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Wabtec sees underlying demand amid dampening market pressures

Q3 net profit rises 1.3%

The chip shortage and supply chain disruptions may have put pressure on Wabtec’s freight segment in the third quarter, but the underlying demand is still there and should bode well for the company in the fourth quarter, executives said during Wabtec’s third-quarter 2021 earnings call Wednesday.

“We believe that the underlying customer demand for our products and the end market momentum remains strong” even though there may be continued headwinds from a more challenging sales and cost environment in the fourth quarter, said Wabtec (NYSE: WAB) President and CEO Rafael Santana.

Wabtec estimates that supply chain disruptions may have impacted Wabtec’s sales by 2-3% for its freight services and freight components. 

That said, higher sales for Wabtec’s freight services and freight components, a favorable foreign currency exchange and the acquisition of Nordco in the second quarter of 2021 were drivers in increasing the company’s overall sales to $1.91 billion in the third quarter from $1.87 billion  year-over-year.

“We are experiencing adverse impacts to our sales results due to shortages across many component parts, including computer chips, which are causing delays in production and customer delivery,” said Wabtec CFO John Olin. “We believe that our enterprise revenues were to 2% to 3% lower than they would have been without the supply chain disruptions and that the majority of these lower revenues represent delayed sales, not lost sales.” 

Wabtec noted that its costs increased in the third quarter amid rising metals prices and lower manufacturing efficiencies, which in turn were driven largely by component and chip shortages. The company expects that these costs will “work their way through” inventories and purchase contracts, but Wabtec is working to mitigate the impact of these cost pressures by implementing price surcharges and triggering the price escalation clauses that are included in many long-term contracts, among other measures, Olin said.

Wabtec secured new orders for its FLXdrive battery-electric locomotive in the third quarter, and it closed a significant order for international locomotive kits and one additional contract in Asia to help our customers improve asset utilization and reduce emissions. The company also received orders for locomotive modernizations in North America. 

The company reported net income of $130.6 million in the third quarter of 2021, compared with net income of $128.5 million in the third quarter of 2020.

Third-quarter 2021 diluted share was 69 cents, up 3% year-over-year. 

Income from operations rose 5% to $217 million, while adjusted income from operations increased 10.6% to $325 million on improved mix and productivity and partially offset by $15 million to $20 million in escalating costs associated with metals, transportation and labor.

Total operating expenses were $385.3 million in the third quarter, compared with $359.5 million a year ago.

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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.