Westinghouse Air Brake Technologies (WAB)

Q1 2011 Earnings Call

April 26, 2011 10:00 am ET

Executives

Timothy Wesley - Vice President of Investor Relations and Corporate Communications

Alvaro Garcia-Tunon - Chief Financial Officer, Executive Vice President and Secretary

Albert Neupaver - Chief Executive Officer, President and Director

Analysts

Kristine Kubacki - Avondale Partners, LLC

Scott Blumenthal - Emerald Advisors

Arthur Hatfield - Morgan Keegan & Company, Inc.

James Lucas - Janney Montgomery Scott LLC

Jason Rodgers - Great Lakes Review

Steve Barger - KeyBanc Capital Markets Inc.

Scott Group - Wolfe Research

Allison Poliniak-Cusic - Wells Fargo Securities, LLC

Presentation

Operator

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Previous Statements by WAB
» Westinghouse Air Brake Technologies' CEO Discusses Q4 2010 Results - Earnings Call Transcript
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» Wabtec Corporation Q2 2010 Earnings Call Transcript

Good morning, and welcome to the Wabtec Corporation's First Quarter 2011 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Tim Wesley. Please go ahead.

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Timothy Wesley

Thanks, Linda. Good morning, everybody, and welcome to Wabtec's first quarter earnings conference call this morning. Let me introduce the rest of our team who's here, our President and CEO, Al Neupaver: Alvaro Garcia-Tunon, our CFO; and our Corporate Controller, Pat Dugan.

As always, we will make our prepared remarks and then we will be happy to take your questions. We'll, of course, make some forward-looking statements during the call so please review today's press release for the appropriate disclaimers.

With that, I'll turn it over to Al Neupaver, our President and CEO.

Albert Neupaver

Thanks, Tim. Good morning, everyone. Obviously, our first quarter performance was strong. We had record sales, record earnings and a record backlog.

As we've discussed, this performance was driven mostly by growth in our Freight group. But our Transit group also showed some strength with sales increasing 10% compared to the fourth quarter of last year, and our Transit backlog also grew by about 14%. As a result of this first quarter performance and our outlook for the rest of the year, we raised our annual EPS guidance again. Our new guidance is $3.20 to $3.30.

Clearly, Wabtec is performing very well, which demonstrates the strength of our diversified business model, the benefits of our strategic initiatives and the power of our Wabtec performance system.

As I said, we have raised our 2011 EPS guidance based on our current backlog and our outlook. We are now expecting EPS between $3.20 and $3.30, with sales growth of about 15% for the year. Some of you may call this conservative, but I just want to remind you that it's still early in the year. Our guidance assumes the following: global economy continues to grow, freight rail traffic continues to improve with the economy, transit market continues to be stable and no major changes in foreign exchange rates.

We will continue to stick to our long-held philosophy: Be disciplined when it comes to cost; focus on generating cash to invest in growth opportunities.

Let's first take a look at the freight rail market. In North America, rail traffic continues to grow this year. Through mid-April, ton miles increased 6% and intermodal traffic was up 9%. The increase in traffic has led to a rebound in our North American aftermarket business, with aftermarket sales in the first quarter up 37% compared to a year-ago quarter.

Freight traffic is also growing globally especially in mining countries like Australia and Brazil. The North American railroads have continued to pull more parked cars and locomotives out of stowage, which is driving the OEM markets. Only about 280,000 cars or about 19% of the total fleet remain parked, down from a peak of more than 500,000 cars in the middle of 2009.

New railcar outlook continues to improve. First quarter deliveries are estimated to be about 7,000, with orders at 26,000. So the backlog will rise to about 40,000, the highest in nearly 3 years. Most forecasters have the North American freight car build between 30,000 and 35,000 this year, with the locomotive build of about 700.

In the first quarter, our Freight revenues hit a quarterly record of $265 million. Even with OEM deliveries still well below the long-term average, this bodes well for continued growth. Rail car deliveries peaked in 2006 at about 75,000 and the locomotive build reached 1,500 in 2008.

Let's look at the transit market. Global transit markets have remained stable. This is consistent with what we've indicated in prior quarters. This stability is despite some short-term challenges in the U.S. market due to budget issues and our transit agency customers.

OEM transit car deliveries are estimated at about 1,000 and new bus deliveries at about 4,800. Both figures are slightly less than last year. We have been selected for several projects this year and are in various stages of negotiating final contracts so no announcements just yet.

As transit agencies and federal government sort out funding matters, we should continue to see orders pick up, but it will take some time. We have seen a recovery in ridership, which was flat last year after being down 3% in 2009.

Positive long-term trends in transit should continue to drive investment, population growth and urbanization, long-term concerns about fuel prices, reduced dependence on foreign oil and environmental concerns. We continue to make good progress in various international markets, and that has helped our Transit backlog growth.

Transit backlog is up 12% compared to a year-ago quarter, and up 14% compared to fourth quarter 2010. Our Transit business remains stable because of its diversity. About half of its business is outside of the U.S. The global transit aftermarket business grew nicely in the first quarter as well, greater than 20% over 2010 first quarter and 28% greater than fourth quarter. And we've continued to invest strategically in future growth with acquisitions, new product development and global expansion. Overall, Wabtec is in a good position to take advantage of global investment in mass transit.

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