WAB - Earnings call transcript Q2 2019 | Westinghouse Air Brake Technologies Corporation

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Operator

Good day, and welcome to the Wabtec Second Quarter 2019 Earnings Release Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Ms. of President Vice Kubacki, Investor Relations. Kristine is floor your’s ma'am. The

Kristine Kubacki

Rafael everyone, to us Corporate Wabtec Thank and are you, quarter Controller, welcome morning, Good CEO, President Neupaver; With Mike. John second Mastalerz. Dugan; and earnings Chairman, Al CFO, Santana; Pat Executive and today call.

Before I on on today earlier and to be accessed would remind earnings tab that our website we and on financial our Investor start, the wabteccorp.com. Relations release disclosures like you were posted can

making be best will Some are world forward-looking our we statements on based today view today. and the of

will encourage reconciliation disclose our metrics. We tables also to and non-GAAP financial these and disclosures consider you metrics carefully you as read

over And Al. now will I the call to turn

Al Neupaver

and good to Kristine, morning Thanks, everyone.

team. she's for some you, forward. I'm same First, start like our had I already confident would the going to impact known the she time quite I've at and by for investors, very to a positive Kristine do Wabtec. will Kristine welcoming

how progress with globally positioned It's Today, we will This an of and is and solutions give established and strong that and are as significant of the new company the portfolio us company is run future technologies are position. looking making as sharing assets unmatched businesses a transformational Wabtec. with they a forward you the as with market important across the a their industry, are that position momentum portfolio electronics. diverse backlog, to help a we're in and disruptive digital These for that and well redefine customers technologies Wabtec the operations. we as

cycles to drive productivity. continuous has company team a lean improvement levers in with place leadership it's deliver that And right managed the successfully through the proven with and improved finally, a

progress merger. We pleased Wabtec GE with and since the Transportation the that we are made have very

great We integrating strides organizational cultures and our in our made integrating have structure.

with of in strong million by a have team rate X. targets have year leadership $XXX synergy our we run alignment, place and We validated

work I Rafael, world a announced some deal also as the since I've to on him over unique and deep global on leader. given it turn with has a portfolio some insights background. his ago. of to the perspective He and understanding share a we wanted I Rafael Before long-term. closely to and appreciation to him opportunity is a proven months qualities the keenly XX strong growth the prudent all a deliver. of enterprise to also both forward a that and allocation. operator CEO These continuous a deep a great are leader, He's focused looking for for traits foundational has short have I'm on lean he and and can the improvement delivering capital champion as had

that, to I'll the hand Rafael. over call With

Rafael Santana

back Al. in Thanks, to officially of all role. Okay. and It's you the with good be today

way we'll wanted efficiency, thoughts this create for for continue our share really leader we're initial mind, to shareholder to really globe. We're in customers. with on some safety, the the reliability context As a history, with XXX in strong Al driving noted, Wabtec's serving people years paving moving products the and as sustainability transportation productivity, industry, you how I value. of company and around With the

First our on to and plan financial our commitments. I last and are and you on executing we as highlighted our now call, delivering had foremost, focused in

acquisition, Stronger our to stock businesses, and value, allow create We on and that financial out cash organic while our on growth, shareholder for have will better reduction plans creating further positioning flexibility sure for us to we generation commitments buybacks laid dividends. debt legacy execute making prioritizing we're fund year. and laser-focused the

more growth we're focused This capital to company and Second, allocation. improvement. includes establishing resources the We're margin to of profitable cycles. through our committed the prioritization continuous prudent really structure position right the for

and foundation cost benefits, the to the more they for and merger, from and a efforts competitive and improve initiatives, to integration to reductions We're margins. have will lead our synergy the Wabtec Transportation deliver up further GE accelerate opportunity will structure have cash cost already on we business flows that confident our to synergies. stemming build we Our begun and

leverage domain, drive We'll diverse invest profitable while shareholders. our our business expanding technology organic growth. customers we'll for and deep portfolio Third, drive value both process-rigor global competitive scale, technology and and on to reach to advantage, innovation combining our opportunities, continue to with increased

on focused with to move an shared accountability have sense we a of outperform. in building Together, a team things a exceptional committed we're Finally, execution way. to culture purpose and better

the year, second PSI business of highest restructuring accelerating challenging As on along you've environment focused one implementation commitments we in we're decade, carloads cost quarter America our what means down locomotives the even in levels North controlling with includes part of can. over and and of results, This efforts in despite that for a seen our the for out synergies. the

with approximately expansion, solid the Pat? our million flow $X.XX cash on backlog deeper based a but about talk Pat dive I'll a and key EPS market performance, the operations, operating from for Freight more strong we're a we financials. to our At $X.XX. year cash our first, and $XXX for Transit, expectations with to high assessment second full now our into level, flows will margin provide guidance raising both is good had you guidance current in performance, our and of quarter Q markets

