WAB - Earnings call transcript Q3 2018 | Westinghouse Air Brake Technologies Corporation

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Operator

Good day, and welcome to the Wabtec Third Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference call over to Mr. of President Vice Wesley, Investor Relations. Tim Mr. floor the is yours, sir. Wesley,

Timothy R. Wesley

Good Thank to morning, our Mike. XXXX Welcome call. everybody. you, earnings third quarter

me and President make as of in Let our going COO; our rest to here Controller, Rambaud-Measson, our the me John we Executive Corporate with We're Mastalerz; CFO; our Stéphane remarks Wilmerding; Neupaver, CEO; usually our and team Betler, prepared our Pat questions. will so disclaimers. be press Al course, happy Dugan, Ray that do And introduce and over your will statements, of the With the take forward-looking you then it turn we to we call, appropriate we I'll release for today's during Ray. to you, ask that, please make Chairman. review just

Raymond T. Betler

morning, we're talk EPS Thanks, strong for happy cash growth everyone. today. I'm have to terms in and report, and finish flow. in of the sales both It's of quarter you well-positioned good to third in to we terms strong year, earnings a and to the Tim. for Good

row. the our quarter our in We increased year both and revenue product Even and our areas with changes third our around business new guidance. growth segments world. record adjusting high. saw In for the our won for the affirmed EPS markets in quarter, a growth guidance in we also year, sales year-on-year the fourth backlog for strong revenue this FX, We a of remains in major most

in first, to talk to about the including, numbers. we Transportation, we'll with course, opportunities third merger also Pat in later our GE As investing our long-term short-term our of introduce the growth I opportunities, focus on review we're But performance, which quarter want call. those planned

Patrick David Dugan

good third morning, Sales Thanks, billion. were quarter Ray, the $X.XX for and everybody.

This due offset negative the was million. really those acquisitions, to backlog a million growth, Transit and increase in. in $XX foreign $XX was and two segment sales from a organic row. a by Freight to strong million, also impact quarter about growth of to This negative in contributed adding our of in backlog in about growth, quarter impact $XX $X is are seen which $XXX the rates the growth, row contributing million was fourth increased aftermarket showed exchange for and due increased Freight more increase $XX to than exchange from their is organic about highest increase kick adding about $XXX we've a million. and of about strong starting sales million. that XX% and fifth sales foreign of The Our offset sales row. year-on-year sales shows to acquisitions organic about $XX fourth levels that near year-on-year years the XX% million Freight which million

at consolidated All or of sales. these million you When are look income operating positive of XX.X% for it our the quarter, indicators. $XXX was

law change this about Now costs related which about and for our SG&A. service the and in in $X of transaction It reflected about India, restructuring million a of tax million $X expenses merger million. to $X GE Transportation operating included included goods income is included

those despite X% a items, as Excluding margin the That's in sales was consistent our with same the second decrease operating XX.X%. quarter, seasonality.

surcharges to about negative we were quarter, offset also or had tariff of the adjustments. increases, due During able portion a other a impact we $X million which with to of

about the our some due $XXX is lower mentioned increase target executing for guidance, adjusted to as just This XX%, and is our the expense on now lower-margin in slightly tariffs million. UK. acquisitions. than through I and quarter to due of XXXX we full-year work to the mainly we're contracts margin operating SG&A about Our continue initial items the was

some to of in due timing merger the the it of to sales in get acquisitions. expenses do our expenses expect as be and cost restructuring. to decreased mainly to expenses any our a expense captured million because to million of related $XXX revenue. those GE $XX spending quarter, slightly, Transportation due any Amortization about We and increased fourth Engineering the component excluding of

Now look the Transit, expenses for to for income includes tax at above. XX% change about operating Indian operating $XX income when increased I operating $X.X million, my million segment an This of margin mentioned law restructuring for X%. and

the X.X%. margin was those items, Excluding

an complete UK for restructuring XX.X%. year reduction we million, improvement expect cost continue improve $XX to projects more due higher of mix. the to margin The We income XX% favorable quarter, compared product to and the the and and fourth with a was up margin in initiatives. some last was our operating as of operating sales Freight to

the of operating These we last will performance, of reduction restructuring improvements compared expect both the the of programs. and XXXX, and benefits better mix sales For to improvements margin for better segments through cost full-year a come the year. project

integration and plan. Faiveley our on update quick a synergy as Just

years two. target three at statement, interest the the about it and Transportation and know, as we first that related ahead the to Continuing was million the is costs million of our you includes end $XX at it quarter looking $X.X the year GE expense, As come remain income for incremental to pace of least we of third with in merger. $XX finance million

new and to the merger. in FX expense or improvement compared quarter you exchange. to foreign mainly and quarter, exclude Transportation if translation forward, on related expect of carry focused due be GE to that cash income generating year that in income interest for structure $XX Remember place we $XXX,XXX expenses for that an the expense. prior $X.X that we about the cost expense the was are was was million other million lower interest debt capital about of reduce obviously and Going per Other the our expense to of put

