Westinghouse Air Brake Technologies (WAB)
Q2 2011 Earnings Call
July 26, 2011 10:00 am ET
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
Kristine Kubacki - Avondale Partners, LLC
Arthur Hatfield - Morgan Keegan & Company, Inc.
Thomas Albrecht - BB&T Capital Markets
Steve Barger - KeyBanc Capital Markets Inc.
Scott Group - Wolfe Trahan & Co.
Allison Poliniak-Cusic - Wells Fargo Securities, LLC
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Good morning, and welcome to the Wabtec Corporation's Second 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.
Thanks, Valerie. Good morning, everyone, and welcome to our second quarter earnings call today. Let me introduce the other members of the Wabtec team that are here, President and CEO, Al Neupaver; Alvaro Garcia-Tunon, our CFO; Chief Operating Officer, Ray Betler; and our Corporate Controller, Pat Dugan. We have some prepared remarks from Al and Alvaro, and then we'll be happy to take your questions.
During the call, we will make forward-looking statements. So please review today's press release for the appropriate disclaimers. I also want to point out that on today's call, we will refer to those GAAP and non-GAAP EPS and income from operations numbers. Reconciliations for those numbers are included in our press release. We believe that the non-GAAP measures provide useful supplemental information to assess our operating performance and to evaluate period-to-period comparisons. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, Wabtec's reported results prepared in accordance with GAAP.
Al, go ahead.
Well. Okay, good morning, everyone. We had a very strong operating performance in the second quarter with record sales and a record backlog. We earned a GAAP EPS of $0.75. If we exclude the special items, we mentioned in the press release and which we'll talk about on this call, we earned a non-GAAP EPS of $0.94, which was also a record. As we'll discuss, this performance was driven mostly by growth in our Freight Group, but our Transit Group continues to perform well. Based on this second quarter performance and our outlook for the rest of the year, we raised our annual guidance to $3.45 to $3.55 earnings per diluted share, excluding the special items. Clearly, our business is performing very well, thanks to our diversified business model, our strategic growth initiatives and the fire of our Wabtec performance system. We are positioned well to take advantage of our growth opportunities around the world.
Let's talk a little bit about these special items that Tim mentioned. As we announced last month, after a long-running legal battle, a jury awarded favorly [ph] $18.1 million based on a claim that stems from a 1993 product license agreement. That amount could change depending on any post-trial adjustments for previous payments and interest. We're disappointed in the outcome and plan to appeal, but we needed to record the $18.1 million charge in this quarter. Most importantly about this situation is that it has no impact on our ability to supply customers in the past or will have no impact on the business going forward. We also recorded 2 other special items, both of which were benefits. When we acquired Ricon subsidiary in 2008, we had certain amount of money set aside. During this quarter, we received $2.4 million from Ricon's prior owner to settle several claims for which Wabtec have been indemnified. This was the final settlement on those issues. We also had a tax benefit of $1.7 million from the resolution of tax issues from prior years.
As I mentioned, we raised our 2011 EPS guidance based on current backlog and outlook. We are now expecting earnings per diluted share between $3.45 and $3.55, with sales growth of about 20% for the year. This guidance excludes the special items we recorded this quarter. Our guidance assumes the following: the global economy continues to grow modestly, freight rail traffic continues to improve with the economy, the transit markets continue to be stable and there's no major changes in foreign exchange rates. We will continue to stick to our long-held philosophy, that is to be disciplined when it comes to costs, focus on generating cash to invest in growth opportunities.
Let's first take a look at the freight rail markets. Rail traffic continues to grow this year. Although the rate of growth has slowed due in part to tougher comparison and some weather factors cited by the railroads during the second quarter. Through mid-July, ton miles have increased 3.5% this year and intermodal traffic was up 7.2%. The increase in traffic, as well as additional service contract, primarily related to positive train control, has led to strong growth on our North American aftermarket business, with aftermarket sales in the second quarter up 46% compared to the year ago quarter. The freight OEM markets also continue to strengthen, with OEM sales up 62%. We now expect about 40,000 new freight cars to be delivered this year, up from our original forecast of 30,000 to 35,000. Second quarter deliveries were 10,600, more than triple last year's quarter. New orders come in at 16,900, almost 4x last year's quarter and the backlog for rail cars rose to over 57,000, the highest in 4 years.