The global rail industry continues to see growth and investment across key markets, with carloads increasing in countries such as Kazakhstan, Latin America, Africa, and India. Significant investments in infrastructure are driving international orders, supporting a strong pipeline for future growth. However, in North America, demand for new railcars is down compared to the prior year, with projections indicating a decrease of 22% for 2026 compared to 2025.
Despite the challenges in the North American market, the Transit sector is showing positive signs of growth. Ridership is increasing in key markets like Europe and India, leading to strong backlogs at car builders fueled by higher levels of public investments for fleet expansions and renewals. Recent business wins, such as a multibillion-dollar mining order for drive systems and aftermarket parts, demonstrate the company’s ability to innovate and deliver value to customers.
Innovation is a key focus for the company, with the execution of the first EVO Modernization build marking an important milestone in transitioning new products from development to commercialization. In the Transit segment, a $54 million brake and couplers order with Kawasaki for the New York City Transit highlights the positive impact of recent acquisitions on enhancing the company’s portfolio.
The company’s acquisition strategy has been disciplined and focused on driving long-term value creation. With over $4.5 billion deployed in capital across various acquisitions since 2020, the company has targeted opportunities that enhance its portfolio and strengthen its position as a leading industrial technology company. Recent acquisitions, such as Inspection Technologies, Frauscher, and Dellner, are off to a great start and are delivering ahead of the acquisition plan.
Overall, the company’s approach to mergers and acquisitions is aimed at delivering sustained profitable growth by executing high return-on-investment acquisitions and focusing on integration and synergy realization. With a strong financial performance in the first quarter of 2026, the company remains optimistic about its growth prospects and ability to deliver value to stakeholders. Wabtec Corporation recently reported its first quarter earnings, showing a strong performance with GAAP earnings per diluted share at $2.12, up 12.8% compared to the previous year. The company also reported adjusted earnings per diluted share of $2.71, an 18.9% increase from the prior year. These positive results reflect the company’s strong execution, business resilience, and solid momentum as they progress through the year.
During the quarter, Wabtec incurred net pretax charges of $41 million for purchase accounting adjustments and transaction costs related to recent acquisitions, as well as restructuring costs for integration and portfolio optimization initiatives. Despite these charges, the company was able to achieve significant growth in earnings per share.
The quarter saw consolidated sales increase by 13.0%, driven by a 52.5% growth in equipment sales due to higher locomotive deliveries and increased mining sales. However, services sales were down by 17.3% due to lower modernization deliveries, partially offset by core services sales growth. Component sales also saw a decline of 6.3%, while digital intelligence sales increased by 75.7% driven by acquisitions.
In the Transit segment, sales were up by 17.8%, with a favorable impact from foreign currency exchange. The company’s gross margin improved to 36.0%, up 1.5 percentage points from the previous year, while operating margin saw a slight decrease to 17.5%. Adjusted operating margin, however, improved to 21.9%, driven by cost recovery, increased productivity, and savings.
In the Freight segment, sales were up by 11.3%, with GAAP segment operating income at $450 million and adjusted operating income at $550 million. The operating margin for the Freight segment was 21.3%, down slightly from the previous year. The Transit segment also showed strong results, with sales up by 17.8% and adjusted operating income at $138 million.
Wabtec’s financial position remains strong, with first quarter cash flow generation of $199 million and a cash conversion rate of 40%. The company’s liquidity position ended the quarter at $2.09 billion, with a net debt leverage ratio of 2.3x. Despite funding the purchase of Dellner for approximately $1 billion during the quarter, Wabtec’s leverage ratio remained within its targeted range of 2x to 2.5x.
Overall, Wabtec’s first quarter performance demonstrates its ability to drive growth, manage costs, and deliver value to its shareholders. The company continues to focus on strategic investments and capital allocation to maximize returns and compound earnings for its stakeholders. Thank you, Rafael, for providing us with an overview of our 2026 financial guidance. It is clear that our team has delivered a strong first quarter, with operational results exceeding our expectations. Our earnings per share (EPS) also benefited from nonoperational factors such as currency fluctuations and taxes. We are encouraged by the underlying demand for our products and solutions across the business, as evidenced by a strong pipeline and robust backlogs.