Pat Dugan

Rafael. you, Thank

numbers, see to the provided. can encourage you our going both review we press adjusted and you to discuss release this morning, reconciliations from so are GAAP we As we

adjusted completing of Wabtec and performing we Transportation. first momentum full the shows EPS solid results adjusted quarter, which and EBITDA, performance guidance cash from second in since continue from the first flow is for operations, We started to updated between operations for GE quarter and was merger income the in delivered the the our for operating sales quarter for which that business our expectations. Today, adjusted up

harmonization. -- sales. billion. excluding that for effect of of $X.XX sales the So the were The is at adjustment were excluding second $X.XX effects the sales looking quarter accounting policy Adjusted billion,

to to That obviously billion. Freight billion. is due $X.X XXX% increase sales GET $X.X Our the which merger, increased contributed segment

run Our based projects organic other to among the and some sales for million, on The rest on sales. seasonality and fluctuate rate quarterly the primarily electronic schedules of delivery factors. will decreased $XX due year lower

we've about record growth, Transit. by This foreign sales our driven organic strong Transit $XXX negative The increased was was -- quarter growth OEM backlog of the in X% increase segment by $XX The is sales million. impact and exchange row which seen for a acquisitions in $X shows in increase sales. which new that million, million of that about kicked sixth and to million, has offset organic was the now contributed $XX

for $XXX quarter, was million and costs. merger, excluded and it adjusted transaction to $XX restructuring Transportation that of and related charges; other operating for the accounting the GE and million consolidated to million Adjusted details. expenses out, at of I'll break XX.X% table ask $XXX sales. $XXX income consists purchase operating pretax to million income, Looking adjusted operating non-cash these was of it for income reconciliation see you price point million $XX for Again, one-time our or

In recurring or share $X.XX also addition charges. about the price pretax non-cash purchase million of expense $XX had to accounting for earnings per company these expenses,

operations. added to not adjusted have from that income back We our

was $XX of some SG&A the $XXX at of of including items the statement. million, million our looking detailed in income just million expenses So $XXX line discussed. I

mainly forward. to about million, GE expenses PPA amortization the Engineering of of merger. the the due business, SG&A Transportation $XX Transportation for $XXX and the additional was number going adjusted per $XX quarter the expense $XX for be million million million increased to addition to GE expect including recurring We

amortization to the expect million expense we forward, Going quarter. about be for each $XX

million was million leverage for an Freight. higher margin looking So income of $XX and margin to an $XXX Transit, higher $XXX at income income operating X.X%, income operating due segment operating was of was operating adjusted Operating sales. for XX.X%. operating from adjusted for million

and income benefits performance, XXXX, For about year. our project the come and to we continued consolidated a of through be improvements operating margins the the adjusted and segment better reduction full expect programs. mix improve sales restructuring year cost operating our through expect of and to will improvement of These adjusted XX%, we

about million for benefits year. included in synergy adjusted net also our We of have the $XX guidance

I quarter. the our emphasize seasonality to see we also normal business expect third to want in that that in Transit

impact fluctuate net Project due do Additionally, Interest was guide results, $XX sales product higher to and not acquisition. interest segment quarter-to-quarter. was our interest mix million factors which Adjusted our $XX we related margins. balance why deliveries is the will other to and expense expense can million. debt -- net to expense

Remember our debt forward, $XX per that and we to cash to be Going expense. million priority reduce therefore, as and quarter. generating our are focused a interest have interest expect we expense about

tax adjusted was rate the income net million tax tax benefit $XX from for adjusted about million was effective Transportation $XX Income transaction GE XX.X%. the expense tax merger, expense of costs for excluding

that share, an Second about To the EPS in can quarter per our adjusted EPS EPS, following quarter you find GAAP and earnings a diluted reconcile EPS, details $X.XX, second of you release. had press $X.XX. of help

and these We non-deductible and with which transaction highlight back restructuring back about $X.XX, costs, we in of price add GAAP tax of start back one-time non-cash for addition diluted charges. again resulting share $X.XX I'll expense after-tax purchase $X.XX. the to company $X.XX, an or EPS in accounting expenses about of add our of at we expense add had EPS non-cash about of $X.XX, was transaction that, also recurring just adjusted per PPA $X.XX cost above,

amortization as was $XXX Wabtec $XXX million, which as income EBITDA, operations earlier. $XXX discussed EBITDA and million. and million adjusted pretax plus Adjusted was depreciation excluded defines expense of EBITDA from

the growth to opportunities. our to cash balance shifting our provide in and sheet capacity Now invest believe balance to sheet We flexibility flow. our that and our financial

capital to rating of due million, In on contracts have to goal certain from generated QX, operations about certain We working and mainly projects. credit customer cash is an -- that's we improved and grade $XXX received investment our maintain. deposits and from

billion; you quarter. showing XXth, $X.X $X.X at inventories were were working When billion, all were with at compared billion; to our first payables the our our and look improvement capital receivables June $X.X

deposits Our balance unbilled million. by million, were receivable $XXX which receivables offset than about customer of included $XXX more of

adjusted to three of to are times adjusted to we debt By billion, and about about targeting United X.X of our June EBITDA end debt in net resulting in $XXX XXth, about outside had we net total Our held at at compared times cash mostly debt million about a $X.XX year-end, QX. and to was X.X be times. the debt cash, States, EBITDA the

items these So that miscellaneous in a calls. always review with we couple you

year-ago Our to The is in full million also $XX depreciation the XXXX, expense to in merger compared the the due we $XXX be last the million quarter, million increase the $XX year increase And for Transportation. GE about $XX our $XX depreciation quarter with was versus to quarter. for due million expect merger. is to was the million. Amortization of year's