estimated initially specifically the due reduction tax the quarter quarter tax effective XX.X%, a in from was transition Tax our of a the Reform that benefit than lower XXXX due XXXX, of to – was to Our benefit that's about fourth million expected for U.S. rate charge Act. from $X the recorded

for benefit, to it be this the our about rate we quarter. was and expect XX.X% quarter XX.X% the Excluding effective fourth tax for third

reconcile Just third everybody were tax $X.XX. Transportation Expenses QX EPS quarter That's net diluted GE other changes a for of in actions the and law of adjustments, for to at earnings the restructuring GAAP for effects reduced the merger, $X.XX. the the shares because of $X.XX. by all EPS of the the help

to these find with bridge release our can GAAP and per our is you So, share this, in just diluted in income net about $X.XX. details press accordance

transaction add cost interest, are in add restructuring for You that of of back our that's and and recorded costs about GE $X.XX. expenses our our within that's SG&A SG&A sales $X.XX, back you

You the $X.XX. add of that's in back Tax deduct you India benefit $X.XX from our that's a about about reduction. tax liability, Reform the U.S. then expense SG&A And

So, we come with up $X.XX a net the quarter. for

believe the capital So, sheet executed We've cash of sheet GET from shifting the We in structure capacity the operations. our to growth provides to balance our transaction. and opportunities. on flexibility our and to continue financial obviously preparation our balance our invest in

quarter, We cash have of look goal our from at million an maintain When for investment-grade credit operations to rating the continue cash operations. used the $XX we that. is from and you to

in of UK $XX mainly been tax some about earlier, some used million restructuring cash in occurs includes because there's we mentioned for that that effects million requirements law the the quarter to projects the capital, it's related and change. made related with that XXXX in costs other about but and increased $XX the Now under included the U.S. of payments the tax transaction including accordance working to negative

be target to is generation cash strong fourth as from the the now expect $XXX operations million. for is full-year quarter it about typically We in cash our the and

at $XXX million, million. our receivables $XXX million, working payable were at XX, September Looking were elements; capital were accounts inventories $XXX and our

had to on had million, $XXX sheet, held balance $XXX deposits At offset unbilled about September the about million. addition mostly XX, we In that, million of cash in U.S. mostly were $XXX which our by outside of customer receivables we

also used the the We a Transportation intended about portion requirement, $X.X for restricted is cash cash, have of be of to merger. under GE billion which

X.X $X.X net Our is and is our about times. total about debt debt-to-EBITDA billion

new be a on rate of and expenses the Rate about that million with XXXX. Notes merger, X.X% the with due in and hand pay term price rate Senior the due will completed of issued for XXXX. note that of In Senior X.XX% transaction. will We for GE billion of financing to cash $XXX These the loans Notes issued transaction, arrangements. the We cash a of new some draw anticipation related be used proceeds, of Senior along available the our quarter. Notes $X.XX due $XXX Floating and fees Just revolver, the us Transportation of financing for in in in we and GET under million to XXXX delayed our that are purchase other borrowings

XXXX, of due As $XXX of $XXX a our debt some $XXX revolver. in XXXX includes million reminder, due including debt are about our million in other on that and and various other million bonds bonds

Just some information. for miscellaneous everybody's items

was depreciation the quarter. Our that's with last consistent $XX million, in about year's quarter

$XX XXXX, about For the be full-year it million. expect to of we

CapEx $XX was year's year $XX of for to was quarter; expect the $XXX about ago quarter million $XX $X last Our full-year and million. be a spend the we in to amortization about in million it expense about million to to compared million XXXX. $XX compared for XXXX, million expect and we

the see our was quarter as had multi-year At release. and backlog, press backlog, for can September near numbers our backlog at orders, of a is in good Looking XX-month our subset from multi-year backlog, another was rolling we billion. billion reported $X.X the record generating a $X.X which we the new XX, you

to turn it with So over Ray. to back I'd like that,

Raymond T. Betler

Okay. Thanks, Pat.

per with year $X.XX, merger, growth now XXXX, $X.XX revenues about and revenue I of XX% guidance changes. our restructuring growth share our we represent We expect and As to earnings about tax adjusted GE XX%. the diluted billion of related the of EPS the revenue mentioned this about affirmed adjusted of effects for full-year previously, charges, Compared increased law excluding slightly about EPS we of would and costs to guidance.

about year adjusted effects for some XX%, in previous and Our now the as lower new the U.S. our from we our tariffs margin the negative expectation slightly finish UK of projects than operating target absorb is some

I an merger let with and Before Freight to me Transit discuss ask segments, GE. you the on update Stéphane give the

this the as a truly excited the Post-closing, I long-term operations XX be opportunities countries. I've that. what global in profit and and than and revenues XXXX. by The a billion about XX.X%. has million in segment continued opportunity, of are of know, year-ago year performance software of we million the calling been example coming its for third traffic and an quarter. you seeing a quarter, its year. leader growth than storage rolling beginning equipment, and company double more this as once-in-a-lifetime combination. for Fortune remains this Park expected in third will XX%, up. perform OEM This also of a quarter markets. of for $XXX more third booked picking short-term as the company Transportation to believe orders As Rail both company, XXX of margin Wabtec and GE the out $XXX well is locomotives our In operating services, since reflects the had down transportation rail $X outlook orders than with Financially, in more the of are confident stock We're up, Freight

customary GE the transaction closing in completed to early subject expect Transportation conditions. to XXXX, We be