With this positive momentum, we are pleased to announce an increase in our adjusted EPS midpoint guidance for 2026. We now expect adjusted EPS to be in the range of $10.25 to $10.65, representing approximately 17% growth at the midpoint. While our revenue guidance remains unchanged, we are confident in our ability to drive top-line growth, expand margins, and execute with discipline.
Our recent acquisitions are also exceeding expectations and strengthening our financial position. We believe that Wabtec is well-positioned as a leading industrial technology company, with the capabilities and foundation to drive sustainable, profitable growth for years to come. Our 5-year outlook is driven by the strength of our resilient installed base, our world-class team, innovative technologies, and customer-focused approach.
Despite potential challenges such as tariffs, we are confident in our ability to navigate these headwinds and continue to deliver value for our shareholders. Our team is focused on executing our value creation framework and delivering on our long-term growth strategy. We remain committed to driving profitable growth and creating long-term shareholder value.
In conclusion, we want to thank you for your time and support. We are now ready to address any questions you may have. Please limit yourself to one question and one follow-up question to allow for a productive discussion. Operator, we are now ready for our first question. Thank you. In a recent update on the company’s operations, Rafael highlighted that they were slightly favorable to their expectations and successfully managed to exit a Digital project. Upon further analysis, they discovered that the improvement was a result of both structural changes and timing adjustments. Despite rising costs, the company has been effectively managing them through various strategies.
The increase in costs, largely due to inflation, has been attributed to factors such as escalating prices for metals like copper, aluminum, steel, and precious metals. Additionally, transportation costs have risen, and there is pressure on memory chips in the Digital business segment. However, the company remains optimistic about their ability to navigate these challenges and maintain profitability.
Taking into account the structural improvements made in the first quarter, the company anticipates a $0.10 increase in overall EPS guidance for the year. Furthermore, they expect nonoperational factors, such as currency fluctuations and tax implications, to contribute to an additional $0.10 increase. While uncertainties remain regarding currency movements, the company is confident in their ability to sustain income levels.
During a discussion with Angel Castillo from Morgan Stanley, Rafael Santana elaborated on potential headwinds and growth drivers for the year. Headwinds include factors like freight car deliveries, inflation in input costs, and electronics obsolescence. On the positive side, opportunities for modernizing subsystems, strong momentum in acquisitions, new product introductions, and increased demand for existing projects were highlighted.
Despite facing significant financial headwinds, particularly related to tariffs, the company remains optimistic about their ability to mitigate these challenges and deliver on their guidance and long-term projections. The team is confident in their execution capabilities and ready to navigate the evolving business landscape.
In conclusion, the company’s revenue guidance remains unchanged despite a strong backlog and positive growth indicators. They are focused on managing cost pressures, leveraging opportunities for growth, and maintaining profitability in the face of challenging market conditions. By staying agile and proactive in their approach, the company aims to achieve sustainable success in the long run. As we reflect on the past year and the challenges we faced with increasing tariffs, it is clear that we have seen significant growth in our tariff obligations. The implementation of the 232 tariffs has had a profound impact on our business, leading to exponential gains in the absolute level of tariffs from Q3 to Q4. We have been anticipating this rise and have forecasted that it will continue for about three quarters before plateauing.
Moving into Q1, we are experiencing a similar trend, with a plateau expected in terms of absolute tariffs. The 232 tariffs have remained largely neutral, and as we progress through the second quarter, we anticipate the base tariffs to gradually increase. While we expect some marginal growth in the third quarter, we anticipate a more significant rise in the fourth quarter as we compare to the previous year’s tariff payments.
Despite the challenges posed by the tariffs, we remain optimistic about our outlook for the year. We acknowledge that the tariffs will continue to impact our margins in the first half of the year, but we expect this pressure to ease in the second half as we lap the year-ago figures. Additionally, we have projected higher revenue growth in the first half of the year, driven in part by our acquisitions, particularly Inspection Technologies.