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

year a to due million The $XX $XXX versus quarter and merger, the increase the in million we million again, ago. spend expect $XX were expenditures about XXXX. CapEx Our to in

rolling backlog backlog our subset in a is June which that at $X.X billion. multiyear XXth, was was backlog billion XX-month Our backlog, of our multiyear $XX.X

So assessment based on about $X.X on for talk minute. billion. our our quarter Based our markets, sales be backlog performance, current let's and conditions guidance second our about is XXXX for to our guidance a updated on key based our of in for

adjusted EBITDA Our to billion. be $X.X about

of about from income to the and $XXX operations about $X.X our adjusted year. be GAAP we have and operations earnings $X.XX, share per $X.XX adjusted for cash between Our diluted from raised million and billion, guidance

into on and non-cash the and restructuring accounting for estimated the Transportation we focusing costs, purchase guidance actions focus for accelerating on merger, what we this guidance year-end. of light in expenses price Even policy the GE transaction charges for as one-time we for accounting harmonization. which is challenges, adjusted the our The and excludes cost can, achievable, synergies controlling believe market means aforementioned

guidance back adjusted of includes diluted our accounting also point expenses, our not In about to EPS the expense operating other rate for the XX%. year Excluding out I'd our effective about is XX%, about price year adding $X.XX recurring after-tax to share target now. adjusted adjusted right be is that guidance these to margin our tax full words, it charges. the full and for purchase for are non-cash expected per like we

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

Rafael Santana

Pat. thanks, Hey,

to me talk let the conditions. market overall First, you about Freight

and the Freight Railroading Precision Let's in on year-to-date, certainly book. drop it's intermodal by conditions, our start traffic, coal the weather program Scheduled about effect declines with new and down by rail but commodities, North in like driven offset traffic's services critical America, is having orders, the X% agriculture, some local largely modernization inclement aftermarket

what services platforms to the PSR, aligned efficiency continue railroads to business is We in all strategies, with remain and confident more accomplish with as much work a improve provider to productivity. and of understand current their closely critical with that we are technology fleet leader model the namely: our trying

across remain expansions Africa. well-positioned West growth international in and opportunity markets, and includes fleet markets. Coast includes we're Southeast pursuing the critical our opportunities This Brazil, for growth, Asia, we Across of some

Additionally, strength end industrial particularly we continue to we total the our expect markets, year. in for growth double-digit in see mining, the

weaker saw a business performed as while we American North our So market, expected. Freight

Looking the expect has the ago. at the to and now a our the for on of last now for The cargo these Freight weakened year, versus our year, included we the guidance car versus adjusted deliveries and are tracking it's which year volume, rest to mid-XXs we in market assumptions be lower quarter, in now low year. to view

need flushed growth. demanding are place operators Agent they are fleets condition The continue and and including to areas seeing that upgraded, Transit the Europe coal sector, steady opportunities is into presenting for we in we're the really urbanization. role We public ridership increased a see be and strong really are growth safety, industry With in grow. monitoring, or move and U.S., advancements, and across productivity, unique will let to a a mind, reliability Transit. me being which

that we Across have a growth. in firm will segment multiyear result backlog our portfolio,

We Lilian will Transit profitability aftermarkets focus are as driving Transit make on project that progress as lead well increased are business. to selection to continuing and clear on our a Leroux long-term prudent team revenues. the

time, same execution existing on actions continuing the projects. to are At improve our drive to we

that planning underway, over will segment our efforts period. margins improve strategic confident With company's these the we remain Transit

hope have I you across chance a better we're for seeing the what company. that, With

our million. to to We've good performance our year guidance $X.XX strategy raised strengths, moving adjusted and quarter. challenges down this approximately $X.XX. guidance our flow for We Our the our forward. reported at We've EPS cash full $XXX for

$XXX Wabtec the merger of on we're and synergies remain strong with operating plan start the million the run of higher-than-expected of year Transportation and integration the for off deliver year. end the of this of by the growth by synergies Additionally, with rate GE to X end

while for Our teams creating long-term year, our are focused on the shareholders. delivering for customers and value

happy of we're your any answer Now questions. to

proceed So please, Mike,

Operator

first Poliniak Instructions] Please will go question Wells ahead. from [Operator have Fargo. of we come Allison The

Allison Poliniak

morning. Good guys. Hi,

Rafael Santana

Good morning.

Allison Poliniak

in only have terms Wabtec, you managing quarter that, than know I Rafael, So guess. belt of I or a under your less

opening the my way to As anything or you to trying in was it, remarks has. find thing Wabtec about caught look attention surprising to that negative? one products The a your legacy position that better

have around you that? that commentary any So

Rafael Santana

interacting so, a the back, things, one, Number ago. back I started work Well months the couple think. going when to team had I've we to Al and while start on here that opportunity with XX a

if of terms a really we look go at opportunity grow we the drives that continue out locomotives I in opportunities to the share here market a us Wabtec to opportunity through have provide content that lot have, as to opportunities So the there. of of the to map the into we the these

that of take products advantage longer-term well-positioned. speaking, key globally the are franchise. those our markets, We we're there lot and into bringing of a agreements the of heart of think I services some can

and one our about being So, area here going customers. we able share up it's of to feel opportunity drive with strong

Allison Poliniak

productivity behind efforts Great. nice the given mix some some of OEM maybe And firmly in there? is Can then quarter? issues that Transit improvement. like obviously, the you're OEM the some seems the talk was headwinds I've still making mix on you margin sort to seen now It the move maybe and just it applied showed past And of there.