GE and meeting for a approval merger, Department the approvals, to the steps As for both working those set XX, Justice. Wabtec of U.S. ask recently, of with has various some for Wabtec special necessary of November including and shareholders earnestly the on regulatory we our are for announced

cultural review should me Transportation's Wabtec's Freight discussions From logistics. let manufacturing a and again so will and be we global capability So, for service. strategic We're and After that with our a Transit integration. we merger. enable seamless strong see components rationale the GE diversified a the leader combining compelling far, in transportation closing, locomotive fit

meet Our optimization. can lead and capabilities be train intelligence combined network growing will well-positioned electronics autonomous digital Wabtec and operations. the to to demand for

help aftermarket benefit us sector. to will substantial from and dampen Complementary cross-selling global cyclicality. opportunities a customer high-margin recurring and revenue drive We will in service relationships

forma pro in this cycle. the point are Our especially attractive financials compelling, at

$X.X to anticipated The strong rapid cash mainly free a rate flow. a have tax $XXX benefit million expect potential industry operating about drive margins We by recovers. significant cost growth synergy trajectory, creation, and and approximately GE skill, of is net tax superior well-positioned run synergies, opportunities significant and the value reduction driven benefit of as billion.

We the grade to flow with enable will retaining segments. free discuss Freight de-levering. our remain committed to cash Stéphane like rapid a strong and Transit We rating our that, have I'd to profile dividend. and investment And

Stéphane Rambaud-Measson

In to business. Transit growth in. our as with start started XX% organic quarter, will the kick I we Ray. you, Thank backlog about revenue our had has

discussed. by that due the despite adjusted has second have the been contract was UK operating lower higher in X.X%, the quarter, our seasonality. profitability been margin than lower margin slightly affected Our sales to But

train We in during bidding and – to of also our profitability and our project we are and taking we disciplined of to process improve sourcing market orders the lower is of comp project annually markets. (XX:XX). all management signed control new agencies. by and major a actions to quarter, initiatives just our achieve Worldwide, X% and remains the the ongoing well-awarded we a continue And from of Transit and expect work by to and strong margins this rigorous lean transfer and Transit strong goal improved Transit state In to I drive our improved cost countries more initiatives. our and goal very significant cost higher the structure with restructuring an deployment applying win bid period

for in China. Metro activity Australia We for bright systems third requirements. Italy, spot PTC We bidding order with doors India Indian won platform good rail coaches for in meet locomotives for Switzerland. orders Israel, in new and screen conductors and won to good in car with and in projects. are electric Railway, a working along in Germany, We remains their components transit brake

such for Paris, The Our replacement Grand well And new a expand, commuter Germany. into London, also projects in growth to this of rate market we in and volume in train year metro infrastructure Berlin, Paris. by regional project good is as continues fleet in India but see double-digits. in of driven European

For typically the And good XX which for a full-year, orders book-to-bill XX than to of lead long-term aftermarket we expect provide OEM X. greater revenues that years. contract, remember to then profitability our and

we more over opportunities, and and from share revenues time, better organic global increase. Transit both aftermarket as As growth through improved as a benefit should player, stability, acquisitions, increased business and scale visibility and have true our and margin market

So, let's strong due to has business, pick which market now rail up move to Freight our to continued activity. a

As two in come In and Pat a levels the in traffic in fifth mentioned, Freight storage up continues of Freight up more than near and rail aftermarket sales rolling are and XX%, X% growth. sales backlog is years highest were down. Freight quarter NAFTA, our their to stock year-to-date row the year-on-year

locomotive more aftermarket seeing inquiry Freight result, a and servicing As locomotives for projects. Demand are is our freight we overhaul growth in for component revenues, along new and cars repair, with and improving. also

and highest of train quarter, we backlog the in is in control and ordered the U.S. our and orders example, for cars good For contracts services the with for the this U.S. for In software we components sales business seeing above years at in year. orders the hardware, maintenance are two in level multi-year freight projects cars volume booked

year. U. S. you As and would goals on the are helping PTC for expect, focused our their Freight meet Transit, customers we very both

a markets established those both opportunities are a of benefiting business and Turkey Brazil our Ray? from as in and stronger and heat is backlog facilities resources industrial growth project gas India advantage growth in market, market. the high. with near this our in and necessary. now rail have added exchanger And to Australia for to Meanwhile, our oil record example, year track as an are have international operating (XX:XX) we on and We progress take in non-rail

Raymond T. Betler

Thanks, Stéphane.

