Westinghouse Air Brake Technologies Corp. (NYSE:WAB), or Wabtec, continues to benefit from improving market conditions in the rail sector, which drove strong revenue and earnings growth in the third quarter. That kept the company on track to achieve its full-year earnings forecast while enabling it to boost its outlook for revenue. The company also remained on track to close its merger with GE's (NYSE:GE) transportation unit by early next year, which should accelerate growth.

Wabtec's results: The raw numbers

Metric

Q3 2018

Q3 2017

Change (YOY)

Revenue

$1.08 billion

$932.3 million

13%

Net income

$87.7 million

$67.4 million

30%

Earnings per share

$0.91

$0.70

30%

Data source: Westinghouse Air Brake Technologies Corp. YOY = year over year.

What happened with Wabtec this quarter? 

Wabtec's dual growth engines powered the quarter:

  • Sales from Wabtec's transit group rose 11% versus the year-ago quarter to $686.2 million. Overall, transit revenue increased $68 million, driven by organic sales growth of $61 million and sales from acquisitions of $21 million, partially offset by a $14 million drag from changes in foreign exchange rates. Income from operations, meanwhile, surged 29%, driven by higher sales and the absence of contract adjustments and restructuring costs that weighed on results in the year-ago period. That more than offset the negative impact of lower margin contracts in the U.K. 
  • Revenue from the freight group jumped 15% year over year to $391.6 million. Freight sales increased $51 million, driven by organic sales growth of $46 million and an $11 million contribution from acquisitions, which more than offset a $6 million impact from foreign exchange fluctuations. Revenue growth, as well as a lesser effect from contract adjustments and restructuring costs, helped drive income from operations up 29%.
  • The company used $30 million in cash from operations during the quarter due to a variety of issues, including incurring $10 million in costs relating to the GE Transportation merger.
  • Wabtec ended the quarter with a multiyear backlog of $4.6 billion, which was slightly lower than last quarter. The company received new orders for projects in all major markets and product categories.
Modern high-speed red passenger train at a railway station.

Image source: Getty Images.

What management had to say 

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

With a solid backlog and positive trends in our markets, we expect to finish the year with a strong fourth quarter, both in earnings and cash flow, to position the company for growth in 2019. Our freight business continues to show strong growth in revenues and income from operations, with good market indicators for the foreseeable future. In transit, we have a near-record backlog and strong bidding activity, as we take actions to drive sustainable profitability improvements in the business. We are making progress toward combining with GE Transportation and are excited about our strategic opportunities to accelerate innovation for our customers, while delivering improved earnings, margins and cash flow for our shareholders.

Wabtec continues to benefit from an improving rail market, which is driving strong demand for products and services in both its transit and freight groups. That growth appears poised to continue given the orders the company has already secured, as well as what it sees coming down the pipeline. Add to that the company's pending merger with GE Transportation and Wabtec appears poised to continue delivering strong results in 2019.

Looking forward

Wabtec's strong results through the third quarter now have the company on pace to generate $4.35 billion in revenue for the full year, up from the $4.2 billion it projected last quarter. Meanwhile, the company remains on pace to achieve its full-year earnings forecast of $3.85 per share.

The company also noted that it expects to complete its acquisition of GE Transportation by early 2019. However, it could close the deal sooner if it can satisfy the closing conditions faster than currently anticipated. If the deal closes by year-end, it would provide a further boost to Wabtec's 2018 results.

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.