Rafael Santana

Yes.

is, the committed the days. have really that there, make What So they bidding I team, process. Lilian we strong I'd you've seen and sure rigor to think Leroux to a early say some progress are

intake, risks the measures we taking the order that taking been through, of are clearly of that that sure view for up projects of projects order team quality there, the quality to sure making cost that the really we starts we're on the accountabilities to understand where we're out has speaks able that's result that. The executing it intake. and so sign that deliver a making we as strong it, first, So on

to drive overtime. process, margins So expect to committed of improvement we're and we that do

the actually 'XX. -- those with XXXX And to that into extends some regards and projects of is projects those -- U.K. projects,

associated the think overhaul you be receipt sent being to repair really laid end the I We're us. by is they've elements be of some that and with customer to to that see got this to of and these of year. cars the by run out of going majority the

of days a work of early So quarter, just us. lot in ahead the to continue improvement work some

Allison Poliniak

that business of just you early is not to with mid-teen could And get you margin, European mentioned guys there's structural sort there? low-double-digit and days, nothing the back that

Rafael Santana

past. We've fast So been is margins. we surely committed get The There's the in the how clearly opportunities. we're improving question there there? to

Allison Poliniak

you. Perfect. Thank

Operator

Justin Next we Long have of Stephens.

Justin Long

congrats to And cashflow a question Thanks. start and the operating on with guidance wanted I the on there. quarter.

midpoint Pat, So for looks went about operating XXXX cash of just increases using by understand million up and on can the on you went outlook? basis. adjusted up like the million $XXX basis, an and these it $XXX the us help it GAAP flow guidance, in drove a prior the what expectation

Pat Dugan

Sure.

keep and referring weeks I into provided there we and concern capital. were to think supply in at look awful their first by definitely in when chain GE manage had that what the business just the the only the five lot you and at as calls, about combination, some, help Capital I talk were day an quarter, previous we is some tools it a Remember working close. of that was we it,

the payment supplier receivables, -- for payable programs on side. programs, on programs Factory extended

working think we that about were of And that was of concern. those referred that, was everybody concerned headwind, -- capital was about. tools out impact of kind those of getting so million I $XXX And something we references a the it worth --

mitigating of excellent an on impact, a and just of performance our done And been working better and with capital do there's job team on suppliers. good -- overall in working job the collecting receivables then top focus has frankly And to that management. that, working on terms in an

then also the the that receivables, to customer payable Wabtec discrete have, about all better on projects. of deposits And management, we So a of impact received some I bit better contributed in inventory management. little script, better we and talked this

the good headwind a second good good of conversion So of all giving that we're cycle. go-forward kind good a a benefit cash a of capital improvement was really capital, and On guidance, forward don't or guidance it typical allows in cash all, mitigation our that to view performance. like in come quarter. The one-time think continues performance materially a we in improved. in basis We rather ended up terms us any working see with working a of working number that's capital, that a really

Justin Long

just Okay. that. And on clarify to

working previously, capital So assuming working you're now, sounds were neutral $XXX and million for is you it headwind, assuming a of capital like XXXX?

Pat Dugan

Yes.

right. the that's And costs. concerns had think on We've working restructuring some I also capital. other we had and

so our $XXX impact really that total to And was with cash up the of kind million. added that was of

Justin Long

from notice those for the change. Okay. timing Because can I of wanted in I help Rafael, the talked to of you and us put up an But you of go in cost in remarks, benefit this and you your question, actions, and about that back initiatives. Great. you my synergy a year prepared this And didn't synergy guidance acceleration actions? second for to more terms XXXX? benefit reductions the said release is the these size And

Rafael Santana

So from yes. a synergy perspective,

the beyond. of that. $XXX be of we've synergies to bulk and for guided the certainly I net the million year. for think million from synergies this tracking But north I 'XX of will it $XX

of positive results. and second actions a markets we've as and I those watch those we're we actions positive, we markets get the we markets, reflection fluctuate sure our that already news various And quarter a our ready as in really closely continue regard. serve. end will that in And we needed, been take seeing of making have end the evaluate you're to think to some

Justin Long

have you you do could synergy thoughts year? benefits And initial the on next any see

Rafael Santana

million I'll tell by of at on XXXX, not environment that providing the validated targets and be we act incremental mapping point we're opportunities end you this have demands. as We're to what the is the No. we achieved certainly $XXX could of

Justin Long

Thanks Great. leave that. Okay. for time. at I'll the

Rafael Santana

Thank you.

Operator

Group Next, of we have Research. Wolfe Scott

Scott Group

Hey, morning, thanks. Good guys.

Rafael Santana

morning. Good

Pat Dugan

Good morning.

