Westinghouse Air Brake Technologies (NYSE:WAB), or Wabtec, is off to a solid start in 2018. The rail products company reported double-digit gains in revenue and earnings thanks to a combination of factors. As a result, the company remains on pace to hit its full-year guidance.

Wabtec's results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Revenue

$1.06 billion

$916.0 million

15%

Net income

$88.4 million

$73.9 million

20%

Earnings per share

$0.92

$0.77

19%

Data source: Westinghouse Air Brake Technologies Corp.

Modern high-speed red commuter train at a railway station.

Image source: Getty Images.

What happened with Wabtec this quarter?

Recent acquisitions continue to impact results:

  • Revenue from Wabtec's transit group rose 19% versus the year-ago quarter to $711.9 million, and sales from the freight group increased 9% to $379.6 million. Three factors drove the increase in revenue: organic sales growth and recent acquisitions each contributed $35 million to the total, while more favorable foreign exchange rates added $70 million to the top line.
  • That uptick in revenue, along with a decrease in the tax rate thanks to the recent reduction in U.S. corporate taxes, helped boost the bottom line. Those factors helped offset the impact of higher interest expenses due to the additional debt from recent acquisitions, as well as some restructuring charges relating to the company's acquisition of Faiveley Transport. Those added integration costs reduced earnings by $0.07 per share during the quarter.
  • Wabtec's multiyear backlog grew by 7% in the quarter to a record $4.9 million. The company booked new orders in all major markets and product segments, suggesting healthy demand.
  • The company continued making acquisitions during the quarter. It bought Annax, a supplier of public address and passenger information systems for the transit market, and Lynxrail, a maker of vision-based inspection systems for the rail sector. These two businesses together generate about $60 million in annual sales.
  • Wabtec ended the quarter with $250 million in cash and $1.9 billion of debt, leaving it with ample financial flexibility to continue making acquisitions.

What management had to say

CEO Raymond Betler commented on the company's results, stating:

Our first-quarter results exceeded our expectations slightly and represent a solid start to the year. With a record backlog and the positive indicators we're seeing in our core markets, we are well positioned to meet our financial targets in 2018. Our transit business delivered improved margins in the quarter and maintained a record backlog. In freight, we are seeing a meaningful pick-up in the aftermarket. We continue to make progress on the integration of Faiveley Transport and remain ahead of our synergy targets. As we focus on short-term performance, we are investing in our long-term growth strategies and are confident we can deliver improved earnings, margins and cash flow in the future.

Wabtec is off to a solid start in 2018, which is nice to see given the challenges the rail sector has faced over the past couple of years. The company not only continues booking new orders but is seeing meaningful improvement in demand for aftermarket parts. Those improving market conditions, combined with the company's focus on driving down costs and improving margins, should push earnings higher this year.

Looking forward

The company's guidance reflects that view. Wabtec reaffirmed its belief that revenue will rise about 6% year over year to $4.1 billion and that full-year earnings will come in around $3.80 per share, which would be 11% higher than last year.

One other item worth noting: A recent report by Bloomberg said troubled industrial giant GE (NYSE:GE) is in talks to sell its rail business to Wabtec. Analysts believe this would be an excellent combination, since Wabtec is already a significant supplier for GE, and could unlock revenue synergies via vertical integration. While there's no guarantee the two companies will reach an agreement, it's a situation worth watching since it would be a transformational deal for Wabtec.   

Matthew DiLallo owns shares of General Electric. The Motley Fool owns shares of and recommends Westinghouse Air Brake Technologies. The Motley Fool has a disclosure policy.