Wabtec Corporation (WAB)
Q2 2010 Earnings Call
July 27, 2010 10:00 a.m. ET
Tim Wesley - IR
Al Neupaver - President and CEO
Alvaro Garcia-Tunon - Sr VP, CFO & Secretary
Pat Dugan - VP and Controller
Scott Group - Wolfe Trahan
Jim Lucas - Janney Montgomery Scott
Kristine Kubacki -Avondale Partners
Steve Barger - KeyBanc Capital Market
Alison Wolf - Longbow Research
Scott Blumenthal - Emerald Advisors
Tom Albert - BBT
Art Hatfield - Morgan Keegan
Previous Statements by WAB
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Good morning and welcome to the Wabtec Corporation Second Quarter 2010 Earnings Conference Call. All participants will be in listen-only mode for the presentation. But there will be an opportunity of course you ask questions, instructions will follow at that time. (Operator Instructions).
At this time I would like to turn conference over to Mr. Tim Wesley. Please go ahead Mr. Wesley.
Thank you. Good morning everybody. Welcome to our second quarter 2010 earnings conference call. Introduce you for the rest of our team members who are here. Our President and CEO, Al Neupaver; our CFO, Alvaro Garcia-Tunon, and our Corporate Controller, Pat Dugan.
We'll make our prepared remarks as usual and then be happy to take your questions. Of course once I refer to today's press release or the appropriate disclaimers on our forward-looking statements. Also want to point out that we will be referring to some non-GAAP performance measures. So we encourage you to review the reconciliation table within today's press release.
With that I'll turn it over to Al.
Yeah. Good morning everyone. I don't know if all of you heard the music. I just want to make sure you knew that that is not the Wabtec theme song. Today we reported a strong quarter and improved outlook.
Sales were 374 million that was 12% higher than year ago quarter and 3% increase over the first quarter. Earnings per share was at $0.65, this is the highest in more than a year. This compares to an adjusted non-GAAP number of $0.55 and that's what Tim was referencing there, in the year ago quarter.
Our operating margins was strong at 13.3% of sales. We increased our guidance for the year and we made good progress on our gross strategy. This demonstrates the strength of our diversified business model and that our strategic initiatives are paying off. And that we continue to benefit from the Wabtec performance system.
Today we increased our 2010 earnings per share guidance based on our performance in the first half and an outlook of the rest of the year to $2.45 to $2.55. This compares to 2.40 to 2.50 was previously our guidance. Sales are still expected to be slightly up for the year with growth in freight more than offsetting a decrease in transit.
The overall economy seems to have rebounded which is having a positive effect on the freight rail industry. But this recovery remains sluggish with unemployment's still high and budget issues at the federal, state and local levels. So it's proven to remain cautious about our outlook.
I want to emphasize that regardless of the economy we will stick to our long held philosophy. Be discipline went it comes cost and focus on generating cash to invest in growth opportunities.
Let's talk a little bit about the freight rail market. Rail traffic has rebounded solidly this year after 15% drop in 2009. Through mid July, ton miles were up 9% and intermodal traffic was up 13%. Volume bottomed out in the second quarter of 2009 with an average weekly 10 mile about 26.8 billion. This compares to 32 billion ton miles that was recorded on average in the second quarter of this year. This traffic increase has lead to a smilar rebound of our North American great after market business.
Great after market business is up 28% compared to second quarter 2009. The traffic increase has lead the railroads to pull more parked cars and locomotives out of storage which will eventually help the freight OEM market. About 365,000 cars however are still in storage or parked, its about 25% of the fleet. It's down from the peak of 0.5 million cars in the middle of last year.
New rail car outlook is improving but still well below historical norms. The second quarter deliveries were about 2,900 and the orders were 4,900. Slightly less than first quarter but doubled the year ago quarter or orders. The backlog was to about 15,000 that's the highest we've seen in three quarters. We expect the locomotive OEM deal to be about 400 this year.
Our international freight markets have almost fully recovered the pre-recession volumes. In general, conditions are improving in the freight markets and our results reflect that.
The transit market, our overall outlook remains strong with many growth opportunities. In the short-term as we cautious during the first quarter call we have seen some effect of the budget issues at our transit agency costumers. These issues are affecting short-term aftermarket demand and delay in some of the OEM projects. We believe this is a short term situation judging from the robust proposal activity out there both domestic and international. But we will continue to monitor market conditions closely and respond accordingly.
Our long-term outlook in the U.S. and around the world is strong for transit markets. With good funding levels and ridership expected to increase again as unemployement and economy recovers. Current federal spending bill has been extended through year-end while our permanent bill is being negotiated. The House is asking for 2011 spending of about $11.3 billions in transit that's a 5% increase from this year.