Scott Group

not, big change have wanted I to you headwind pop some talk Pat when cash flow we in And of about headwind mean million an we've customer that sort we for factoring to quantify about found things. clarify this been ahead. $XXX -- years? flow? is to that in the we've deposits is is this sorry, -- is And go felt factoring can Or the now were cash stop factoring benefit? on so year you of future benefit ongoing some just we from in this offsets think the now then we but that and that how Can just -- then going

Pat Dugan

answer two me first, okay. So questions just let those

of GE terms had In the we the exit have not replaced factoring, to the We program. factoring factoring the factoring, programs.

receivables. other in receipts on factoring on So cash quicker provided a the turn words,

able been those no more we off -- have there put place program is paid We out and have in factoring and in for new a there not receivables. that's been to

behind that nothing good plans a would But answer be on we we're our to We thought us. a or was that that for in that right right and going and have working that's find forward. get have -- into attractive, now we a factoring And if program actually we now. so benefit were

of terms in deposits, was quarter. about think, first terms was the receiving customer receipts were million. in In project the the deposits so received of to about gross But constantly that of deposits second occurred kind number consuming XX. portion quarter deposits and course, But the you're customer -- a performance. of of of and deposits, of speak, one occurred to total, And those the $XX referring those I I in

Scott Group

GE in Okay. cash that is million the shared think flow show of free the from in in then investing? that ops? the Helpful. beginning, here, as Or we cash just does the to And up guess tax benefit $XXX about I that

Pat Dugan

you're arrangement, pay And to sharing we think that $XXX taxes. other benefit cash cash going GE get we to get of we in from a cash government, we less from I million, come words, paid where the so to kind the their in terms the benefit, cash to speak, the will in But have So have activities up investing in shows the to out the used investing activities. of our -- that operations. amount from that cap, in to

you, I think be in that benefit similar about think for So maybe benefit a of to in I would piece information, the expect quantify million, good $XX a because and the that the would each second future of quarter is quarters. I

Scott Group

net that's And million, saying you're the quarter? $XX benefit, the this

Pat Dugan

That's operations. the benefit to cash from

quarter that each good second net cash in guide fourth in would outflow operations the equal from a in the activities have impact. -- quarter, would investing to be that a net the third an and the in you So would of then be and X

Scott Group

Are we side the seeing another PTC to just of that sales Okay. a electronic think I into need do down, full think that next you off. a you the mentioned And starting presume about think run year? I potential Freight some sort Makes just rate lower then to sales, roll PTC that we the Or step-down sense. reduced were in spend? lastly, of of

Pat Dugan

No.

current PTC deadline the typical without I quarter, the idea in ago, rate think we're deadline a I with think out at sales, of think in was that electronic year the had run PTC And an sales running I at impact. that, the the XXXX there. more that kind -- you when and look we're

is on would capabilities in What demand. So change to and definitely in of the the now upgrade sales PTC. decline maintenance the contracts the in electronic again, the on we're focused correlate PTC next-generation opportunities, development

our opportunity, really integrated with especially our GET. so digital came And -- we the business see we growth that as in as that

Scott Group

lot a Appreciated. guys. Thanks

Pat Dugan

you. Thank

Operator

we from Sachs. question Revich Next have Jerry will come Goldman of

Unidentified Analyst

everyone. good [Indiscernible] This is Jerry. Hi, for Dan on morning,

Rafael Santana

Good morning.

Pat Dugan

morning. Good

Unidentified Analyst

you're Freight help on acquired things talk you idea about the going trajectories well Wabtec at growth as the an as give us those the And Can the forward can Transportation quarter thinking well? you in organic as business business? growth about GE two how Morning. also organic legacy us

Rafael Santana

way world. just bit to of walk to where the to start our I'll So the replacement. probably stock be traffic little of you Asia, one around for we're driving of dynamics maybe a question good rolling your some strong, answer on a seeing continues in demand locomotive kind with

So working a number of on we've been opportunities there.

and when And locomotives, aspects the of works demands. components the are course, opportunities here's driving There XXX to continues be in the we in recently expecting the Zealand, contract second we're of we fleet but a take completed just quarter. sell. and in to lot for opportunity to combination cars but that of New West the Australia, of locomotives, Africa, here grow pockets Freight see not You opportunities of the work the we Africa, those some the also we a

continue opportunities ahead. there. Latin one really with both Russia, grow fleet Russia and now, seems and working to Last to found certainly CIS, despite we're and probably say opportunities be to pockets is moderate, traffic our being flattish, there are America. of right Ukraine that. we opportunities demand for pursue we'll I'd renewal, fleet but strongly And

Unidentified Analyst

Freight seeing you growth you in can cadence when elaborate but as opportunities? we the backlog comment on to both the the some the legacy are list? XQ locomotive business? again, steps And turning -- And segment? Freight, going And Can burn quarter. and little the Wabtec you acquired prospect for activity the bit, order How's for then to business Transportation expect GE on new the Understood. forward, a in what Freight return to backlog, there the the can

Rafael Santana

Okay.

number lumpiness the in $XXX a received we've mind. last backlog of first couple with of quarter. one, decrease slight of a the from that's about associated of seen really course mind, some the say of of the keep I'd I And orders. some the we've to So in Keep number with million is the years. something think of multiyear in orders that

elements that piece headwinds. the looking second specific, I to start there's of think our to Freight market is, The you as surely