of growth analysis double-digit each growth improving through our about growth merger major four to From ago, the to So, we've our consistent strategies. long-term margins. I'll strategic our we plan. the initiatives business cycle we board. goals, goals product meets we confident targets. remarks and strategic due by with General plan to in After long-term weeks financial diligence, have Electric revenues lines, long-term prepared these our in five-year presented merger our initial the Transportation, our our with achieve plan on update with will, To complete conclude The talking growth course, our our we and are ability outlook. deliver our improves of in earnings our average Two

the a my We beginning call. to reiterate third had just of the some of comments at quarter. strong So,

terms revenue We are We saw and affirmed the to sales improve. our to our in EPS revenue guidance fourth finish guidance strong a for the continues increased terms of stronger, in segments even And slightly. and we our earnings growth year for year-on-year both backlog market of flow. the high. in row. a both with quarter year the in We positioned our Even the Freight remains this year, near growth record cash

We us on Excellence be generate I'll XXXX we're with our accomplishments that, Wabtec gives and improvements over seeing through margins questions. build in and business ability any cash the to Program, the Freight expect time. answer based to increase on to in these happy the to And which

Operator

Thank you, sir.

question-and-answer begin the session. now will We

come Stephens. The from ahead. question we first Justin have of Long will Please go

Justin Long

good morning. and Thanks

Raymond T. Betler

Hi, Justin.

Justin Long

bit EPS So, operating flow for the was wanted so. the but or cash think $XXX guidance $XXX the operating I curious, you cash like million could flow what expectation it a little because detail drove was to surprising And full-year change, start reduction? didn't came down and ask on just some guidance by it looks for about more for the the provide if million. about

Pat, this confidence going income? above the said, And you you've forward, your operating business that to drove maybe what profile change? is walk net what flow what So, of could can cash that cash historically through return flow

Patrick David Dugan

working by and where cash seen in not we every have negatively not quarter quarter been when you projects quarter guidance, for we numbers and GAAP cash fourth been under reassessing sequentially fourth GET to but that then our bit. improving – typically a history. in is expected. about giving tax would third fourth have that numbers, have used is make, flow we current our for related that kind that give year-to-date, what the was number. not the the met has and strong operations quarter, adjusted rules. really operating you transaction capital a a building impacted little deferred things the have had we're which had reason from restructuring the And some Clearly, would the we have finally, we the definitely, a have of and have to you then profile It's payments costs. been a and quarter really cash performance of had the had We paying how So, We was would milestones

are And on so, and project we're the focused teams, finance These milestones. now on out those project completing local that our and just will the recovering, payables flow suppliers. with and timing milestones the They're aggressively executive in our managing our aggressively guidance. those we We're with closing projects affected issues. on, the cash the office things underlying year of it's recover working the teams and that have

Justin Long

Okay. cash $XXX What's you a number? have Pat, said expectation for adjusted you was And number. from that the in million operations XXXX? your GAAP Do adjusted

Patrick David Dugan

you have So, months. we that okay, for at first I if – historically, the look nine think

Okay? from million $XX taxes. about We of have an impact

we've fourth number that achieved. making a nine business we quarters quarter and is that and a have, where $XXX related months impact, a about have better that first of the this so have for will performance really of a is fourth GE now that capital think We an the We about million needs we and And – makes to done than into that the recover and are view And fourth ability. there XXXX. you – just we from that quarter Transportation to for $XX and $XXX a we're We've guidance sense right into out working then, million. our transaction. we'll sure forecasted be conservative million impact had that the kind

Justin Long

in alluded level wanted segment up. is secondly, it business. their like recovery the forward both point to in this in And picked ask of to going for ahead? an Thanks. and the have Okay. about year you at to just cyclical and the visibility Freight that the strength order inquiries segment some expectations I Ray, standpoint, aftermarket that OE Freight seeing talk GE an about Could of a you have from feels you

Raymond T. Betler

for side. So, are it's Justin in order the just both over for in aftermarket mention side Maybe for couple we've received segments car the a over on the well – I'll cars. an as $XX up, both an million without significantly mentioning order names, X,XXX Freight new services as market,

content XXX% have on that We order.

for that We XXX cars one have we content. another XXX% have

the have one We we cars, where for but another XXX cushioning have devices. content, total

business up we're share picking up picking and business our So, total. in of is

side, know and being of aftermarket equipment the equipment out more in states is and lesser On as that lesser storage pulled and of you usability. is more

it So, serviced needs cases, goes and refurbished in it into service. before back many to be,

good orders still So, a certainly little encouraging. positive traffic feel about, slowed and but we pretty still has are know it's I the very bit, down new

Justin Long

Thanks. Okay. time. I leave it at appreciate the that. I'll

Raymond T. Betler

Thank you.

Operator

Next, Poliniak we Allison of Fargo. Wells have

Allison A. Poliniak-Cusic

Hi, guys, good morning.

Raymond T. Betler

Hi, Allison.

Patrick David Dugan

Hi.

