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Wabtec sees improving rail service as tailwind in 2nd half of 2022

Q2 net income increases 35% amid higher revenue for freight segment

Like others in the rail equipment sector, rail technology provider and locomotive manufacturer Wabtec sees improving rail service in the second half of 2022 as supporting the company’s business.

Improvements in rail service since the start of the year have translated into the “unparking” of locomotives, while North American carload volumes are poised to show year-over-year gains in the second half of this year, President and CEO Rafael Santana told investors during Wabtec’s earnings call Friday to discuss second-quarter 2022 financial results.

Both are indicators that market demand for rail service is growing, according to Santana.

“As we look at key metrics across our freight businesses, we are encouraged by the continued momentum in our end markets and the strong pipeline of opportunities,” Santana said in prepared remarks during Friday’s earnings call. North America carloads are expected to improve in the second half of the year, and locomotive parkings have continued to decline despite lower year-to-date freight traffic, he said.

“We continue to see significant opportunities in demand for new locomotives and modernizations as our customers invest in their aging fleets and place a greater demand on reliability, productivity and fuel efficiency,” Santana continued, adding that “when it comes to the North American railcar build, demand for railcars is increasing from what we believe [were] our trough levels.”

International fleet orders have also been showing “positive signs” amid opportunities to modernize rail fleets, executives said on the earnings call. This provides an opportunity for Wabtec to expand its order backlog, providing a financial cushion for the company.

Volume dynamics in Kazakhstan and potential renewals in Brazil, as well as projects in Asia, Australia and Africa, are among Wabtec’s international opportunities, Santana said.

Wabtec’s costs could go higher between the second and third quarters amid high metals costs and logistics and transportation costs, although both categories have tempered in pricing lately, according to Wabtec CFO John Olin. 

Q2 financial results

Wabtec reported net profit of $169 million, or 91 cents per diluted share, in the second quarter of 2022, compared with net profit of $125 million, or 66 cents per diluted share, in the second quarter of 2021.

Second-quarter sales were $2.05 billion, compared with $2.01 billion in Q2 last year, while cash from operations was $263 million, compared with $223 million a year ago. 

“The Wabtec team executed a strong quarter by delivering profitable growth, continued margin expansion and significant increase in backlog,” Santana said in a release. “The strength of the business and our team’s relentless focus on disciplined execution was evident in the quarterly financial results despite rising costs, continued supply chain challenges and significant unfavorable foreign currency exchange.”

Santana added that Wabtec’s backlog grew 8% year over year, “driven by strategic multiyear orders for modernizations, new locomotives and digital solutions.” The company calculated the backlog for its freight and transit segments as worth $23.2 billion.

Higher freight segment sales partially offset lower transit segment sales in the second quarter. Freight segment sales rose 11.5% to $1.49 billion, while transit segment sales fell 17.4% to $558 million.

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Joanna Marsh

Joanna is a Washington, DC-based writer covering the freight railroad industry. She has worked for Argus Media as a contributing reporter for Argus Rail Business and as a market reporter for Argus Coal Daily.