So when and in I America. of especially think about, I'll light the call, North our OE business,

I've starting mean, been the the I has some year. of the in half it of that locomotives mind part for keep first I were second half important last out it's part the in been dynamics and of think having first half this of through playing time. first of the a number gone have year, to some

now, Right years, the the we're months. last think you that When out and of about aspect past the dynamic be part XX of locomotive the for has this highest sitting on numbers a year. over down, the certainly carloads since one of played of beginning that being XX

a installed the global services is, think portfolio I on take portfolio, what our base when think about I our they of. were certainly more advantage like revenue have certainly we recurring

think that are that fleets I fleet. enhancements running that maintaining have customers a the we portfolio to provide the have that for allows to we opportunities and they

coming there You're seeing units. reliability fleets to remaining got improve we're those intensified through Service to certainly on the order that but active. of for in parts. those There's seeing be are more program, demand and the modernization availability

growing blend you mind. the I when looking that's business for that up, your mean, at year, in we're keep is So that element sources to think I one

down you new locomotives. on to asked it When and comes specifically --

growth which here to growth. of good there's Transits, portfolio, in Mining, lot And and number have for and that's the modernizations have forward. gone offsetting having strategies discuss the locomotives, of I we to customers, our the that we the a double-digit moving has pieces portfolio for the certainly here think of discussions have opportunity we we're towards where there drive opportunities, terms of as think, year we of and I an been prospects versus might some continue pressure. new like preference

Unidentified Analyst

on we competitive up the when down can in then a do you it. cycle? business? new you the us road picture shift intensity? Got change maybe the seeing up head you give in anticipate into share locomotive any any Are Or And an finally, update

Rafael Santana

to the most from of far think I we new So really North of portfolio. element products technology one as there a America, an perspective as an not are look, have of well-positioned just locomotive, It's services you competitive element the just internationally. also it's out not but in

efficient, productive. fleets So up-to-date, keeping those

of to continuing efficient just to on installed look we're to base And think getting for that base, value existing to on investments value when So, and reliable of which more opportunities we've more I us. make at the on grow out more share also able customers fleet, installed more allow invest I drives based the having certainly fleet. a share been

Unidentified Analyst

you Great. much. very Thank

Rafael Santana

Thank you.

Pat Dugan

Thanks.

Operator

next from the will question come And of Wetherbee Citigroup. have Chris we

Chris Wetherbee

Good Thanks. morning.

Rafael Santana

Good morning.

Chris Wetherbee

for revenue I wanted outlook at like maybe here the business to moment, sense a of and us the least year some it guess, look the embedded seen, the you particularly on, sounds half or in of the or give soft. back guidance the calibrated full of what’s environment in degree Freight like on from growth sort some Certainly, a the here think of current America. that Can stick we've deceleration what stabilization? North I to for the the you towards you a in some terms returned in may seems the perspective

is sense get move how current as just of I we of year? relative environment potential to wanted forward to kind the calibrated a rest the So, the of to guidance to improvement a the

Rafael Santana

the felt backlog here working the $X.XX. the course, year, we we flows, of we've and we're to Okay. rest current to assess range When really cash it moved on projects are $X.XX guidance from of point our and raised to that the we strong on and comes the that

So to of to offset that that kind sure cost too on elements just of stuck it's and our actions make regards challenges the any ultimately watching serve. to XXXX, end we being carefully to comment various any we're markets, we really early. markets able take there. on certainly We're With necessary ready

described services our I customers the fleet. providing to think keep opportunity which I solutions what of the value things it think mind, for for one has of in just existing business, really the as to I drive

to opportunity running some from and we're be ultimately you of I it, to to seeing grow think services as we'll and look values that. watching need business better those end continue of same you're more So, positions, to a the data fleets. really our extract monitor But need keep that carefully on at markets. we'll the our They going to result

Chris Wetherbee

you the mix capital working want I a sure of just make point sort want there XXXX moment Or outlook helpful. that a for capital come for to that think we you Okay. should just make When understood sure And sort was go-forward and is? the expands of working more I here. That's to what the more should the what of I that guys that -- of to today, of sort understand assume are describing I be neutral? about back business

Pat Dugan

of capital, think in guidance, to that really terms we're the better, the adjustment. end better guidance but The through inventory we do that's of at constantly with extended of We're themselves, unwound course, we feeling the working talking receivable, have part we're is year. to factoring, like we're second outstanding, initial of guidance costs is the in cash terms programs, of same our is I earlier returns, looking So capital what the obviously, fairly also rest -- us. days perform about now. is feel talking we restructuring the -- in about keep The those were working our the will remain that quarter about in payment overhang as behind year level gave not our it and the neutral that that the

So looking view it's just neutral capital the on a we're year. through working changes rest of -- of a the at kind

Chris Wetherbee

able an If sneak you back those talk beyond of XXXX, what Okay. at conceptually, timing are of I one to but factors synergies? it’s just want of I you rough the to maybe if you're there do dynamics you picture about accelerate the cost to when be is into sense know those integration that how plays more realizing of out synergies? leverage the are of that be or here. macro business, about that sounds that I sort when the to can guys That's focused. early things. the helpful. know of will It that view potentially synergies and don't you accelerate could sort think or bigger influence for end-weighted, general like impact the been the longer-term much looking and rest the that get allows I effort think you last potential global opportunities in think about one take sort about how to