Allison A. Poliniak-Cusic

go to the to reduction in I the just wanted back margin target.

help I you well think and about maybe as tariff lower contacts. as maybe incremental? contract, XXXX even one, into this thinking point? how us you understand, at help lower the And you're priced impact is Could tariffs quantify heading that cited with the it priced the

Patrick David Dugan

to think we impacts to worked offset through So, we and hard quarterly in advance tariff, even gross about that a impact very avoid some the surcharges about and I that's – increases in bought or mitigations or we cases, in with some – that we million think inventory $X talked actually and the I price impact.

something going into I but So, that we're that's still think on QX have working similar the we're and that. to going XXXX, impact

in they definitely had projects, operating million to quarter. lower we estimates third in we the $XX had we of item where related at about terms assumptions discrete quarter just of and did margins that the filling always on been and chance We the cost be. with And In have of as do, improving net about on on those the throughout margin a some year to – a probably about contract. projects a the have would the look I mean,

course, full-year. kind impacted of the impacts the of Q things So, and that those all

Raymond T. Betler

could a issue basically make tariffs, Maybe comment daily I a that about so are we on tracking basis. Allison, if

proactive the impact of could tariffs obviously we're how visibility, next round So, moving to get we also trying things implemented. countries, other have what be going to mitigate by potentially establishing the the to reasonably what's – to strategies through happen, to anticipate good for but trying countries about tariffs if other be,

a little a it's bit good So, we're But, of day-to-day to on put place. steps and situation dynamic pretty basis. anticipating mitigation job a doing it in trying think a I

Allison A. Poliniak-Cusic

you pressure you helpful. your That's talked the you, And it to for Great. explain in still then about this ongoing even flows OEM, price price the us down the flows, on ability Could new market if cars. that how Freight? to to

Raymond T. Betler

So, have pricing there's always we leverage some market pressure, dramatically. a there's demand lot Freight now, opportunities. some price really so not of changed too, but the right There's some has

goes it So, ways. both

in I our to we're think good relative pricing. a position pretty

Allison A. Poliniak-Cusic

Thank Great. you.

Raymond T. Betler

Thank you.

Operator

have of we Elkott Next, Cowen. Matt

Matt Elkott

Ray, we EBIT about can have and your last the update you month. you. intact? for Thank you still last if EBITDA time was I Are give to heard then? GE? Or changed, any, confidence some estimates this financial us since has think, targets those how the

Patrick David Dugan

that. answer can I Good.

and think think and far right I considering were at as with GE's performance, very I encouraging their where in numbers that's announced third on-track the cycle. as that, they quarter today they're they

as far there. been out going As has forward, is what published

heard haven't any change that. see change anything would that GE we we from – So, don't

Raymond T. Betler

I is in built there... backlog So, the think

Patrick David Dugan

backlog The is enormous.

Raymond T. Betler

in market. pickup the ...so very too, with in we're a situation the positive

Patrick David Dugan

Ray. I agree, Yeah,

Matt Elkott

largely just idea us. is contribution the your your helpful. XXXX? as we us approach to in the revenue XXXX PTC XXXX trend Can implementation going it. year? behind and shaped the to aftermarket approach we then Got installation relative PTC deadline XXXX as one up an in on into going And And expectations you how to deadline more has how the on That's and that's give

Raymond T. Betler

that Yeah. aftermarket Sure, in we aftermarket Matt. that, to We've would And in thought be in $XX range million range. million business. $XXX always we're the a said we right

Xs now done I to reasonably job the able book and agencies. that. result MSAs think been with forecasting more a that and we've Class more of That's we've mainly a good commuter

those able commuter the smaller agencies, So, with but Matt. to implementing we're are there's up many we're agencies contracts, sign projects agencies, commuter the as those so

so just Some received literally the turnkey those project-based two, new orders in still agencies the to or sub-system PTC in and of year we do funding are projects. orders last booking area over

doing As going far is pretty as to we're that everything we customers across well (XX:XX) the well as deployment goes, I support involved Class think it's as our deeply CFRA can with and FRA. X.

Matt Elkott

any total year do the where be revenue or decline big step see revenue? you – – next Ray, in there three PTC four function a PTC years would in

Raymond T. Betler

I we se per differentiate need PTC difference to the Matt, between again maybe signaling. think, again, and

to signaling project-based migrated the but We we've term encompasses it other signaling, it term So, subsystems, capabilities, to encompasses PTC, encompasses the to, not be cute. revenues. migrated other because to also it

But in of still the all PTC hardware So, pure computers. that delivery we terms information hardware, PTC out finishing we we're to business. signaling, on is based deliverables, Obviously, onboard able believe yes. are grow to that very close of

pretty able there track we're think, we this year. done area growth and So, anxiety demonstrating in I be this would we've of job There that significant but year. have this signaling to was to that that concern year, out on do a good not

with So, where pretty we're happy positioned. we're

Matt Elkott

you Thank Great. very much.

Raymond T. Betler

Thank you.

