It has been about a month since the last earnings report for Westinghouse Air Brake Technologies (WAB). Shares have lost about 2.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Wabtec due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Q4 Earnings Beat at Wabtec
Wabtec reported fourth-quarter 2018 adjusted earnings of 97 cents per share. The bottom line missed the Zacks Consensus Estimate of $1.02 but improved 7.8% year over year. Total sales increased 4% year over year to $1.12 billion and outpaced the Zacks Consensus Estimate of $1.1 billion. Results were partly affected by foreign currency fluctuations.
Total operating expenses in the reported quarter increased 15.1% to $203.57 million, primarily due to a 16.9% rise in selling, general and administrative expenses. Also, the operating ratio (operating expenses as a percentage of revenues) deteriorated to 18.2% from 16.4% in the prior-year period.
Segmental Performance
At the Transit segment, net sales climbed 4% to $736.97 million driven by organic sales growth and sales from acquisitions. Moreover, income from operations at the segment totaled $41.14 million, up 25%. As a result, the segmental operating margin (income from operations as a percentage of sales) expanded to 5.6% from 4.6% in the year-ago quarter.
Freight net sales rose 5% to $380.91 million backed by organic sales growth and sales from acquisitions. Meanwhile, income from operations amounted to $71.44 million, up 4%. However, operating margin remained flat year over year at 18.8%.
Liquidity
As of Dec 31, Wabtec had $580.91 million in cash and cash equivalents compared with $233.4 million at the end of 2017. Long-term debt at the quarter-end was $3.79 billion compared with $1.82 billion at 2017 end.
2019 Outlook
Including GE Transportation’s full-year results the company anticipates sales of $9.2 billion, adjusted EBITDA of $1.7 billion and adjusted income from operations of $1.4 billion for 2019. The figures exclude one-time transaction costs for the GE Transportation merger.
Wabtec, however, anticipates sales of $8.4 billion for the current year on an adjusted basis. Adjusted EBITDA and income from operations is estimated at $1.6 billion and $1.2 billion, respectively. Additionally, adjusted earnings are expected to be $4.00-$4.20 per share.
Further, the company predicts adjusted operating margin to be 14% in 2019. Also, effective tax rate for the year is estimated at 24%. Moreover, adjusted cash flow from operations is forecast to exceed adjusted net income.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -21.97% due to these changes.
VGM Scores
Currently, Wabtec has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Wabtec has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Westinghouse Air Brake Technologies Corporation (WAB): Free Stock Analysis Report
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