Pat Dugan

on achieve to I track think these synergies. we're

synergies to leveraging are the and be do capacity. order is being -- of bigger it's other's the definitely pull as I when consolidated factors, a where we I in? our having kind there what near-term We're definitely these is, buckets of pushed there kind achieved, Or long-term, off? driving talk coming each leverage of in kind risks what the to both chain, organization, And opportunity lot rooftops, of facilities and we there. you're of lot that think reducing them those about to think what for number going are from supply and of have sourcing, combining a

our move you And near-term we've how at talked we those of on could about they can kind look impacted market fast synergies conditions. based as that be

the these Our goal running they're to possible in benefiting as up and kind future so XXXX, move as already is opportunities get to fast that periods. for company of

Chris Wetherbee

the Perfect. Thanks very Appreciated. much color. for

Pat Dugan

Yup.

Operator

from Next come go question Elkott will ahead. have of Please we Matt Cowen.

Matt Elkott

me backlog. Let of I portion down March, from the slightly XX.X% ask The about Freight from that went to backlog XX-month think XX.X%.

there deliveries? wanting a So sort are push going out if to I maybe just any slight a that it's if partly was customers on. Or of it wondering discussions decline. of function But

Rafael Santana

first to our couple the quarter. we think backlog, So I with were points clear regard in

was they units. And the new X,XXX second to locomotives to of X,XXX quarter, I'd close locomotives those new at for about modernizations, backlog the were in for units. close XXX say, about regard. for mods and end XXX numbers the are Our that

we customers it's timing cancellations. of disclose of have on case-by-case that. and and have we really of things those, like basis. But our part might mean, terms I had they're project We a in as course, any deliveries discussions not don't with of

Matt Elkott

initial deal that helpful. down announced now Got double-digit and lower CAGR That's for outlook guidance that rail on is is How was implemented? widely And the PSR Rafael, growth XXXX. first the for was much is it. locomotives traffic

Rafael Santana

of couple So points.

is that those With cyclical out we one, XXXX. than in versus had than overtime, can call, we do numbers mind, trough of number a market. elements variety there's two the higher I'll times playing this a expect think that certainly and be, But I numbers in there. more

discussed, we as you interest strategies it, in programs. of seeing with are some Some a fleet the of stronger modernization customers,

than those the more numbers, of -- In numbers of on terms out offsetting of are from new locomotives. some

think about good out about I way markets. a we there, time, hard to it some think think that is, they're over we think key have in the about But fleets running

those average, XX see locomotives, to XX every in years. replaced being You'll

just you'll per got locomotives units, we mean think all you to the of numbers perspective should we've average from if that market So be see XXX in markets, you with project-based. close about a that, apply international will year, expect XX,XXX U.S. logic, course, of I very be which those to and north

vary are The consistent. in those where it's will think we we cycle. on on So the timing based

Matt Elkott

Not the the of Okay. the going modernization is And right? aftermarket portion revenue, to the newbuild?

Rafael Santana

correct. That's

Matt Elkott

do that I Okay. guys bit? that Can modernization talk thinking increase you a in-house any the railroads maybe would you are you there to or contemplating incentives that know you they they portion And do do? are And are whether about whether guys let it. that of

Rafael Santana

to in labor lot have and call plants. the -- get efficiency both In some apply might they capacity we and the and do cases, a do loads lot more, they the level their we full a ship in fact do will utilize the their ourselves. modernization today. will to of we of hours, some shops a that available the assembly what So cases, do, In I'll the railroads

really is this units you, case-by-case a reliability do. What we've a think really I'll the tell So we availability basis. for been our strong on deliver that to I and able numbers

Matt Elkott

guys thesis just big opportunities? in Because Should more Got of one of then that's few the you give quarters digital sort next of know quantification expect it. some part your goals? color And pretty give to forward? the question. updated I some going last maybe any And long-term we time us us

Rafael Santana

Yes.

point, our this very and focused on synergies been and on working delivering to the we say commitments. integration up that have I'd making really So are we sure

second really in of We year. process of this point, the next at an year. through Investor starting to are half the intend Day We earlier this long-term the the happen doing parts to do likely of planning have

Matt Elkott

much. very Perfect. Thank you

Rafael Santana

you. Thank

Operator

And from the Research. come Brooklier will next question of Matt Buckingham

Matt Brooklier

Hey, half thanks. in second to if could was the the of I Good talk morning. of EPS year. the wondering you cadence

obviously in and guidance just business this little XQ of play Transit numbers. from a of influences expect that But that in terms that with to your reminded have kind you could seasonality give we do you to out? us into us the different timing some if is XQ of more due how fact and XQ, project directional kind maybe there a curious is GE think ballgame I Pat EPS XQ but

Pat Dugan

only own Yes. our an of have Matt, which it kind -- was slowdowns kind Transit so shutdowns impact given gets business. before of has effect kind largely of We we've our get it European. customers will their and will triple other into on in any production, quarter into Not Transit difficult. a kind guidance the definitely never of -- business, are

have with our The contracts impact with -- on an projects and we other and is is, thing that the of we timing have. GET, underlying there service