Operator

come Jason Rodgers question from have Lakes next The of we Great Review. will

Jason A. Rodgers

follow-up that for figures the forecasting of still Yes. quarter the If that line I up XX% year? Would and could just questioning. you're revenue the you the if for to area signaling? And PTC on be PTC of provide

Raymond T. Betler

Yes. do Timmy, you to that? want

Timothy R. Wesley

them. I've Yeah, got

this million, $XXX And XX% so the So, million did yeah, million. total $XXX XX% – $XX $XX growth was was for year. the is year PTC last we to million; about the so signaling and quarter we're expecting

Jason A. Rodgers

about timing turn could an margin we to adjusted these Maybe those on thinking next if quarters? you contracts, should be be will segment you over positive UK done, few of when basis. year-over-year And and that low-margin in review of expect the margins Transit how largest would the the when just

Patrick David Dugan

and of out just So, a typically or any just items obviously lot of but And is we view the that on margins segment our forward these be a tend give don't guidance disclosures, improvements continue segments. to to goal careful, kind in to discrete quarter-to-quarter. of for there's kind go of of any

Raymond T. Betler

what is we explain continued the X% you focus operationally on to can talk discuss, what doing improve things that So, is to a to what in Conference to the about some which Stéphane year-on-year chance Jason, objective. Investor to we've maybe and performance of give we're and we our and committed, we've improvement

Stéphane Rambaud-Measson

Sure, Ray.

described a stronger a bidding I management. much the think, process, taking; I well, of more key that better, we action couple rigorous are project

our of where which it's project, elements to of engineering armful more out has phase end and configuration key a we we trains that meaning project stable the of we the on hopefully at been profitability refurbishment starting a as quarter the much had ago. have been of getting the a (XX:XX) we project, push are UK are drag One and has this

As much are we restructure this are project the what we (XX:XX) stable cost to actions we business, had lower actually, more project, our finishing our and a up and deliveries than before. going are taking in to we manner

our to assume on achieve have well So, increase will if yearly on basis we committed board our actually, target, placed – by recently. to that one the this margin we should be we we point, as

Jason A. Rodgers

employee-related seeing you and if there your wonder that impact companywide, finally, going in just expectations And could costs material talk you're and helpful. That's the forward. about Okay. raw

Stéphane Rambaud-Measson

Well, big we've on on numbers, of we impact. stretch that see – have very increase example, we is has we but now, caused that's don't course, but such discussing. impact have the Europe, don't where we a for which the much of been our Overall, a of wages. drag a been, economy resources, little as, right active there's pocket Eastern It where is tariff areas see been

slightly We has in to dollar, wage it China, so I changes. for are is some compared compensating money the some devaluated the increases. been U.S. currency mean, helped by Also

big don't we comment? Pat, overall, want you changes. see So, maybe to

Patrick David Dugan

to say obviously the items have fairly I and think indicate No, I margins – we impacting. would overall, our discrete we think where executing with consistent these we're need numbers be that would are of some we – pretty

Jason A. Rodgers

Okay. Thank you.

Operator

of Research. Brooklier And next Please we have ahead. Matt Buckingham go

Matthew Brooklier

good Hey, thanks morning. and

Raymond T. Betler

Hey.

Matthew Brooklier

Is a a I little what's contributing it, So, a for bit hoping the just I Just to a also more from it get bit but was trying the of what's for maybe that. in you color Is to revenue think more a terms taken up question, up. little Freight? perspective. momentum picking year it Transit? for to was guidance talked sense

Raymond T. Betler

that I allows both Stéphane record We're you to have trains in And we instance, think these those we segments. projects. milestone that's a Matt. of deliver, nice the revenue for Yeah, almost as for backlogs in says, it's revenue both, position out recognition book the UK,

more and X-month, Transit a on X-month manufacturing we're up. start revenue more revenues side, with those opportunities. move the implement it's pick some Freight type delivery, turnaround, the demand, and to of seeing we increased on So, And the side, short-term projects into increased as

Matthew Brooklier

built, specifically content Okay. car getting supply freight OE Helpful. is of remind about railcars, Or i.e. of components. difference? you you each? and me type Does your And for business then in amount on matter is can within Do on versus there have tank it what the cars? a same

Raymond T. Betler

agnostic. the pretty We're of gate to from really for supply industry, like we we look can couple it on If and matter. across is and the ATP, From gates, doesn't hatches a incremental an ATP. business instance. which have bought add We cars that a do hatch areas grain specialty broad-basis you

in like the sand the that. is the same industry. But So, for frac about and average things cars across general,

pickup. So, just happy we're with the

Matthew Brooklier

me, so, just to around announcements X curious Okay. efforts – confirm. That's one And a on, rails and of potential car announced? what side rails it have locomotive Class more side? undergo last initiatives thoughts to Class X this the freight – your headwind the or a just is that you go I there's through for the to these if are precision How the of is cycle, talk I'm of thinking this thought; versus more about railroading on are wanted looking process. hear then, on headwind, this

Raymond T. Betler

Yeah.

thanks I'd nobody disappointed. So, been that, very about if think talk asking precision much for question, There's precision Matt, have railroading, because I scheduling. the asked so