In the first quarter, we have seen modest operating margin growth, which aligns with our expectations. As we look ahead to the remainder of the year, we anticipate that the second quarter will mirror the first quarter in terms of revenue and margin growth, with slight variations due to operational factors.
When it comes to our backlog strength, we are pleased to see momentum building, with underlying growth across the board. While the Dellner acquisition has contributed significantly to our backlog growth, we are also seeing favorable results in our core business. Our strong pipeline of opportunities is being converted into backlog, with a focus on service agreements and equipment upgrades driving recurring revenue.
Internationally, we are experiencing strength in various regions, with customers investing in cost reduction, efficiency, and reliability. In North America, while fleet renewal remains subdued, specific customers are making strategic investments that provide opportunities for growth.
As we navigate the challenges of tariffs and focus on leveraging our backlog and pipeline of opportunities, we are confident in our ability to continue delivering strong results and driving growth in the coming quarters. When discussing financial performance similar to the first quarter of the year, John Olin, a representative from a company, explained that the second quarter is expected to show growth in revenue, margin, and absolute EPS. However, he clarified that there will be exceptions due to nonoperational items that are not expected to repeat. The overall performance is anticipated to fall within the same range as the first quarter.
During a conference call, Benjamin Mohr Mok from Citigroup inquired about the company’s backlog and its conversion to revenue growth. Olin responded by highlighting the volatility in the backlog, citing examples of past growth rates and their correlation to revenue growth over a two-year period. He emphasized that while there may not be a direct correlation in terms of timing, the backlog typically reflects a significant portion of revenue growth over time.
In terms of organic growth, Olin noted that excluding certain portfolio exits, the company’s performance in the first quarter was in line with expectations. He mentioned a portfolio optimization program aimed at strengthening the company’s foundation and improving profitability. The company expects organic growth to be in the mid-single-digit range on a full-year basis, with fluctuations in quarterly performance depending on equipment delivery schedules.
Regarding potential delays in payments from a specific project with Alstom, Rafael Santana highlighted the company’s focus on providing mission and safety-critical systems to transit operators. Despite project delays exacerbated by COVID, Santana expressed confidence in the continued demand and government investment in public transportation infrastructure. He refrained from commenting on specific customer details but emphasized the company’s commitment to meeting the needs of transit operators.
Overall, the company remains optimistic about its future growth prospects, citing a strong international pipeline and robust demand in markets worldwide. With a multiyear backlog exceeding $30 billion, the company is well-positioned to capitalize on opportunities for growth in the coming years. Our teams are continuing to manage our record backlogs exceptionally well, ensuring that our customers receive their orders on time, with improved quality and cost efficiency. This ongoing partnership with our customers is crucial in maintaining our strong performance in delivering our products and services.
When it comes to our international business, we have seen a significant increase in orders over the past couple of years. This growth is attributed to the expansion of our installed base, leading to a higher demand for our services and support. The recurring revenue from servicing existing fleets and providing new units to customers has been a driving force behind our success in the international market.
Despite the current backlog being at an all-time high, we remain optimistic about the future of our international business. The pipeline of opportunities remains strong, with continued conversions expected in the coming months. Our 12-month backlog and improved visibility for the future year give us confidence in our ability to expand our footprint in the international market.
Looking ahead, our multi-year coverage approach allows us to plan for sustained profitable growth over time. Our visibility across 12, 18, 24, and 36 months has strengthened, providing us with the confidence to deliver on our long-term guidance and continue our growth trajectory.
In response to inquiries about our marine and power generation engines, we have engines that are suitable for marine and power generation applications. While we have seen limited opportunities in these areas, we are equipped to support customers with their specific needs in these segments.
As for our Equipment revenue, which saw a significant increase in the last quarter, it is important to note that our new locomotives fall under the Equipment Group, while Modernizations are handled by the Service Group. This may result in fluctuations in revenue growth over the next quarters, but we remain committed to delivering value to our customers and driving growth across all our business segments. Over the past year, there has been a noticeable shift in the dynamics between Services and Equipment within the locomotive industry. In the first half of the year, Services were performing favorably while Equipment was down. This was largely due to an increase in modifications during the first two quarters of the year, which then flipped in the second half. Looking ahead, it is expected that the first half of the year will see stronger growth in the Equipment Group as more new locomotives are produced, with a slight decrease in Services. However, this trend may temper in the back half of the year.
