Wabtec Corporation (
Q3 2010 Earnings Conference Call
October 27, 2010 10:00 am ET
Al Neupaver - President and CEO
Tim Wesley - IR
Alvaro Garcia- Tunon - Sr VP, CFO & Secretary
Pat Dugan - VP and Controller
Arthur Hatfield - Morgan Keegan
Jim Lucas - Janney Montgomery Scott
Scott Group - Wolfe Trahan
Paul Bodnar - Longbow research
Steve Barger - KeyBanc Capital Markets
Scott Blumenthal - Emerald Advisors
Previous Statements by WAB
» Wabtec Corporation Q2 2010 Earnings Call Transcript
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» Wabtec Corporation Q3 2009 Earnings Call Transcript
Good morning and welcome to the Wabtec Corporation Third Quarter 2010 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions). After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded.
I now would like to turn conference over to Mr. Tim Wesley. Please go ahead sir.
Thanks Keith. Good morning everybody. Welcome to our third quarter 2010 earnings conference call. Let me introduce for you the rest of our team members who are here. Al Neupaver, our President and CEO, Alvaro Garcia-Tunon, our CFO, and our Corporate Controller, Pat Dugan.
We'll make our prepared remarks as usual and then we’ll take all your questions. I want to refer you to today's press release for the appropriate disclaimers on our forward-looking statements.
With that I'll turn it over to Al.
Thanks Tim. Good morning everyone. Today we reported a strong quarter with a bright outlook. The third quarter sales were at $376 million, that’s 14% higher than year ago quarter. Earnings per share was $0.63, that’s 11% higher than the $0.57 in the year ago quarter.
Our operating margins were good at 13.5% of sales and we generated $51 million of cash from operations. We also made some good progress on our gross strategies. We feel these results demonstrate the strength of our diversified business model, that our strategic initiatives are paying off and that we continue to benefit from the Wabtec performance system.
Today we updated our 2010 guidance for earnings per share based on our performance in the first nine months and the outlook for the rest of the year. We now give a guidance of $2.50 to $2.55 that compares to 2.45 to 2.55. Sales are expected to be up for the year 6 to 7% with growth in freight more than offsetting a decrease in transit revenues.
The overall economy seems to be improving which is having a positive effect on our freight rail industry
and it will help transit agencies as local and state funding become more available.
The recovery is still sluggish as we all know with unemployment high and budget issues at federal, state and local levels
. We’re still cautious in the short term but quite optimistic in the long term.
I want to emphasize that regardless of the economic climate we’ll stick to our long held philosophy. Be disciplined when it comes to cost and focus on generating cash to invest in growth opportunities.
Just a reminder for everyone, we’ll be issuing our 2011 guidance in February with our year end results. Let’s talk about our markets, the freight rail market.
Let's talk a little bit about the freight rail market. Rail traffic has rebounded solidly this year after a drop of 15% in 2009. Through early October, ton miles were up 8% and intermodal traffic was up 15%. Freight rail traffic bottomed up in the second quarter of 2009 with average weekly ton miles of about 26.8 billion compared to 32.3 billion in the third quarter of this year. Increase in traffic has lead to a similar rebound in our North American after market business.
After market was about two thirds of our total freight sales in the third quarter with sales up both compared to second quarter and to the year ago quarter. The freight traffic increases led the railroads to pull more parked cars and locomotives out of storage which will eventually help our OEM market. There’s still about 330,000 cars parked or about 22% of the fleet down from a peak of more than half a million cars.
The new rail car outlook is improving but still well below historical norms. Third quarter deliveries were at 3,706. Third quarter orders 9,194, more than double the second quarter and the backlog rose to over 19,000 cars. We expect the locomotive OEM build to exceed 500 this year as most of the units in storage are now running once again
Even with rail car and locomotive builds at historical lows, we have performed extremely well. Freight revenues exceeded 200 million in the quarter, the highest level in recent years. As rail cars and locomotive builds recover to normalized levels we should see good internal growth.
The transit market. The long term outlook remains strong with good growth opportunities both in the US and international markets. However in the short-term as we discussed during our second quarter call, continued to see effects from the budget issues at our transit agency costumers. These issues have affected short-term aftermarket demand and has delayed some OEM projects. As the economy improves we feel this trend will reverse.
Our transit sales have also been affected by the completion of a few major OEM programs with new programs being delayed but not cancelled. Our long-term transit outlook is good both domestic and internationally. Current US federal transportation spending bill has been extended through the year-end while permanent bills being negotiated. The House is asking for a 2011 spend of about $11.3 billion, that’s a 5% increase from this year and just today the Obama administration announced additional funding for passenger rail projects, about $2.5 billion. It appears that most of this is targeted for high speed rail corridors.