PTC, throughput down just for to serve is increases rail place improvements are capability opportunity a and semi-automation, in efficiency for us. like the road any good this: the network result in Our for customers. view our Xs that that improve improvements, increases their like Class their we're hopefully for the It to customers to any the automation, fundamentally just serve

ongoing, it different discussion means the think I So, different things to is people.

obviously sort out, to to customers and where and solution to We're our ultimate understand it a them, serve in think Class throughput better into We're the how them and for better that can interact I it the we're listening. thing see fit we to good efficiency. industry. as as provide what are productivity and And means trying as Xs I watching. case-by-case. trying But, possible it much specifically with

New us. the City good for it's overall so discussion been the So, Transit matter rail increase on on system I for can of side, you not increase performance There's in from where to a like any efficiency opportunity operation York a down, is think much Transit. Transit different Governor that

Matthew Brooklier

hear. Good Okay. Appreciate time. to the

Raymond T. Betler

Thank you.

Operator

we come Research. next of The Group have from Wolfe question Scott will

Scott H. Group

Hey, thanks. Morning guys.

Raymond T. Betler

Hi, Scott.

Patrick David Dugan

Hi.

Scott H. Group

just I not margin go wanted just back clear to it's So, to guidance, to the me. entirely

to just third a are these XX.X% quarter, try XX% in to behind maybe behind fully to they the How us for take a just little behind the the behind just get XX%. so than XX% sense a and better the is year. XX% Are us, So, bit I partially only they're going us, give the the from run get the fully good fourth that behind issues the if big to in contract us partially Maybe here. in now XXXX? in rate get of, better the or delta even they for is real fourth trying is rate run understanding fourth? fourth? XXXX I'm us? for they're want in to Are –

Patrick David Dugan

right. All

and fourth then quarter on we'll they're partially improve issue to I as in – – product contracts are QX, typical a come we a think only more have you're mean, us, think – these out that have margin. right orders you behind is speaking is that I mix we'll more to other starting and will the just have other So, business spares that results,

– don't talk about we So, about want much talk that to really in too to right XXXX, terms of it's now. not our guidance time

Scott H. Group

Sure. Perfect.

Raymond T. Betler

of is The the fourth indication good a rate. quarter run

Scott H. Group

other, we And second quarter? the than there multi-year Okay. came about quarter Is more one multi-year? so that the little the one think bit trying that's backlog Helpful. it the Is at? third backlog, just one is to the versus to I which versus I'm down the better backlog, if one-year a there on as the understand, look then, at? want a year better one to look tends lead to look

Patrick David Dugan

– that business, very contract Freight one make in The a it's long like and the can items you is like can year short-cycle the some large order really type which backlog, number get not discrete that value have is move you multi-year process Transit.

You it just don't Freight. have in

you I but three have year. in quarter-to-quarter, compared – few kind still to last the last I the it's can the variability, so, historically think, some of high last think quarters And

Timothy R. Wesley

Tim. Scott, this is

Just on anything one a in general, we backlog we until signed more that don't comment put backlog have in remember, contract.

sometimes we're which So, book a quarters, be we're orders, of contract, project we're the timing the is orders, we time. we in being months something we for when can being determined But it. between we and backlog winning and actually all actually by awarded the selected win when when sign when put

Stéphane Rambaud-Measson

which we so the securing are they have call-offs, it's contracts, the bookable, of are already, not long-term, we volume we won have won but will – signed which the not in have yet contract backlog. will for but And have a the number

Unknown Speaker

To the get release. Yeah.

Scott H. Group

and give in When both signaling. the quick one aftermarket, Okay. It's you breakdown million, installation give and third real or number, not Very that is last thing take just to includes just installation, The the quarter, PTC that right? correct? the clarify. helpful. And just the of then guys PTC $XX

Patrick David Dugan

Right.

Raymond T. Betler

per anything with PTC se, It's Yeah. associated Scott.

Scott H. Group

you, Thank Helpful. guys. Okay.

Raymond T. Betler

you. Thank

Operator

of The next from will have Securities. we come question Willard Global Milby Seaport

Willard Milby

what to confidence continue I proxy, here, and since still the call we it business it planned better at year, you a from the What horse improvement outlook, planned years? good better bit long-term that's the side? bps, Is other in improvement everybody. issues? the telling when of the margin coming morning, that target Analyst bps. the as If dead Day cost tariffs beat the we've a When but at that improvements outlook? you or maybe talk with little gives longer-term them, every the seen Can couple could on Wabtec not about good look core iteration Hey, you a you XXX headwinds conversation it you are in a the the on through look in business board, XXX next margin, margin is that in talk to

Stéphane Rambaud-Measson

everything. of bit little a it's think I

made which restructuring of of specifically are a a on cost are UK. we the in ongoing, projects, think the number lot side, effort I have

larger win to of looking the and risk are in as reducing where manner. the of the process refurbishment of normal the doing We to coming projects the profile supply. our we risk the profile also such of certain and UK have in is business, are several than the cautious project, we projects higher that where are specifically the flush exposure these out of these in projects, backlog, types reduced controlling equipment we actually backlog Transit are the plan bid number we very months at project projects, we refurbishment And a quarters. today, and our projects train And

improvement driving of that's to margin. force the the in one So,

Willard Milby

conversations any cost cost customer to point can from view? impacts understanding on of Okay. And tariff of those the what's Have there headwinds conversations, going gotten the Or Can more those a recoup are as I think going there. a you customers on and difficult? little side, kind about recoup a about maybe trying little customer entirely? what's you maybe talk you think bit of more on

Raymond T. Betler

Yeah. recouping practices. approachable to also and customer attention aren't policies pricing The normally pay to customers but relative we too cost,

in those approach mirror their we where to folks can... try we So,

Willard Milby

the Okay. I appreciate time. Thanks.