Overall, the expectation is that the combined modifications and locomotives on a global scale will increase, while in North America, there may be a slight decrease on a full-year basis. It is important to recognize the variability between the Equipment and Services groups and to consider them together when analyzing the industry trends.
Rafael Santana, a key figure in the industry, highlighted that modernization has seen a significant decrease, particularly in the North American market. This decline has been double-digit and is impacting the overall landscape of the industry.
When it comes to profitability and margins, John Olin emphasized that the backlog typically holds more profit today than in the past. This increase in profitability is a result of the value-added to Equipment, which reflects positively in the backlog. Despite fluctuations in the 12-month backlog, the company remains optimistic about future growth and profitability.
In terms of gross margins and operating expenses, the company has seen improvements in gross margins due to productivity, lean propagation, and strategic acquisitions. However, operating expenses have also increased, particularly due to M&A activities and the integration of new revenue streams. It is expected that these trends will continue in the upcoming quarters, with a focus on maintaining profitability and efficiency.
Competitive dynamics within the industry remain active, with competition driving innovation and technology leadership. While specific competitors were not mentioned, it is clear that the company is focused on maintaining its market share and customer loyalty through technological advancements and superior products.
In conclusion, the locomotive industry is experiencing fluctuations in Services and Equipment, with a shift towards new locomotive production and a decrease in modernization. Profitability and margins are improving, driven by productivity and strategic acquisitions, while competition remains fierce. The industry outlook is positive, with a focus on innovation and customer satisfaction driving growth in the future. With the rapid advancement of technology in new products, companies like Westinghouse Air Brake Technologies are finding ways to extend the life of their assets while increasing efficiency, safety, and availability. This active approach in the marketplace is crucial for driving up win rates and staying competitive.
One key initiative for Westinghouse Air Brake Technologies is the commercialization of their EVO platform, which is expected to unlock significant opportunities for modernization. By leveraging automation and digital advancements, such as positive train control and hybrid battery electric programs, the company is redefining and expanding its addressable market. This not only supports profitable growth but also opens up new opportunities for services revenue.
The recent acquisition of Dellner has also positioned Westinghouse Air Brake Technologies for success in the transit sector. The technology and reliability of Dellner’s products have allowed the company to penetrate new markets and win over customers. Additionally, the cost synergies and growth synergies from this acquisition are expected to drive both operational efficiency and revenue growth.
Looking ahead, Westinghouse Air Brake Technologies anticipates a positive impact on transit margins from the Dellner acquisition. By leveraging the strengths of both companies and capitalizing on the pipeline of opportunities, the company is poised for continued success in the transit sector.
Overall, Westinghouse Air Brake Technologies is focused on leveraging technology, innovation, and strategic acquisitions to drive growth and profitability in an ever-evolving marketplace. With a strong commitment to modernization and expansion, the company is well-positioned to capitalize on emerging trends and secure its position as a leader in the industry. The 10 stocks that made the cut in Stock Advisor’s latest list have the potential to generate significant returns in the coming years. Just consider the success stories of Netflix and Nvidia, which were recommended by Stock Advisor in the past. If you had invested $1,000 in Netflix in December 17, 2004, you would now have $499,277. Similarly, if you had invested $1,000 in Nvidia on April 15, 2005, you would have $1,225,371. These examples highlight the incredible growth potential of the stocks recommended by Stock Advisor.
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It’s important to note that this article is a transcript of a conference call produced for The Motley Fool. While we strive for accuracy, there may be errors or inaccuracies in this transcript. The Motley Fool does not take responsibility for any investment decisions made based on this content, and we encourage you to conduct your own research before making any investment decisions.
The Motley Fool holds positions in and recommends Westinghouse Air Brake Technologies and has a disclosure policy in place. For more information, you can read the full disclosure policy here.
For further insights into Wabtec’s Q1 2026 earnings, you can access the earnings transcript here. This article was originally published by The Motley Fool.
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