said Rafael Santana, Wabtec’s President and CEO.
Also known as Wabtec, Westinghouse Air Brake Technologies (NYSE:WAB) provides equipment, systems, and related software for the railway industry.
Heavy transportation equipment companies are investing in automated vehicles that increase efficiencies and connected machinery that collects actionable data. Some are also developing electric vehicles and mobility solutions to address customers’ concerns about carbon emissions, creating new sales opportunities. Additionally, they are increasingly offering automated equipment that increases efficiencies and connected machinery that collects actionable data. On the other hand, heavy transportation equipment companies are at the whim of economic cycles. Interest rates, for example, can greatly impact the construction and transport volumes that drive demand for these companies’ offerings.
A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Wabtec’s 4.8% annualized revenue growth over the last five years was tepid. This fell short of our benchmark for the industrials sector, but there are still things to like about Wabtec.
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Wabtec Quarterly Revenue
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Wabtec’s annualized revenue growth of 11.5% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
Wabtec Year-On-Year Revenue Growth
We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Wabtec’s organic revenue averaged 10.8% year-on-year growth. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.
Wabtec Organic Revenue Growth
This quarter, Wabtec’s revenue grew by 2.3% year on year to $2.58 billion, falling short of Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 6% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and implies its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.
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Wabtec has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 12.6%.
Looking at the trend in its profitability, Wabtec’s operating margin rose by 5.6 percentage points over the last five years, showing its efficiency has meaningfully improved.
Wabtec Trailing 12-Month Operating Margin (GAAP)
This quarter, Wabtec generated an operating profit margin of 12.9%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
Wabtec’s EPS grew at a solid 10.7% compounded annual growth rate over the last five years, higher than its 4.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
Wabtec Trailing 12-Month EPS (Non-GAAP)
We can take a deeper look into Wabtec’s earnings to better understand the drivers of its performance. As we mentioned earlier, Wabtec’s operating margin was flat this quarter but expanded by 5.6 percentage points over the last five years. On top of that, its share count shrank by 10.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Wabtec Diluted Shares Outstanding
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For Wabtec, its two-year annual EPS growth of 24.2% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q4, Wabtec reported EPS at $1.68, up from $1.54 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Wabtec’s full-year EPS of $7.53 to grow 15.4%.
We struggled to find many positives in these results. Its revenue and EPS missed and guidance also fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 9.2% to $188.80 immediately following the results.
Wabtec may have had a tough quarter, but does that actually create an opportunity to invest right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