Raymond T. Betler

you. Thank

Timothy R. Wesley

Thank you.

Operator

ahead. KeyBanc of Barger Steve Please have Markets. go Capital we next And

Steve Barger

Thanks getting morning. in. good Hey, for me

Raymond T. Betler

Steve. Hey,

Steve Barger

performance to how equipment, wanted specifically good, don't I'll new I the allows offset you WAB. to what follow-up presumably on benefit? about rail less is you it's Wabtec Class it cover good for precision positive since so Is, hey, that the railroading, in because talk me is increase your tell and Ray, an that means comment Can

Raymond T. Betler

Yeah.

of adjustments less mean new made. look a long-haul, what's a equipment So, be lot over it if on infrastructure there's going Steve, all, that may to have you of, today, but first

types adjustments of have a the up to Do not be there's overhaul? we're the you equipment? – of know, new? equipment. you Do specialize demand. is the lot in infrastructure to picks that you buy made Who Do you business, overall changing certain in As what's

Steve Barger

Yeah.

Raymond T. Betler

is is and the going and as the ability that's in our of is technology for demand providers. key because really So, us as up our we're position long technology

to more out freight So to develop there basically we be extent demand, technology trucks. of to the take the effectively able support can to opportunities railroads, that are to assist the

Steve Barger

Yeah.

Raymond T. Betler

and So, of a upside there's long-term. short, us medium in for think I a lot

Patrick David Dugan

Yeah.

answered in the in has do Transit two, not precision industry are also for the that's order Ray the think opinion technology, one; we technology, question but in I number one to because really our the it's going railroading, require to for number in good is good and Wabtec, extremely to number only the rail Freight, well, what's answer businesses.

being is industries railroads trucks really increase just what's other taking It's for business on more lot it's to like down, their compete that. good always a good for And than railroads. to with been the and said, and to of has safety, able exactly our not I over productivity time. the the Wabtec. the capital trying improve. And the So, they're in focus what about efficiency It's that's expense

Steve Barger

Understood.

So, would mix good be well? technology as for presumably

Patrick David Dugan

That's right.

Steve Barger

orders, one locomotive up get that for OEMs them is delayed visibility. last non-cancelable same contracts orders? those take they're on though business, times the My for at are railcars we industry or me, non-cancelable. the modified? question railcar lot we railcar year-over-year, Even which about is obviously think And a And orders see typically way for good in when

Patrick David Dugan

the I diligence, so GE different, basically with that options. contract think, there's Steve, from is of options our associated some contracts call each are due

is customer, – those obviously, exercise options. not to the they're force So, in

contracts cancelable. haven't are orders base for I seen any that So,

be, haven't could seen. there but we So,

Raymond T. Betler

sure. not really we're And

Patrick David Dugan

Yeah.

exactly their point. know what seen contracts they this don't at that's haven't We the I say backlog, in

Raymond T. Betler

do is we new they're ahead expectations know of what on orders. Well, way

in in terms there, the business. year. going It's their be So, to in pickup I of think doing well they're pretty revenue next seen

Steve Barger

Understood. you. Thank

Raymond T. Betler

Thanks, Steve.

Operator

Tim Curro Value have Holdings. ahead. we Next, of Please go

Timothy Curro

for please of losing the that related face to they as PTC risk about Will challenge Hi. Siemens Have patent? amount? a sued result you we the a talk certain the financial

Patrick David Dugan

all on don't on have litigation comment Yeah, comment just don't – at we and litigation. really so a we hate

Timothy Curro

Got it. you. Thank

Raymond T. Betler

Thank you.

Operator

go We'll would question-and-answer I'm conclude I call to and showing any Mr. Tim turn the now session. like at Wesley remarks. Sir? no for today's questions this further conference back to closing ahead time.

Timothy R. Wesley

forward us you. perhaps thanks good and call. on you joining day. everybody talking again Thank Mike, look care. Take to for at the or a conference. seeing a you We to soon Thanks, Okay. Have

Operator

thank sir Thank disconnect of conference great call we to you, you is also. rest the time, everyone. day, And At you team take thank and care today's the you your a also, and the management your We lines. now time concluded. presentation. may for Again, for all attending this have

Westinghouse Air Brake Technologies (WAB) 30 Oct 182018 Q3 Earnings call transcript