And it so been impact a as factor. right of the kind has now, an dramatic past, not still but bit as matters. in it's a It it's still probably -- little

out. that pointed we why that's so And

Matt Brooklier

there's American clear helpful. market. weakness the you North it's That's talked Rafael, And Okay. locomotive about, pretty in

grow there move some XXXX Is we may terms offset into where program perspective be your have as do opportunity on a offset you to in American talk You that from of Can headwinds new locomotive North about to program. modernizations? potentially continued orders? utilization an modernization from are you

Rafael Santana

this growing What year. you I'll specific tell is, double-digits into by that line we are product

as a what there for here there continue advance and I -- opportunities continue to to to the of as we also part growth automation So to to part some an new offering to significant we our We being improve element drive certainly do. of efficiency of product and opportunity improve fuel evaluate of that. locomotives continue

the we I for half first year. strong a think had

end think I the of increase, track again the while on low we to guidance. feel

watch our end monitoring to markets. and continuing We're

franchise. the the The are operations, to assets of elements I they're service the get and demanding footprint think more is the some we out have that we install services, have base. offset demanding remaining of softness parts. global that The more that offering they're that one of in to more

You that business asset this running, it's that seeing to guarantee services have the year. a we're ultimately and want reliable growing more you

And for the last place his some in to and half part lot levels second I business. been part coming year what the just been later, have here out being point a of carloads -- locomotives of as in has mean, dynamics been seeing time. January of again, here for we're And year. down part, these we've of mean early highest of sitting a the since one I

think the we I the some franchise. with we so of services And like opportunities have here

Matt Brooklier

Those helpful. you. my are Okay. two. Thank That’s

Operator

[Operator Markets. we Steve of have Barger Instructions] Next KeyBanc Capital ahead. go Please

Steve Barger

Hi, morning, good thanks.

Rafael Santana

morning. Good

Steve Barger

aftermarket the balance you levels the for North are a in traffic sense morning. you plants friction need where to if about I'm supply down, just and America With you and get Good to demand? channel? talk product in trying to can inventory adjust the with that? production levels And

Rafael Santana

specifically about asking friction you're Steve, So the business?

Steve Barger

Yes. of The legacy Wabtec Freight.

Rafael Santana

our That business -- how the operate been impact are of in Carolina. we factor really North it's plans ongoing the especially an volumes,

the too, Really, a their so are adjusted business, it's And capital Australia, friction model only component that serving North because multiple plants India, in side the as as of they demand. South friction and is Europe, in overall our America. Transit which have we for exactly small business America well working -- end, that have

kind of impact reflected all in in the say us any on slowdown I is and definitely so of results. friction And all, the behind would

Steve Barger

high in a the but two was Got on Just it. the And XQ segment margins of back we do just think to year? thinking how improvement that half margin about half segment? about should you about in you expect Freight for talked the calibrate sequential trying the Freight kind watermark

Pat Dugan

Yes.

sales part quarter they definitely to GET and of PPA. in also, of Freight have impacted margin mix were how results. timing A about delivered first bit and excuse me. the But part versus Wabtec as you recognized of five-week -- recurring GET little factor the by The was or GE, the

that quarter real take recurring first the in Wabtec. mix kind We five margins. favorable the was recurring get full and with the only in the weeks month the about for that a a variation on the of quarter, PPA, in you When on sales Freight the aftermarket that impact mostly PPA have delivered quarter balanced, of the with revenue where OEM more mix, you

is, look you PPA, once okay, one-time you The at been at recurring way Freight we're consistent the back margin, And Freight that of XX%, you it have then add QX, legacy and add with that's been. excess Wabtec the Freight a our what about very in back if all of you has XX.X% our actually kind margin looking adjustments. I've at for business segment

Steve Barger

Right. right? you report way the the this same But did quarter, you'll back half

Rafael Santana

Correct. Yes.

Steve Barger

and just it customer there? due to domestic one that growth thoughts positive levels XXXX? stepped just Or equipment idle locomotive commentary, out that's locomotive is PSR, the Rafael, on based are expect but orders in modules Okay. more, half And you traffic two on do up back year-over-year seems the to still less is in going likely

Rafael Santana

I'll say, we're of deliveries. seeing certainly terms good in

markets to regards -- really I purely volatile opportunities. international make of I So for mean for bulk of this this to year I timing. that the The working is those tend of improve we're we're working lot And that a terms mean, locomotives. new sure a on with little pipeline. is next to year, a think be But number of more the in – pipeline we

Steve Barger

Understood. Thank you.

Operator

ahead Kristine Ms. our At time, and Kubacki, over conference to to no now for were back go questions. I question-and-answer turn any call like showing Ma'am? We'll closing would session. conclude the remarks. further this

Kristine Kubacki

Bye-bye. talking you to We everyone call. you, forward look Thank for participating today's with soon.

Operator

care, conference Again, management this thank you, is have you. the a you At to and the for rest everybody. may your Take lines. time the also great time, and ma'am, Thank And concluded. of disconnect day, call today. your now we

Westinghouse Air Brake Technologies (WAB) 30 Jul 192019 Q2 Earnings call transcript